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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, 1997
[ ] 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
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Common Stock, $1 par value 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. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 25, 1998 was $8,729,515,545.
Number of shares of $1.00 par value Common Stock outstanding as of February 25,
1998: 167,971,048.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE: Annual Report to
Stockholders of the Registrant for the Year 1997 (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 17, 1998
of the Registrant (Part III)
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<PAGE>
PART I
ITEM 1. BUSINESS.
The Registrant is a holding company whose operating subsidiaries carry
on business in two distinct segments: (i) insurance brokerage and consulting
services, and (ii) 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 (the "Aon Group") including Aon Risk Services
Companies, Inc.; Aon Holdings bv; Aon Consulting Worldwide, Inc.; Aon Services
Group, Inc.; Aon Re Worldwide, Inc.; and Aon Group Limited provide reinsurance
intermediary services, benefits consulting and commercial insurance brokerage
services. Aon Group revenues grew significantly in fiscal 1996 and 1997 when the
Registrant acquired, among other companies, Bain Hogg Group plc in October 1996,
Alexander & Alexander Services Inc. in January 1997, The Minet Group in May
1997, and Jauch & Hubener in November 1997.
Combined Insurance Company of America ("Combined Insurance") engages in
the marketing of life and accident and health insurance products. 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 7 through 16 of
the Annual Report to Stockholders of the Registrant for the Year 1997 ("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"); Aon Holdings bv ("Aon Holdings"); Aon Services Group,
Inc. ("Aon Services Group"); Aon Consulting Worldwide, Inc. ("Aon Consulting");
Aon Re Worldwide, Inc. ("Aon Re"); Aon Group Limited ("AGL").
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 550 offices around the world in more than 100
countries. In 1997, Aon Group employed over 33,000 professionals and support
personnel to serve the diverse needs of clients.
Aon Risk Services Companies' (formerly Rollins Hudig Hall Co.)
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 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.
Subsidiaries of Aon Risk Services Companies and Aon Holdings operate
through owned offices in North America and Europe, as well as in South America,
Africa, Australia and Asia. The acquisitions of A&A and Bain Hogg significantly
augmented the Registrant's presence in Latin America, Asia, Africa and
Australia, and the acquisition of Jauch & Hubener strengthened the Registrant's
presence throughout Europe.
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Aon Services Group (formerly 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 Services Group operating subsidiaries market and broker
both the primary and reinsurance risks of these programs. For individuals and
businesses, Aon Services Group provides affinity products for professional
liability, life and personal lines. The acquisition of The Minet Group by the
Registrant will augment Aon Services Group's already strong expertise in
wholesale brokerage and professional liability programs.
Subsidiaries of Aon Consulting 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, IPOs, recent mergers and 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. In particular, the 1997 acquisitions of
Sodarcan Inc. and Martineau Provencher & Associates will strengthen the
Registrant's consulting expertise in Quebec.
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.
AGL 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.
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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").
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 most of which are directly owned by the Registrant's subsidiaries.
The life, accident and health distribution network encompasses
primarily the agents of Combined Insurance and CLICNY (which operates
exclusively in the State of New York). With more than five million
policyholders, Combined Insurance has more individual accident policies in force
than any other United States company. Combined Insurance, the Registrant's
principal life, 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 CLICNY market whole life products through direct
sales career agents in the United States. Combined Insurance ranked among the
top 140 life insurance companies in the United States in terms of total life
premiums in 1996. Life insurance business is conducted by the Registrant's life
insurance subsidiaries in the United States, Canada, Europe and Asia Pacific.
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 in Europe.
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(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. The Registrant
hereby incorporates by reference note 3 of the Notes to Consolidated Financial
Statements on page 32 of the Annual Report.
A&A's Discontinued Operations
The Registrant hereby incorporates by reference note 3 of the Notes to
Consolidated Financial Statements page 33 of the Annual Report.
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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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 or 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 ("HIPPA") was enacted. The Act requires the states to
take action to implement the requirements of the Act or to become subject to
federal oversight. HIPPA implementation by the states has not materially
affected the business of the Registrant's subsidiaries. In addition, recent
federal laws and proposals, mandating specific practices by medical insurers,
and the health care industry will not, because of the nature of the business of
the Registrant's subsidiaries, materially affect the Registrant. 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 federal and 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 40,000 employees at the
end of 1997 of whom approximately 35,000 are salaried and hourly employees and
the remaining 5,000 are sales representatives who are generally compensated
wholly or primarily by commission.
ITEM 2. PROPERTIES.
The Registrant's subsidiaries own and occupy office buildings in seven
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.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 12 of the Notes to
Consolidated Financial Statements on page 42 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 18, 1997 to
serve until the meeting of the Board following the annual meeting of
stockholders on April 17, 1998. Ages shown are as of December 31, 1997.
For information concerning certain directors and executive officers of
the Registrant, see item 10 below. As of March 31, 1998, the following
individuals are also executive officers of the Registrant as defined in Rule
16a-1(f):
<TABLE>
<CAPTION>
HAS CONTINUOUSLY
SERVED AS AN OFFICER
OF REGISTRANT OR
NAME, AGE, AND ONE OR MORE OF
CURRENT OFFICE ITS SUBSIDIARIES BUSINESS EXPERIENCE
OR PRINCIPAL POSITION SINCE PAST 5 YEARS
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<S> <C> <C>
Harvey N. Medvin, 61 1972 Mr. Medvin became Vice President and Chief
Executive Vice President, Financial Officer of the Registrant in 1982 and
Chief Financial Officer was elected to his current position in 1987. He
and Treasurer also serves as a Director or Officer of certain of
the Registrant's subsidiaries.
Daniel T. Cox, 51 1986 Mr. Cox was elected to his current position in
Executive Vice President 1991 and, prior to their sale in 1996, had served
as Chairman and Chief Executive Officer of certain
of the Registrant's underwriting subsidiaries.
Mr. Cox has 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, 50 1990 Mr. Conway was Vice President of Combined
Senior Vice President and Insurance from 1980 to 1984. Following other
Senior Investment Officer 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, 47 1987 Mr. O'Halleran was appointed President and Chief
President and Chief Operating Operating Officer of Aon Group, Inc. in 1995.
Officer of Aon Group, Inc. Prior thereto, since joining the Registrant in 1987,
he held a variety of senior positions in the
Registrant's insurance and reinsurance brokerage
business.
</TABLE>
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PART II
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 45 of the Annual Report.
The Registrant had approximately 12,500 holders of record of its Common
Shares as of February 25, 1998.
The Registrant hereby incorporates by reference note 8 of the Notes to
Consolidated Financial Statements on page 36 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 44 of the Annual Report.
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 18 through 24 of the
Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant hereby incorporates by reference "Market Risk Exposure"
on page 24 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)
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Consolidated Financial Statements .......................... 25 - 29
Notes to Consolidated Financial Statements ................. 30 - 42
Report of Ernst & Young LLP, Independent Auditors .......... 43
Quarterly Financial Data ................................... 45
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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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 Proxy Statement For Annual Meeting of the Stockholders on
April 17, 1998, 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. The Registrant also hereby
incorporates by reference the information on pages 11 and 12 of the Proxy
Statement.
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 1997 Fiscal
Year" and "Pension Plan Table" on pages 14 through 17 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, 9 and 10 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 22 of the Proxy Statement.
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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:
<TABLE>
<CAPTION>
Annual
Report
Page(s)
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<S> <C>
Consolidated Statements of Income - Years Ended December 31, 1997, 1996, and 1995 25
Consolidated Statements of Financial Position - As of December 31, 1997 and 1996 26-27
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1997, 1996 and 1995 28
Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995 29
Notes to Consolidated Financial Statements 30-42
Report of Ernst & Young LLP, Independent Auditors 43
</TABLE>
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 10Q").
(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").
(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.
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<PAGE>
(e) Resolutions establishing terms of 6.875% Notes Due 1999 and
7.40% Notes Due 2002 incorporated by reference to Exhibits
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) Junior Subordinated Indenture dated as of January 13, 1997
between the Registrant and The Bank of New York, as trustee -
incorporated by reference to Exhibit 4.1 of the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 No.
333-21237 dated March 27, 1997 (the "Capital Securities
Registration").
(h) First Supplemental Indenture dated as of January 13, 1997
between the Registrant and the Bank of New York, as trustee -
incorporated by reference to Exhibit 4.2 of the Capital
Securities Registration.
(i) Certificate of Trust of Aon Capital A - incorporated by
reference to Exhibit 4.3 of the Capital Securities
Registration.
(j) Amended and Restated Trust Agreement of Aon Capital A dated as
of January 13, 1997 among the Registrant, as Depositor, The
Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, the Administrative Trustees
named therein and the holders, from time to time, of the
Capital Securities - incorporated by reference to Exhibit 4.5
of the Capital Securities Registration.
(k) Capital Securities Guarantee Agreement dated as of January 13,
1997 between the Registrant and the Bank of New York, as
guarantee trustee - incorporated by reference to Exhibit 4.8
of the Capital Securities Registration.
(l) Capital Securities Exchange and Registration Rights Agreement
dated as of January 13, 1997 among the Registrant, Aon Capital
A and Morgan Stanley & Co. Incorporated and Goldman, Sachs &
Co. - incorporated by reference to Exhibit 4.10 of the Capital
Securities Registration.
(m) Debenture Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
incorporated by reference to Exhibit 4.11 of the Capital
Securities Registration.
(n) Guarantee Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
incorporated by reference to Exhibit 4.12 of the Capital
Securities Registration.
(o) 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.
(p) 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.
(q) 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.
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<PAGE>
(r) 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").
(s) 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.
(t) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(u) Statement regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(v) 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.
(w) Annual Report to Stockholders of the Registrant for the year
ended December 31, 1997 (for information, and not to be deemed
filed, except for those portions specifically incorporated by
reference herein).
(x) List of Subsidiaries of the Registrant.
(y) 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 1997 Annual Report to Stockholders and into Aon's
Registration Statement Nos. 33-27984, 33-42575, 33-59037 and
333-21237.
(z) Annual Report to the Securities and Exchange Commission on
Form 11-K for the Aon Savings Plan for the year ended December
31, 1997 - to be filed by amendment as provided in Rule 15d-
21(b).
(aa) Executive Compensation Plans and Arrangements:
(A) Aon Stock Option Plan (as amended and restated
through 1997) - incorporated by reference to Exhibit
10 (a) to the Registrant's Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for
the Quarter ended March 31, 1997 (the "First Quarter
1997 Form 10-Q").
(B) Aon Stock Award Plan (as amended and restated through
1997) - incorporated by reference to Exhibit 10(b) to
the First Quarter 1997 Form 10-Q.
(C) 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").
(D) 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.
(E) Employment Agreement dated June 1, 1993 by and among
the Registrant, Aon Risk Services, Inc. and Michael
D. O'Halleran.
(F) Aon Severance Plan - incorporated by reference to
Exhibit 10 to the Registrant's Quarterly Report to
the Securities and Exchange Commission and Form 10-Q
for the quarter ended June 30, 1997.
- 12 -
<PAGE>
(ab) 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.
(ac) 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.
(ad) 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.
(ae) 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").
(af) 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, 1997.
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Scetion 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly cuased this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 21st day of
March, 1998.
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.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/PATRICK G. RYAN Chairman, President, Chief March 21, 1998
- --------------------------------------- Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/DANIEL T. CARROLL Director March 21, 1998
- ---------------------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 21, 1998
- ---------------------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 21, 1998
- ---------------------------------------
Edgar D. Jannotta
/s/PERRY J. LEWIS Director March 21, 1998
- ---------------------------------------
Perry J. Lewis
/s/JOAN D. MANLEY Director March 21, 1998
- ---------------------------------------
Joan D. Manley
/s/ANDREW J. McKENNA Director March 21, 1998
- ---------------------------------------
Andrew J. McKenna
- 14 -
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/NEWTON N. MINOW Director March 21, 1998
- ---------------------------------------
Newton N. Minow
/s/RICHARD C. NOTEBAERT Director March 21, 1998
- ---------------------------------------
Richard C. Notebaert
/s/PEER PEDERSEN Director March 21, 1998
- ---------------------------------------
Peer Pedersen
/s/DONALD S. PERKINS Director March 21, 1998
- ---------------------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 21, 1998
- ---------------------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 21, 1998
- ---------------------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 21, 1998
- ---------------------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 21, 1998
- ---------------------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 21, 1998
- ---------------------------------------
Arnold R. Weber
/s/HARVEY N.MEDVIN Executive Vice President, March 21, 1998
- --------------------------------------- Chief Financial Officer
Harvey N. Medvin and Treasurer
(Principal Financial and
Accounting Officer)
</TABLE>
- 15 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1997
Amount shown
in Statement
(millions) Amortized Fair of Financial
Cost or Cost Value Position
---------------- ---------------- ------------------
Fixed maturities - available for sale:
<S> <C> <C> <C>
U.S. government and agencies ........................... $ 208.6 $ 212.8 $ 212.8
States and political subdivisions ...................... 523.9 554.9 554.9
Debt securities of foreign governments
not classified as loans .............................. 841.9 891.8 891.8
Corporate securities ................................... 1,282.9 1,323.6 1,323.6
Public utilities ....................................... 59.4 61.7 61.7
Mortgage-backed securities ............................. 42.6 43.7 43.7
Other fixed maturities ................................. 54.6 55.1 55.1
---------------- ---------------- ------------------
TOTAL FIXED MATURITIES ...... ..................... 3,013.9 3,143.6 3,143.6
---------------- ---------------- ------------------
Equity securities - available for sale:
Common stocks:
Banks, trusts, and insurance companies .................. 197.1 318.6 318.6
Industrial, miscellaneous, and all other ................ 106.3 149.0 149.0
Nonredeemable preferred stocks .......................... 335.4 338.7 338.7
---------------- ---------------- ------------------
TOTAL EQUITY SECURITIES .............................. 638.8 $ 806.3 806.3
---------------- ---------------- ------------------
Other:
Mortgage loans on real estate ............................. 15.0* 14.7*
Real estate - net of depreciation ......................... 11.6 11.6
Policy loans .............................................. 57.8 57.8
Other long-term investments ............................... 199.1* 190.4*
Short-term investments .................................... 1,697.7 1,697.7
---------------- ------------------
TOTAL INVESTMENTS ............................... $ 5,633.9 $ 5,922.1
================ ==================
<FN>
* Differences between 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>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31,
---------------------------------
(millions) 1997 1996
--------------- --------------
ASSETS
<S> <C> <C>
Investments in subsidiaries ......................... $ 4,667.8 $ 3,268.9
Notes receivable - subsidiaries ..................... 745.3 482.6
Cash and cash equivalents ........................... 9.5 216.9
Other assets ........................................ 166.2 34.4
--------------- --------------
Total Assets ................................. $ 5,588.8 $ 4,002.8
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings ............................... $ 764.2 $ 213.4
6.3% long-term debt securities ...................... 99.8 99.8
7.4% long-term debt securities ...................... 99.9 99.9
6.875% long-term debt securities .................... 99.9 99.9
6.7% long-term debt securities ...................... 149.7 149.7
Subordinated debt.................................... 800.0 --
Notes payable - subsidiaries ........................ 488.8 351.4
Notes payable - other ............................... 70.0 --
Debt guarantee of employee stock
ownership plan ................................... 33.1 46.1
Accrued expenses and other liabilities .............. 111.3 59.7
--------------- --------------
Total Liabilities ............................ 2,716.7 1,119.9
--------------- --------------
Redeemable preferred stock .......................... 50.0 50.0
STOCKHOLDERS' EQUITY
Preferred stock ..................................... - 5.5
Common stock ........................................ 171.5 114.1
Paid-in additional capital .......................... 377.0 475.4
Net unrealized investment gains of subsidiaries ..... 189.0 153.1
Net foreign exchange gains (losses) of subsidiaries . (85.6) 1.0
Retained earnings ................................... 2,463.4 2,356.8
Less treasury stock at cost ......................... (93.2) (121.5)
Less deferred compensation .......................... (200.0) (151.5)
--------------- --------------
Total Stockholders' Equity ................... 2,822.1 2,832.9
--------------- --------------
Total Liabilities and Stockholders' Equity ... $ 5,588.8 $ 4,002.8
=============== ==============
<FN>
See notes to condensed financial statements
</FN>
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
---------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
(millions)
REVENUE
<S> <C> <C> <C>
Dividends from subsidiaries $ 179.6 $ 1,026.6 $ 199.3
Other investment income 49.5 44.1 34.3
Realized investment gains (losses) 2.3 (11.0) (4.1)
---------------- ---------------- ----------------
Total Revenue 231.4 1,059.7 229.5
EXPENSES
Operating and administrative 6.3 5.7 3.0
Interest - subsidiaries 85.3 20.6 20.0
Interest - other (1) 61.7 43.2 53.6
---------------- ---------------- ----------------
Total Expenses 153.3 69.5 76.6
---------------- ---------------- ----------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 78.1 990.2 152.9
Equity in undistributed income of subsidiaries 220.7 (655.0) 249.9
---------------- ---------------- ----------------
NET INCOME $ 298.8 $ 335.2 $ 402.8
================ ================ ================
<FN>
See notes to condensed financial statements.
(1) Interest expense - other allocated to discontinued operations was $5
million and $18 million for the years ended December 31, 1996 and 1995,
respectively.
</FN>
</TABLE>
- 18 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
--------------------------------------------
1997 1996 1995
-------------- ------------ ------------
(millions)
<S> <C> <C> <C>
Cash Flows From Operating Activities ....................... $ 124.3 $ 1,016.9 $ 164.5
Cash Flows From Investing Activities:
Investments in subsidiaries ............................. (1,354.8) (319.3) (62.6)
Notes receivables from subsidiaries ..................... (135.2) (10.8) 1.5
-------------- ------------ ------------
Cash Used by Investing Activities .................. (1,490.0) (330.1) (61.1)
-------------- ------------ ------------
Cash Flows From Financing Activities:
Treasury stock transactions - net ....................... 21.4 (40.1) (46.4)
Issuance (repayment) of short-term borrowings - net ..... 541.7 (139.2) 108.8
Issuance of subordinated debt............................ 800.0 -- --
Issuance (repayment) of notes payable and long-term debt. 113.5 (105.6) 73.6
Retirement of preferred stock ........................... (136.2) (14.2) (75.4)
Cash dividends to stockholders .......................... (182.1) (172.9) (171.3)
-------------- ------------ ------------
Cash Provided (Used) by Financing Activities ....... 1,158.3 (472.0) (110.7)
-------------- ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents ........... (207.4) 214.8 (7.3)
Cash and Cash Equivalents at Beginning of Year ............. 216.9 2.1 9.4
-------------- ------------ ------------
Cash and Cash Equivalents at End of Year ................... $ 9.5 $ 216.9 $ 2.1
============== ============ ============
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
- 19 -
<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) 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, 1997, 1996 and 1995 were $0.8 million, $1.4
million and $5.0 million, respectively.
(3) 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, payments of the amounts as dividends in
excess of $360 million may be subject to approval by regulatory
authorities.
(4) Subsequent Events
On February 5, 1998, Aon announced an agreement to acquire Gil y
Carvajal, the leading broker in Spain. In addition, Aon announced an
agreement in principle to acquire Le Blanc de Nicolay, subject to normal
regulatory consents and due diligence. Le Blanc de Nicolay is the largest
reinsurance broker in France and is also prominent in retail brokerage
and consulting services. Annual revenues of these acquisitions are
approximately $125 million.
- 20 -
<PAGE>
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(5) 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, 1997
-----------------------------------
Life/A&H P&C Combined
----------- ---------- ---------
<S> <C> <C> <C>
Statutory Stockholders' Equity $ 724.3 $ 438.3 $ 1,162.6
Insurance business related adjustments:
Deferred policy acquisition costs 421.7 127.3 549.0
Excess of cost over net assets purchased 2.2 - 2.2
Policy liabilities and reinsurance assets 126.3 - 126.3
Deferred income taxes (264.0) 16.9 (247.1)
Investment valuation reserves 184.4 - 184.4
Non admitted assets 60.9 7.4 68.3
Unrealized capital gains (FAS 115) 89.9 39.8 129.7
-----------------------------------
Subtotal $ 1,345.7 $ 629.7 1,975.4
========================
Investment in other operations and other 2,692.5
---------
Investments in subsidiaries 4,667.9
Elimination of parent company contributions (1,845.8)
---------
Consolidated Stockholders' Equity $ 2,822.1
=========
</TABLE>
<TABLE>
<CAPTION>
(millions)
As of December 31, 1996
-----------------------------------
Life/A&H P&C Combined
----------- ---------- ---------
<S> <C> <C> <C>
Statutory Stockholders' Equity $ 611.7 $ 363.8 $ 975.5
Insurance business related adjustments:
Deferred policy acquisition costs 488.8 110.0 598.8
Excess of cost over net assets purchased 2.6 - 2.6
Policy liabilities and reinsurance assets 112.1 - 112.1
Deferred income taxes (185.9) 24.1 (161.8)
Investment valuation reserves 133.7 - 133.7
Non admitted assets 47.3 5.9 53.2
Unrealized capital gains (FAS 115) 76.8 34.8 111.6
-----------------------------------
Subtotal $ 1,287.1 $ 538.6 1,825.7
========================
Investment in other operations and other 1,443.2
---------
Investments in subsidiaries 3,268.9
Elimination of parent company contributions (436.0)
---------
Consolidated Stockholders' Equity $ 2,832.9
=========
</TABLE>
<TABLE>
<CAPTION>
(millions)
As of December 31, 1997
------------------------------------
Life/A&H P&C Combined
----------- ---------- ----------
<S> <C> <C> <C>
Statutory Net Income * $ 264.7 $ 65.8 $ 330.5
Insurance business related adjustments:
Deferred policy acquisition costs 65.3 98.3 163.6
Amortization of deferred policy acquisition costs (127.2) (81.0) (208.2)
Amortization of cost of insurance purchased - - -
Amortization of excess of cost over net assets purchased (0.8) - (0.8)
Policy liabilities and reinsurance assets 14.2 - 14.2
Deferred income taxes (80.1) (6.1) (86.2)
Change in valuation reserves (3.1) - (3.1)
Deferred income (losses) (69.9) 3.2 (66.7)
Difference in realized gain on sale of subsidiaries - - -
Realized gain on transfer of subsidiary - - -
------------------------------------
Subtotal $ 63.2 $ 80.2 143.3
========================
Investment in other operations and other 155.5
----------
Consolidated Net Income - GAAP Basis $ 298.8
==========
<FN>
* net of intercompany dividends
</FN>
</TABLE>
<TABLE>
<CAPTION>
(millions)
As of December 31, 1996
------------------------------------
Life/A&H P&C Combined
----------- ---------- ----------
<S> <C> <C> <C>
Statutory Net Income * $ 807.4 $ 70.7 $ 878.1
Insurance business related adjustments:
Deferred policy acquisition costs 121.6 95.1 216.7
Amortization of deferred policy acquisition costs (166.9) (68.7) (235.6)
Amortization of cost of insurance purchased (2.0) - (2.0)
Amortization of excess of cost over net assets purchased (0.9) - (0.9)
Policy liabilities and reinsurance assets 11.8 - 11.8
Deferred income taxes (4.0) (9.2) (13.3)
Change in valuation reserves 4.1 - 4.1
Deferred income (losses) 2.8 (3.5) (0.7)
Difference in realized gain on sale of subsidiaries (551.2) - (551.2)
Realized gain on transfer of subsidiary - - -
-------------------------------------
Subtotal $ 222.8 $ 84.4 307.1
========================
Investment in other operations and other 28.1
-----------
Consolidated Net Income - GAAP Basis $ 335.2
===========
<FN>
* net of intercompany dividends
</FN>
</TABLE>
<TABLE>
<CAPTION>
(millions)
As of December 31, 1995
------------------------------------
Life/A&H P&C Combined
----------- ---------- ----------
<S> <C> <C> <C>
Statutory Net Income * $ 196.7 $ 57.5 $ 254.2
Insurance business related adjustments:
Deferred policy acquisition costs 325.6 84.7 410.3
Amortization of deferred policy acquisition costs (240.3) (62.4) (302.7)
Amortization of cost of insurance purchased (10.4) - (10.4)
Amortization of excess of cost over net assets purchased (4.9) - (4.9)
Policy liabilities and reinsurance assets (31.0) - (31.0)
Deferred income taxes (17.1) (7.8) (24.9)
Change in valuation reserves 5.6 - 5.6
Deferred income (losses) 34.3 5.9 40.2
Difference in realized gain on sale of subsidiaries - - -
Realized gain on transfer of subsidiary 7.0 - 7.0
------------------------------------
Subtotal $ 265.5 $ 77.9 343.4
========================
Investment in other operations and other 59.4
----------
Consolidated Net Income - GAAP Basis $ 402.8
==========
<FN>
* net of intercompany dividends
</FN>
</TABLE>
- 21 -
<PAGE>
<TABLE>
SCHEDULE III
Aon Corporation and Subsidiaries
SUPPLEMENTARY INSURANCE INFORMATION
Future Amorti-
policy Unearned zation of
benefits, premiums Benefits, deferred
Deferred losses, and other Commis- claims, policy Other
policy claims policy- Net sions, losses and acqui- oper-
acquisition and loss holders' Premium investment fees and settlement sition ating Premiums
costs expenses funds revenue income(1) other expenses costs expenses written(2)
----------- --------- --------- -------- ---------- -------- ---------- --------- -------- ----------
(millions)
Year ended December 31, 1997
Insurance brokerage and
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
consulting services . $ -- $ -- $ -- $ -- $ 168.6 $3,605.2 $ -- $ -- $ 3,425.0 $ --
Insurance underwriting . 549.0 1,752.0 2,697.8 1,608.9 214.3 34.6 842.3 208.2 529.0 1,596.2
Corporate and other..... -- -- -- -- 111.1 7.9 -- -- 204.5 --
----------- --------- --------- -------- ---------- -------- ---------- --------- --------- ----------
Total ........ $ 549.0 $ 1,752.0 $ 2,697.8 $1,608.9 $ 494.0 $3,647.7 $ 842.3 $ 208.2 $ 4,158.5 $ 1,596.2
=========== ========= ========= ======== ========== ======== ========== ========= ========= ==========
Year ended December 31, 1996
Insurance brokerage and
consulting 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
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
=========== ========= ========= ======== ========== ======== ========== ========= ======== ==========
<FN>
(1) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances.
(2) Net of reinsurance ceded.
</FN>
</TABLE>
- 22 -
<PAGE>
SCHEDULE IV
Aon Corporation and Subsidiaries
REINSURANCE
<TABLE>
<CAPTION>
Year Ended December 31, 1997
--------------------------------------------------------------
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) ...................... $ 10,437.8 $ 12,514.9 $ 8,822.7 $ 6,745.6 130.8%
========== ========== ========== ========== ==========
Premiums and policy fees
Life Insurance .................................. $ 214.0 $ 153.5 $ 85.8 $ 146.3 58.6%
A&H Insurance ................................... 1,072.7 277.7 139.7 934.7 14.9
Specialty Property
& Casualty (2) ............................... 634.2 178.3 72.0 527.9 13.6
---------- ---------- ---------- ---------- ----------
Total premiums and policy fees .................. $ 1,920.9 $ 609.5 $ 297.5 $ 1,608.9 18.5%
========== ========== ========== ========== ==========
<FN>
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
</FN>
</TABLE>
<TABLE>
<CAPTION>
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%
========== ========== ========== ========== ==========
<FN>
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
</FN>
</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%
========== ========== ========== ========== ==========
<FN>
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
</FN>
</TABLE>
- 23 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE V
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(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 31,1997
Reserve for losses (3)
<S> <C> <C> <C> <C> <C>
(deducted from mortgage loans on real estate) $ 0.7 $ - $ (0.4) $ - $ 0.3
Reserve for losses (3)
(deducted from other long-term investments) 5.2 - 3.5 - 8.7
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
services receivables) 59.9 9.3 66.7 (14.4) 121.5
Allowance for doubtful accounts
(deducted from premiums and other) 3.1 2.2 - (0.3) 5.0
Year ended December 31, 1996
Reserve for losses (2)
(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
<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>
- 24 -
<PAGE>
<TABLE>
<CAPTION>
Cross Reference Sheet, Pursuant
to General Instruction G(4)
ITEM IN FORM 10-K INCORPORATED BY REFERENCE TO
- ----------------- ----------------------------
<S> <C>
Part I
Item 1. Business Annual Report to Stockholders of the Registrant for
the Year 1997 ("Annual Report") pages 7
through 16, and 32 and 33.
Item 3. Legal Proceedings Annual Report page 42 (note 12 of Notes to
Consolidated Financial Statements).
Part II
Item 5. Market for the Registrant's Common Stock Annual Report page 36 (note 8 of Notes to
and Related Security Holder Matters Consolidated Financial Statements) and page 45
("Dividends paid per share" and "Price range").
Item 6. Selected Financial Data Annual Report page 44.
Item 7. Management's Discussion and Analysis of Annual Report pages 18 through 24.
Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures Annual Report page 24 ("Market Risk Exposure").
about Market Risk
Item 8. Financial Statements and Supplementary Annual Report pages 25 through 43 and 45.
Data
Part III
Item 10. Directors and Executive Officers of the Proxy Statement For Annual Meeting of Stockholders
Registrant on April 17, 1998 of the Registrant ("Proxy
Statement") pages 3, 7, 11 and 12 .
Item 11. Executive Compensation Proxy Statement pages 14 through 17.
Item 12. Security Ownership of Certain Beneficial Proxy Statement pages 2, 9 and 10.
Owners and Management
Item 13. Certain Relationships and Related Proxy Statement page 22 ("Transactions With
Transactions Management").
Part IV
Item 14. Exhibits, Financial Statement Schedules, Annual Report pages 25 through 43.
And Reports on Form 8-K
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
<S> <C>
(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 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.
(e) Junior Subordinated Indenture dated as of January 13, 1997
between the Registrant and The Bank of New York, as trustee -
incorporated by reference to Exhibit 4.1 of the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 No.
333-21237 dated March 27, 1997 (the "Capital Securities
Registration").
(f) First Supplemental Indenture dated as of January 13, 1997
between the Registrant and the Bank of New York, as trustee -
incorporated by reference to Exhibit 4.2 of the Capital
Securities Registration.
(g) Certificate of Trust of Aon Capital A - incorporated by
reference to Exhibit 4.3 of the Capital Securities
Registration.
- 26 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(h) Amended and Restated Trust Agreement of Aon Capital A dated as
of January 13, 1997 among the Registrant, as Depositor, The
Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, the Administrative Trustees
named therein and the holders, from time to time, of the
Capital Securities - incorporated by reference to Exhibit 4.5
of the Capital Securities Registration.
(i) Capital Securities Guarantee Agreement dated as of January 13,
1997 between the Registrant and the Bank of New York, as
guarantee trustee - incorporated by reference to Exhibit 4.8
of the Capital Securities Registration.
(j) Capital Securities Exchange and Registration Rights Agreement
dated as of January 13, 1997 among the Registrant, Aon Capital
A and Morgan Stanley & Co. Incorporated and Goldman, Sachs &
Co. - incorporated by reference to Exhibit 4.10 of the Capital
Securities Registration.
(k) Debenture Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. -
incorporated by reference to Exhibit 4.11 of the Capital
Securities Registration.
(l) Guarantee Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. -
incorporated by reference to Exhibit 4.12 of the Capital
Securities Registration.
(10) Material Contracts:
(a) Aon Stock Option Plan (as amended and restated through 1997)-
incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report to the Securities and Exchange Commission on
Form 10-Q for the quarter ended March 31, 1997 (the "First
Quarter 1997 Form 10-Q").
(b) 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.
(c) 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.
- 27 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(d) Aon Stock Award Plan (as amended and restated through 1997)-
incorporated by reference to Exhibit 10(b) to the First
Quarter 1997 Form 10-Q.
(e) 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.
(f) 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.
(g) 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.
(h) Aon Corporation 1995 Senior Officer Incentive Compensation
Plan - incorporated by reference to Exhibit 10(p) to the 1995
Form 10-K.
(i) 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.
(j) Aon Severance Plan - incorporated by reference to Exhibit 10
to the Registrant's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarter ended June
30, 1997.
(k) 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.
(l) 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.
(m) 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.
- 28 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(n) 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.
(o) 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.
(p) Employment Agreement dated June 1, 1993 by and among the
Registrant, Aon Risk Services, Inc. and Michael D. O'Halleran.
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of Earnings of 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, 1997.
(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 1997
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 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, 1997 - to be
filed by amendment as provided in Rule 15d-21(b).
- 29 -
</TABLE>
EXHIBIT 10(P)
EMPLOYMENT AGREEMENT
This Employment Agreement dated as of June 1, 1993 among Aon
Corporation, a Delaware corporation ("Aon"), Aon's wholly-owned subsidiary, Aon
Risk Services, Inc., a Delaware corporation ("Aon Risk"), and Michael D.
O'Halleran ("O'Halleran").
WHEREAS, pursuant to an Employment Agreement dated as of April 15, 1988
(the "Prior Agreement"), O'Halleran has been Chairman and Chief Executive
Officer of Aon Risk, and has served as a director and/or officer of subsidiaries
of Aon Risk; and
WHEREAS, while the term of the Prior Agreement does not end until
November 1, 1997, the parties to the Prior Agreement and this Agreement desire
to continue the services of O'Halleran beyond November 1, 1997 and provide for
new terms and conditions governing O'Halleran's employment by Aon Risk.
NOW, THEREFORE, in consideration of the mutual covenant contained
herein and other good and valuable consideration, the receipt and sufficiency of
which is hereby acknowledged, the parties hereto agree as follows:
ARTICLE I: Scope of Employment
1.1 TERM. O'Halleran will continue to be an employee of one or more of
Aon's subsidiaries for a term ending on December 31, 1998 (the "Initial Term").
The term of O'Halleran's employment will be subject to automatic renewal for
successive twelve-month periods thereafter unless this Agreement is terminated
by O'Halleran or the Aon subsidiary by which he is then principally employed as
of the expiration of any such twelve-month period upon not less than 30 days'
prior written notice to the other party.
<PAGE>
1.2 DUTIES. Aon Risk has caused O'Halleran to be elected, and
O'Halleran agrees to serve, as Chairman, Chief executive officer and a director
of Aon Risk. O'Halleran will report directly to Aon Risk's board of directors.
1.3 BOARD REPRESENTATION. While Aon, Aon Risk and O'Halleran recognize
that the right to elect directors is by law vested in stockholders, it is
nevertheless mutually contemplated, subject to such right, that during the
entire time that O'Halleran is principally employed by Aon Risk, O'Halleran
shall continue to serve as a director of Aon Risk; provided, however, that
O'Halleran's removal from Aon Risk's board of directors shall not be deemed a
breach of this Agreement.
1.4 EXCLUSIVE EMPLOYMENT. So long as O'Halleran is an employee of any
of Aon's subsidiaries, O'Halleran (i) will devote his best efforts and all of
his business time, efforts, and attention to furthering the interests of such
subsidiaries; and (ii) will not, directly or indirectly, engage in any business
activity which is competitive with any business activity conducted by such
subsidiaries.
1.5 NO VIOLATION OF COVENANTS AND RESTRICTIONS. O'Halleran agrees not
to violate any legally enforceable covenants or restrictions affecting his work
for any of Aon's subsidiaries, as set forth in any agreements into which he may
have entered, including, but not limited to, employment agreements, sales
agreements, deferred compensation agreements, restricted stock or option
agreements. O'Halleran will not act in any capacity as a reinsurance
intermediary that would violate any then-legally enforceable covenants or
restrictions affecting his work.
1.6 REPRESENTATION REGARDING PRIOR EMPLOYMENT. O'Halleran represents
and warrants to Aon that he has provided Aon with copies of all covenants and
restrictions which may be applicable to his employment hereunder and that all
such covenants and restrictions are accurately identified in Exhibit A attached
to this Agreement.
- 2 -
<PAGE>
1.7 TERMINATION. O'Halleran's employment with any of Aon's subsidiaries
may be terminated at any time by the Aon subsidiary by which O'Halleran is then
principally employed in the event of O'Halleran's dishonesty as determined by
the Compensation Committee of Aon's Board of Directors ("Dishonesty"). Such
termination is hereinafter referred to as a "Termination for Dishonesty."
O'Halleran's employment with any Aon subsidiary may also be terminated at any
time for any or no reason by O'Halleran or the Aon Subsidiary by which
O'Halleran is then principally employed, upon 10 days' prior written notice
given by O'Halleran to such Aon subsidiary ("Voluntary Termination") or given by
such Aon subsidiary to O'Halleran ("Involuntary Termination").
ARTICLE II: Compensation
2.1 BASE COMPENSATION. From the date of this Agreement until January 1,
1994, O'Halleran's base salary shall continue at its' current rate per annum.
Thereafter, O'Halleran's base salary shall be determined annually by the Board
of Directors of the Aon subsidiary by which he is then principally employed, but
shall be at a rate not less than $750,000 per year, and shall be subject to the
approval of the Compensation Committee of the Board of Directors of Aon.
O'Halleran's base compensation shall be payable on the same dates and in the
same manner as the base compensation of senior executives of other Aon
subsidiaries.
2.2 EXECUTIVE BENEFITS. Subject to the terms of such plans and so long
as O'Halleran remains employed by any of Aon's subsidiaries, O'Halleran will be
covered under all retirement, employee investment, medical and dental,
short-term and long-term disability, life insurance, accident insurance and
other similar benefit plans substantially equivalent to such plans maintained
from time to time by Aon's subsidiary, Rollins Hudig Hall Group, Inc. for its
senior executives. If any such plan bases payments thereunder on the amount of
O'Halleran's compensation, his
- 3 -
<PAGE>
compensation for purposes of such plan shall, unless such plan provides
otherwise, be deemed to be his base compensation as determined pursuant to
Section 2.1 of this Agreement.
2.3 PAYMENTS IN THE EVENT OF INVOLUNTARY TERMINATION. In the event of
O'Halleran's Involuntary Termination before December 31, 1998 and so long as
O'Halleran continues to satisfy his obligations under Sections 3.2 and 3.3 of
this Agreement, he will be paid compensation at the rate of $750,000 per year
for the period following such Involuntary Termination (in addition to any amount
which may be payable pursuant to Section 2.7 of this Agreement) until (i)
December 31, 1998, or (ii) the expiration of two years following such
Involuntary Termination, whichever is longer.
In addition, if this Agreement is not renewed in accordance with the
provisions of Section 1.1 of this Agreement after December 31, 1998 (unless
sooner terminated in which case the provisions of the preceding sentence of this
section shall only apply), O'Halleran will be paid compensation at the rate of
$750,000 per year for the two years following December 31, 1998.
2.4 LOANS. O'Halleran currently owes Aon $300,000 pursuant to an
unsecured promissory note (the "Note") which bears interest at the rate of 8%
per annum, without compounding. The principal amount and all accrued interest
under such Note will become due and payable in full on the second anniversary of
such Note; provided, however, that, as additional consideration for the
performance of services by O'Halleran, all principal and interest due and
payable on the Note will be forgiven (x) if O'Halleran remains an employee of
any of Aon's subsidiaries until the date such amounts would otherwise become due
and payable on such Note or (y) as provided in Section 2.7.
2.5 RESTRICTED STOCK. Pursuant to the provisions of the Aon Stock Award
Plan (the "Plan") Aon will cause to be granted to O'Halleran Aon common stock,
par value $1.00 per share ("Aon Stock") in the following amounts effective on
the dates set forth opposite such amounts:
- 4 -
<PAGE>
(a) 20,000 January 1, 1994
(b) 20,000 January 1, 1996
(c) 20,000 January 1, 1998
Each of (a), (b), and (c) above shall be considered separate grants
under the Plan, and shall be subject to all the terms and conditions of the
Plan. Each of the grants outlined hereinabove shall be adjusted accordingly in
the event Aon Stock is subject to split, stock dividend, recapitalization or
exchange. Notwithstanding anything to the contrary herein, should O'Halleran's
employment terminate hereunder for any reason, no subsequent grant shall be
effective.
2.6 CLUB MEMBERSHIPS. Aon will pay all initiation fees, periodic
membership dues and reasonable client entertainment expenses incurred by
O'Halleran at the Big Foot Country Club, the Royal Melbourne Country Club, the
Tower Club and the Tavern Club during his employment by any of Aon's
subsidiaries pursuant to this Agreement.
2.7 ADDITIONAL COMPENSATION UPON DEATH, EXTENDED TOTAL DISABILITY OR
INVOLUNTARY TERMINATION. During the Initial Term, within 30 days after (i) the
first date on which O'Halleran has continuously been Totally Disabled (defined
and determined in a manner consistent with the long-term disability plan or
plans under which O'Halleran is covered pursuant to Section 2.2) for at least
one year, (ii) the date of O'Halleran's death while employed by any of Aon's
subsidiaries or (iii) the date of O'Halleran's Involuntary Termination (any such
date, the "Payment Date"), (a) O'Halleran or the executors or administrators of
his estate, as the case may be, shall receive a payment equal to the base
compensation set forth in Section 2.1, (b) the principal of and accrued interest
on all Notes made pursuant to Section 2.4 shall be forgiven, and (c) the
unvested portion of any grant made pursuant to Section 2.5 herein shall
accelerate and become fully vested.
- 5 -
<PAGE>
ARTICLE III: CONFIDENTIALITY AND NON-COMPETITION
3.1 ACCESS TO INFORMATION. As an employee and officer of one or more of
Aon's subsidiaries, O'Halleran acknowledges that he is expected to obtain access
to proprietary, secret or confidential information relating to (i) business,
conduct or operations of such subsidiaries and their clients, (ii) research,
processes, methods, techniques, computer programs, client lists, client
requirements, reports and similar materials used in connection with such
subsidiaries' business, and (iii) the enhancement of, or possible uses or
applications for, such items or services.
3.2 CONFIDENTIALITY. While O'Halleran is an employee or officer of any
subsidiary of Aon and at all times thereafter, he agrees to respect the
confidentiality of any information received as a result of his association with
any subsidiary of Aon and agrees not to disclose to others any proprietary,
secret or confidential information. Upon termination of O'Halleran's employment
for any reason, he agrees not to take any confidential, proprietary or secret
information or copies thereof with him, nor will he use, duplicate or disclose
such information to anyone else.
3.3 NON-SOLICITATION. In light of the special and unique nature of the
relationship described herein, as consideration for O'Halleran's employment and
in order to protect the legitimate and protectible business interest of Aon Risk
and Aon Risk's subsidiaries, including, but not limited to, any confidential and
proprietary information to which O'Halleran will obtain access, O'Halleran
agrees that for a period of two years following Voluntary Termination of his
employment, Termination for Dishonesty or other expiration of his employment
under this Agreement, O'Halleran will not directly or indirectly:
(a) solicit business from, or assist others in soliciting business from
or performing work for, any client of Aon Risk or any subsidiary of Aon Risk
which O'Halleran personally handled or
- 6 -
<PAGE>
serviced at any time during the one year period immediately preceding
termination; or
(b) attempt to hire, hire, assist in hiring or cause to be hired by
another, any person who was an employee of Aon Risk or any subsidiary of Aon
Risk at any time during the six months preceding termination.
3.4 IRREPARABLE INJURY. O'Halleran expressly acknowledges, recognizes
and understands that a breach of any of the provisions of Section 3.2 or Section
3.3 will cause irreparable damage to the business of one or more of Aon's
subsidiaries and that such damage will be difficult or impossible to measure.
O'Halleran agrees that in the event of any such breach, any Aon subsidiary which
may be injured thereby, in addition to such other rights and remedies as it may
have, may apply to any court of competent jurisdiction for an order requiring
specific performance of the provisions of Section 3.2 and 3.3 and seek
temporary, preliminary and permanent injunction relief against any act which
would violate any such provision. If any provision of Section 3.2 or Section 3.3
shall be held invalid or unenforceable as written, such provision shall be
construed a restricting the activities of O'Halleran to the extent such
activities may be lawfully restricted.
3.5 O'HALLERAN'S ACKNOWLEDGEMENT. O'Halleran understands and expressly
acknowledges that each of the foregoing provisions is reasonable and necessary
to protect and preserve the legitimate and protectible business interest of
Aon's subsidiaries, and the economic benefit derived therefrom, and that such
restrictions will not prevent O'Halleran from earning a livelihood in his chosen
business and are not an undue restraint on him.
3.6 SURVIVAL. The provisions of this Article III shall survive any
termination of this Agreement.
- 7 -
<PAGE>
ARTICLE IV: Miscellaneous
4.1 AON GUARANTEE. Aon guarantees the payment of its subsidiaries'
obligations to O'Halleran hereunder.
4.2 EXPENSES. Aon will reimburse O'Halleran for all fees and expenses
of legal counsel and accountants reasonably incurred by him in connection with
the negotiation of this Agreement. As O'Halleran will comply with any legally
enforceable covenants and restrictions applicable to his employment hereunder,
it is unlikely that litigation will arise regarding such covenants and
restrictions. However, in the unlikely event that an action is filed against
O'Halleran, Aon will indemnify him and hold him harmless for the fees and
expenses of legal counsel selected by Aon subject to O'Halleran's approval
(which approval shall not unreasonably be withheld) for the defense of any claim
by any of his present or former employers which is based primarily on his
alleged violation of the covenants and restrictions identified on Exhibit A.
4.3 GOVERNING LAW. This agreement will be governed by and construed in
accordance with the laws of the State of Illinois.
4.4 NOTICES. Any notice required or permitted to be given under this
Agreement shall be sufficient if in writing and sent by certified mail to his
residence address as it appears on Aon's records in the case of O'Halleran, or
to Aon's principal office in the case of Aon or any of its subsidiaries,
addressed to the Secretary of Aon.
4.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon and
inure to the benefit of Aon and its successors and assigns, including any
successor by merger, consolidation or transfer of substantially all of the
assets of Aon. Such successor shall assume its performance, and shall have the
same duties and obligations as Aon. This Agreement shall be binding upon and
inure to the benefit of O'Halleran and his heirs and personal representatives;
provided, however, that O'Halleran shall make no assignment of any right or
benefit hereunder, except as authorized by
- 8 -
<PAGE>
specific provision hereof.
4.6 SEVERABILITY. If for any reason any provision of this Agreement
shall be held invalid in whole or in part, such invalidity shall not affect such
provision to the extent not so held invalid, or any other provisions of this
Agreement not so held invalid, and such provision and all other such provisions
shall to the full extent consistent with law continue in full force and effect.
4.7 ENTIRE AGREEMENT. This Agreement contains the entire agreement of
the parties and supersedes all prior agreements or understandings between the
parties, including without limitation the Prior Agreement. This Agreement may
not be changed orally, but only by an instrument in writing signed by the party
against whom enforcement of any waiver, change, modification, extension or
discharge is sought.
- 9 -
<PAGE>
4.8 HEADINGS. The article and section headings and captions in this
Agreement are for convenience only and shall not affect the construction or
interpretation of this Agreement.
AON CORPORATION
By:/S/PATRICK G. RYAN
------------------------
Chairman, President and
Chief Executive Officer
AON RISK SERVICES, INC.
By:/S/JEROME S. HANNER
------------------------
Vice President
By:/S/MICHAEL D. O'HALLERAN
------------------------
- 10 -
<PAGE>
EXHIBIT A
Covenants and Restrictions
1. Those covenants and restrictions affecting Michael D. O'Halleran as
contained in that certain Agreement dated July 10, 1981 pertaining to the
purchase of assets of First Manhattan Intermediaries, Inc. by Thomas A. Greene &
Company, Inc. ("TAG").
2. Those covenants and restrictions affecting Michael D. O'Halleran as
contained in any stock option plan or grant made by agreement between Alexander
& Alexander Services, Inc. (A&A) and Michael D. O'Halleran, including but not
limited to agreements dated March 31, 1983 and August 18, 1986.
3. Those covenants and restrictions affecting Michael D. O'Halleran as
contained in any plan of deferred compensation of TAG or A&A, including but not
limited to a participation and deferral election agreement between TAG and
Michael D. O'Halleran dated November 26, 1986.
<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) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Income from continuing operations before
<S> <C> <C> <C> <C> <C>
provision for income tax (1) $ 541.6 $ 445.6 $ 458.0 $ 397.0 $ 331.6
-------- -------- -------- -------- --------
Add back fixed charges:
Interest on indebtedness 69.5 44.7 55.5 46.4 42.3
Interest on ESOP 3.5 4.3 5.3 5.9 6.5
Portion of rents representative of
interest factor 44.3 28.6 21.4 28.7 26.1
-------- -------- -------- -------- --------
Income as adjusted $ 658.9 $ 523.2 $ 540.2 $ 478.0 $ 406.5
======== ======== ======== ======== ========
Fixed charges:
Interest on indebtedness $ 69.5 $ 44.7 $ 55.5 $ 46.4 $ 42.3
Interest on ESOP 3.5 4.3 5.3 5.9 6.5
Portion of rents representative of
interest factor 44.3 28.6 21.4 28.7 26.1
-------- -------- -------- -------- --------
Total fixed charges $ 117.3 $ 77.6 $ 82.2 $ 81.0 $ 74.9
======== ======== ======== ======== ========
Ratio of earnings to fixed charges 5.6 6.7 6.6 5.9 5.4
======== ======== ======== ======== ========
Ratio of earnings to fixed charges (2) 7.1 7.9
======== ========
<FN>
(1) Income from continuing operations before provision for income taxes and
minority interest includes special charges of $172 million and $91
million in the years ended December 31, 1997 and 1996, respectively.
(2) The calculation of this ratio of earnings to fixed charges reflects the
exclusion of special charges from the income from continuing operations
before provision for income taxes component for the years ended
December 31, 1997 and 1996, respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
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) 1997 1996 1995 1994 1993
-------- -------- -------- -------- --------
Income from continuing operations before
<S> <C> <C> <C> <C> <C>
provision for income tax (1) $ 541.6 $ 445.6 $ 458.0 $ 397.0 $ 331.6
Add back fixed charges:
Interest on indebtedness 69.5 44.7 55.5 46.4 42.3
Interest on ESOP 3.5 4.3 5.3 5.9 6.5
Portion of rents representative of
interest factor 44.3 28.6 21.4 28.7 26.1
-------- -------- -------- -------- --------
Income as adjusted $ 658.9 $ 523.2 $ 540.2 $ 478.0 $ 406.5
======== ======== ======== ======== ========
Fixed charges and preferred stock dividends:
Interest on indebtedness $ 69.5 $ 44.7 $ 55.5 $ 46.4 $ 42.3
Preferred stock dividends 82.1 28.7 37.5 48.4 47.5
-------- -------- -------- -------- --------
Interest and dividends 151.6 73.4 93.0 94.8 89.8
Interest on ESOP 3.5 4.3 5.3 5.9 6.5
Portion of rents representative of
interest factor 44.3 28.6 21.4 28.7 26.1
-------- -------- -------- -------- --------
Total fixed charges and preferred
stock dividends $ 199.4 $ 106.3 $ 119.7 $ 129.4 $ 122.4
======== ======== ======== ======== ========
Ratio of earnings to combined fixed
charges and preferred stock dividends (2) 3.3 4.9 4.5 3.7 3.3
-------- -------- -------- -------- --------
Ratio of earnings to combined fixed
charges and preferred stock dividends (3) 4.2 5.8
======== ========
<FN>
(1) Income from continuing operations before provision for income taxes and
minority interest includes special charges of $172 million and $91
million in the years ended December 31, 1997 and 1996, respectively.
(2) Included in total fixed charges and preferred stock dividends for the
year ended December 31, 1997 are $64 million of pretax distributions on
the 8.205% trust preferred capital securities which are classified as
"minority interest" on the condensed consolidated statements of
operations.
(3) The calculation of this ratio of earnings to fixed charges reflects the
exclusion of special charges from the income from continuing operations
before provision for income taxes component for the years ended
December 31, 1997 and 1996, respectively.
</FN>
</TABLE>
Aon Risk Services
A leading global retail insurance brokerage and risk management services
company, Aon Risk Services (ARS) offers comprehensive risk management services,
including insurance placement, administrative services, program development,
risk management and loss control consulting, claims management consulting,
premium financing and other fee-based services.
ARS strengths are in its global, industry-focused practice groups, which include
aviation, energy, marine, entertainment, construction, health care, utilities,
railroads and financial institutions. Product-specific services include
directors' and officers' liability, workers' compensation, professional
liability, export credit, expropriation, property, casualty and fine arts.
Technical services, delivered through Aon Worldwide Resources, include loss
control, actuarial analysis, risk management consulting and specialized claims
adjusting.
HIGHLIGHTS During 1997, ARS continued to invest in the talent, technology and
product development needed to better serve new and existing clients. We launched
AonLine, an innovative, cost-effective network of electronic services designed
to meet the information needs of risk managers. As a secure "extranet," it is
capitalizing on the Internet for personalized and accessible communications and
is available exclusively to Aon clients.
OUTLOOK Aon is continually redefining the way we deliver brokerage services. For
example, through Aon Enterprise, we are developing fundamental process changes
that will improve efficiency and deliver core services to our customers more
effectively.
ARS continues to be at the forefront in developing alternative risk financing
mechanisms ranging from captive insurance companies to multi-line, multi-year,
high-aggregate excess programs. ARS provides risk management services to
companies of all sizes in every corner of the globe. Through our Strategic
Account Management initiative, we are able to streamline the delivery of the
full range of Aon resources to larger clients. Many of these companies are
focusing on a broader definition of risk management, requiring more complex
services, a responsive and far-reaching network and the expertise necessary to
provide innovative solutions. They want value-added strategic partnerships,
and we expect Aon will be their choice for long-term risk management.
Aon Risk Services is a leading global insurance broker, providing a
comprehensive range of risk management services to assist clients in evaluating
and managing risk exposures.
Aon Risk Services in brief:
o Fastest-growing global broker
o Owned offices in more than 100 countries
o Offers a variety of services to complement traditional brokerage needs,
including:
risk identification
risk control
strategic risk planning
creative risk financing
risk management information systems
merger and acquisition due diligence
- 7 -
<PAGE>
Aon Re Worldwide
Aon's global reinsurance operations are coordinated under the Aon Re Worldwide
(ARW) umbrella. With offices in 50 countries, ARW is a leader in the major
insurance markets of North America, the U.K., Continental Europe, Japan and
Australia as well as rapidly emerging markets in Latin America and Asia-Pacific.
ARW provides an array of services to aid its clients in the design, structure
and implementation of risk transfer programs. We offer traditional treaty and
facultative reinsurance placement services as well as capital market products
and sophisticated risk portfolio analysis.
HIGHLIGHTS During 1997, ARW expanded its global reinsurance network through
organic growth and strategic acquisitions. We enhanced our North American
presence by adding offices in Canada and the southeastern United States. We
deepened our penetration in Europe, Australia, Canada, Asia and Latin America
through Aon Group Limited, which brought together the collective expertise of
the Alexander Howden Group, Bain Hogg, Jauch & Hubener, the Minet Group and
Nicholson Jenner Leslie.
We continued to strengthen our position as a leader in developing capital market
and risk transfer innovations. For example, we placed three CatEPuts
(Catastrophe Equity Put programs) for clients. And, we worked with newly
launched Aon Capital Markets to enhance our ability to assist clients in
managing their risks on a comprehensive basis.
OUTLOOK The global reinsurance market is undergoing significant changes as
consolidation occurs in all sectors. ARW is at the forefront of the industry and
continues to look for opportunities to extend its global reach. We also will
continue to make significant investments in technology and value-added services
in order to provide the most comprehensive risk management services. We will
further strengthen our global reinsurance network to ensure that the most
advanced products and services are available to Aon clients anywhere in the
world.
Aon Re Worldwide is the world's largest reinsurance intermediary, providing
treaty and facultative placements, industry- and coverage-specific expertise as
well as analytical consulting services.
Aon Re Worldwide in brief:
o Offices in 50 countries
o Traditional reinsurance coverage and alternative risk financing solutions
o Clients include global, national and regional insurance companies,
reinsurance companies, Lloyd's syndicates, affinity groups, risk retention
groups and single parent captives
o Services include actuarial analysis, catastrophe exposure modeling,
non-traditional financial products, risk portfolio analysis and security
analysis
o Product line expertise includes accident and health, aviation, life,
marine and energy and specialty non-marine
- 8 -
<PAGE>
Look up the definition of global business and you should find the name Sara Lee
Corporation. This $20 billion company is one of Aon's most prominent clients and
one that really brings out the best in our global network, which now stretches
across 550 offices and more than 100 countries.
As Sara Lee's primary insurance broker, everything Aon does for them must have a
global reach. "We manage global risks, global resources, global commu-nication
systems," says Carol Murphy, Strategic Account Manager of the Aon/Sara Lee team.
"And, we deliver on a local level, supplying local risk management needs in a
program coordinated globally." All of Aon's offices are electronically linked
via several proprietary computer systems, providing up-to-the-minute client
information.
"With operations in more than 40 countries and a global distribution system that
enables us to market branded consumer products in more than 140 countries, we
rely on solid partnerships to support our broad global presence," says Vincent
Coffey, Sara Lee Corporation's Director, Risk Management. "Aon has put together
a team that meets our needs in virtually every corner of the world. With 42% of
our sales now coming from business conducted outside the U.S., Aon has grown
with us to support our risk management needs worldwide."
In the Chicago office, 20 of our risk specialists are dedicated to Sara Lee
while more than 100 others are strate-gically located around the world. "We use
our global network to help Sara Lee achieve its global growth strategies," adds
Carol. "For instance, we were part of the planning team for Sara Lee's
integration of Aoste, a French acquisition with $800 million in revenues. We had
to make sure that in addition to providing the best local insurance service, we
were in sync with the company's global standards and objectives."
Sara Lee also benefits from Aon's Strategic Account Management (SAM) initiative
designed to build stronger partnerships with its major clients. The SAM team
responsible for Sara Lee deeply understands its business, its expectations and
its goals. As a result, Aon has been able to help Sara Lee strengthen the risk
management synergy between its U.S. and European businesses as well as help with
recent divestitures as Sara Lee focuses on building leadership brands on a
global basis.
"Aon people know our business, act with a sense of urgency, know where to find
solutions in the global marketplace and, above all, have great integrity," adds
Vince, who has worked with Aon since 1989. "We share a philosophy of business.
Aon believes in a collaborative partnership and progressive business management.
That's the way we like to do business."
Anytime,
anywhere,
Aon's global
network
delivers
Insuring Sara Lee's global brands is a round-the-clock job for Carol Murphy, Aon
Strategic Account Manager, and Vincent Coffey, Sara Lee Director, Risk
Management (as shown in photo).
- 9 -
<PAGE>
Aon Services Group
Aon Services Group (ASG) designs and delivers specialized retail and wholesale
insurance products and services for associations and affinity groups, service
businesses, insurance companies, independent insurance agents and brokers,
governments, health care providers and commercial organizations. Through its
subsidiaries, ASG provides wholesale brokerage capabilities, as well as program
administration and claims management expertise for insurance organizations.
ASG's thorough knowledge of targeted industries and market segments, together
with leading-edge products and multiple-channel distribution systems, has
produced recognized experts in program administration for professional
liability, with specialized expertise in the accounting, health care and legal
professions.
HIGHLIGHTS In 1997, Aon Services Group changed its name from Aon Specialty Group
to reflect the fact that it provides not only highly specialized insurance
products but many comprehensive, value-added services as well. We concentrated
our efforts on consolidating existing ASG units and assimilating several key
acquisitions. We integrated Alexander Howden North America and Swett & Crawford
into ASG's wholesale brokerage unit, merged Alexander & Alexander's health care
practice unit with the Aon Healthcare Alliance, and added segments of several
other acquisitions into our Affinity Insurance Services unit.
OUTLOOK ASG has a solid position as a premier provider of wholesale brokerage
services. Additional resources have strengthened Aon Healthcare Alliance's
ability to offer a wide array of products and services to all segments of the
health care industry. We are increasing our efforts to distribute insurance to
affinity groups in Europe, Latin America and other global markets. We also are
developing our reputation and expertise in third-party claims administration. In
order to offer more products and services to more clients, we are enhancing
existing distribution networks and promoting greater interdependence with other
Aon units.
Aon Services Group consists of several highly focused specialty companies,
providing industry-specific expertise, unique insurance coverages and wholesale
brokerage services.
Aon Services Group in brief:
o A premier direct marketer of specialty coverages to affinity groups and
associations
o A leading provider of products, services, resources and expertise to the
health care industry
o The largest U.S. wholesale insurance brokerage operation
o A rapidly growing third-party claims administration organization
o A leading provider of comprehensive underwriting management programs for
various industries, including financial services, media, entertainment,
sports and leisure and government entities
o Our Affinity Insurance Services produces $1 billion in premiums from more
than 5 million policyholders
- 10 -
<PAGE>
At Aon, our concept of teamwork is called "interdependence," meaning two or more
companies working together for the benefit of a client. In bringing together the
best of Aon, we believe our culture of interdependent, innovative problem
solving clearly distinguishes our service from the competition.
By breaking down barriers that often exist between brokerage specialties, Aon
professionals can pool the best expertise and resources to provide a full
range of solutions. Working as an integrated, networked global team, we can
meet our clients' risk management, risk transfer and consulting needs
anywhere in the world.
A good example is our developing partnership with Philips Electronics N.V., the
Dutch company of more than 100 businesses ranging from lighting, medical
products, electronics and consumer products to film and music. Aon has been
managing most of Philips' risk exposures since 1996 when Philips remarketed its
insurance programs. Soft market pricing and Aon's expanded service base
convinced the company to rethink its traditional internal captive-based
insurance programs and turn to Aon.
"When Philips restructured its risk management operations, Aon was ready to step
in," says Kik Thole, Strategic Account Manager. "We are able to bring all the
resources of Aon together and deliver them to Philips seamlessly."
Philips Risk Manager Arjen Ronner explains, "Risk management reengineering is
an ongoing process, involving both strategy and implementation. Aon is able to
assist our local managers with many of the administrative tasks so that they can
focus their efforts on the critical risk management issues."
For Philips' diverse businesses, Aon developed a comprehensive multi-line,
multi-year program, which is managed out of Holland and supported by global
practices in New York and London. Most recently, our Hong Kong office was
instrumental in securing insurance coverage for Philips' joint ventures
throughout China.
"We need an experienced, competent team of marketing and technical specialists,"
adds Arjen Ronner. "Our Aon account team in Rotterdam is able to access
resources from around the world and deliver them to our door."
Resourceful
interdependence
brings
the best of
Aon to
every client
Philips Risk Manager Arjen Ronner (left) and Kik Thole, Aon Strategic Account
Manager (as shown in photo), work together with Aon companies worldwide.
- 11 -
<PAGE>
Aon Consulting Worldwide
Focused on linking people strategies to business strategies, Aon Consulting
Worldwide (ACW) specializes in human resources consulting services. From offices
on five continents, Aon consultants help clients maximize their performance and
improve bottom-line results. The ACW approach ensures that clients attract,
retain and develop the best people.
ACW is organized into four consulting groups: Employee Benefits, Human
Resources, Compensation and Change Management. Within these groups, we offer
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.
HIGHLIGHTS During 1997, ACW solidified its position in several key markets. In
employee benefit programs, our services are increasingly in demand as clients
cope with the pressures of health care industry reform. In human resources
management, the outsourcing trend is growing and the demand is strong for our
services. We are seeing significant gains in the middle market, where companies
are finding our outsourcing services to be very cost effective. ACW is a leader
in innovative retirement plan consulting and creative compensation strategies.
To help clients manage these activities, we work in conjunction with Aon Risk
Services to offer a full package of services in risk management, employee
benefits, compensation, human resources and change management.
OUTLOOK In a marketplace where many companies offer various human resources
consulting services, ACW is growing and distinguishing itself as a fully
integrated human resources consulting organization. Building from a strong Aon
Group client base, ACW is able to offer clients a full spectrum of services and
the scale of a truly global organization, both in reach and expertise.
Increasingly, multinationals are looking to us for an integrated approach for
the delivery of the diverse products and services that Aon offers worldwide.
Aon Consulting
Worldwide serves the growing demand for integrated, cost-effective ways to align
human resources solutions with business strategies.
Aon Consulting Worldwide in brief:
o One of the world's leading global human resources consulting firms
o More than 110 offices worldwide
o Designs and administers benefits packages that balance employer and
employee needs
o Develops innovative compensation and reward programs
o Implements comprehensive change management programs
o Improves employee selections systems, skills assessment and performance
measurements
- 12 -
<PAGE>
The business of risk management demands innovative solutions, teamwork, in-depth
industry knowledge and absolute client focus. Aon has become a global leader in
risk management because it has been able to attract, retain and develop the best
people with the best skills in the industry.
Because of our depth of talent and expertise, we've been able to establish
long-term relationships with the world's top businesses. Our 40,000 employees
worldwide share goals aligned with the interests of our clients and other
stakeholders. A good example is our relationship with Tomkins PLC, a $7 billion
multinational company. Managing risk for Tomkins' more than 100 different
businesses is a totally engaging responsibility for Aon risk management experts.
"We have some of the industry's best people working on the Tomkins account,"
explains Charlie Miller, Strategic Account Director in Cincinnati, Ohio, the
U.S. hub office for Aon's Tomkins service team.
"We always give them a very high level of customer service."
London-based Tomkins produces everything from Murray lawn mowers in the U.S. to
Ranks Hovis McDougall food products in the U.K. Aon's accomplished team of risk
and liability specialists is involved in the administration of the Tomkins
account, providing needs assessment, strategic planning and project management
as a platform for the day-to-day service delivery.
"Risk management is an expertise we outsource," says Richard Marchant, Tomkins
Administration Director and Company Secretary. "We look to our colleagues at Aon
for the expertise and knowledge we need. We work with individuals we rely on.
That's what makes this relationship work so well."
To fully serve the needs of Tomkins and its many businesses worldwide, the team
uses a combination of Anistics Omega, Aon's comprehensive database of claims,
exposure, policy, premium allocation and property information, along with e-mail
and document management systems, all tailored to Tomkins' needs. Together, these
give Tomkins and Aon instant access to quality risk management information.
"We couldn't manage the extensive needs of a diverse global company without a
comprehensive database and fast, reliable communications," explains Julia
Harrop, Worldwide Account Director, and head of the Aon-Tomkins team in
Shrewsbury, England. "This is a complex account that requires careful selection
of appropriate resources for the many different businesses we serve."
From Tomkins' point of view, working with the Aon team means working with the
best. "As far as I'm concerned, Aon is the number one broker," adds Richard
Marchant. "They have the resources and the expertise we need for the future."
Knowledgeable,
responsive,
creative . . .
Aon people are
determined to
be the best
The Tomkins-Aon team is headed by Richard Marchant, Tomkins Company Secretary,
(left) and Aon Account Directors Charlie Miller and Julia Harrop (as shown in
photo).
- 13 -
<PAGE>
Virginia Surety Company and London General Insurance Company
Virginia Surety Company (VSC) and its sister company, London General Insurance
Company (LGI), provide innovative insurance programs as well as underwriting
expertise for a variety of traditional and non-traditional insurance programs.
Their expertise and capabilities in consumer extended warranties are
unsurpassed.
In addition, Aon Warranty Group (AWG) offers a range of fee-based services that
include premium administration, claim processing, information systems and
accounting support, customer service, customer care management, value-added
after-sale products, training and profit management services.
Our distribution channels include auto dealerships, manufacturers, retailers,
distributors, financial institutions, direct mail, telemarketing, affinity
groups, associations and the Internet.
HIGHLIGHTS During 1997, we maintained our position as the world's largest
independent provider and administrator of warranties for consumer products such
as automotive, consumer electronics and appliances, personal computers and
homes. We're experiencing significant growth in our specialty insurance products
for credit card enhancement programs, cellular phones, power sports and
involuntary unemployment.
Through new operations in Argentina, Australia, Brazil and Japan, AWG is
creating new business opportunities and strengthening Aon's global development.
In April, AWG acquired Innovative Services International and expanded its
offerings to include a new Customer Care Management program, a fast-growing call
center service that enhances our core products.
OUTLOOK Through operations on five continents, VSC, LGI and AWG will continue to
expand their reach, product offerings and distribution systems into new and
existing markets. As we expand, we expect our fastest growing business will
continue to be our warranty operations. We'll build our consumer care services
by providing customer service, technical support and claims services for an
ever-growing list of retailers and consumer brand marketers.
Virginia Surety and its sister companies offer comprehensive consumer extended
warranty and consumer service programs.
Virginia Surety in brief:
o VSC is rated A+ by A. M. Best
o VSC/LGI is the world's largest independent underwriter of extended
warranties
o More than 4 million policies issued in 1997
Aon Warranty Group in brief:
o One of the largest independent service contract administrators in the
world
o Call centers average 183,000 service calls daily
- 14 -
<PAGE>
Imagine dealing with more than 180,000 phone calls daily. And, for each call,
you have a smile in your voice and an answer at the ready. That's just what the
customer service representatives at Aon Warranty Group and Virginia Surety
Company are doing every day for their manufacturing and retail clients.
A comprehensive operation of three independent call centers, Aon's new customer
care service is being provided as an added-value service to our clients. It's
just one of the new opportunities Aon has developed to serve customers' evolving
needs. For example, when consumers call the local store of a national retail
chain, the phone line connects to an Aon call center. The call center
representative can pull up all the vital information about that particular store
on his or her PC screen and can give a quick and efficient response. The
consumer is satisfied and the retailer doesn't have to employ in-store staff to
handle phone inquiries.
In addition to this rapidly growing service, three other Aon call centers in the
U.S. answer claim center calls for auto, home, appliance and electronic
warranties as well as 24-hour-a-day technical service support calls for
manufacturers of computers and other consumer products.
And every caller gets an answer. While handling calls for a leading manufacturer
of consumer brand clothing, Aon's customer service was able to find one thrifty
caller the right button to match his 40-year-old pair of blue jeans.
From risk management, loss control and claims management to added-value services
such as extended product warranties and customer service programs, Aon provides
the services and products that serve the spectrum of client needs.
For example, we underwrite and administer service contracts for household names
across America and around the globe, including Office Depot, the world's largest
office products retailer, operating over 600 retail stores.
"When we looked for the ideal partner to help us develop our service contract
business, the clear choice was Aon Warranty Group," says Julie Siderfin, Office
Depot's Manager of Service Contract Sales.
Aon Warranty Group has served Office Depot for several years. "In that time,
we've seen service contract sales rise dramatically," she adds. "And, in the
months and years ahead, we're looking forward to expanding our relationship with
Aon Warranty Group."
Distinctive
products
and services
create
value-added
opportunities
Aon Customer Service Representative Denise Black (as shown in photo) responds to
hundreds of consumer calls daily.
- 15 -
<PAGE>
Combined Insurance Company of America
Serving the needs of both individuals and businesses, Combined Insurance Company
of America (CICA) is a leading distributor and underwriter of supplemental
insurance policies, including life, health, accident and disability income.
Many of CICA's nearly 5 million insureds are self-employed or work in firms with
modest employee benefits. CICA's competitively priced policies help the insured
supplement their employer-provided benefit plans to maintain financial stability
in a time of need. We offer a full range of supplemental insurance products with
additional services for the worksite, including voluntary benefit enrollment
administration and preparation of benefit statements.
HIGHLIGHTS During 1997, CICA took steps to develop new markets and strengthen
existing lines. For our traditional product lines, we introduced higher benefit
accident policies with convenient monthly payment options. We aggressively
pursued our target market with an array of new worksite products -- all capable
of being customized to the individual employee and paid through payroll
deduction. We introduced administrative services specifically designed for
small employers to enhance the value of their benefit programs. In addition to
offering these products directly into the market, CICA is working closely with
Aon Risk Services retail brokers to introduce CICA services to existing ARS
clients.
OUTLOOK CICA will continue expanding its product lines, its customer base and
its geographic presence. As baby boomers age, the senior market represents a
significant opportunity and CICA is launching a comprehensive portfolio of
insurance products aimed at the growing senior population, including a new
long-term care policy. Internationally, CICA is expanding its worksite marketing
in the United Kingdom and Latin America. In its traditional market, CICA is
introducing improved products attuned to market needs with affordable payment
options. CICA will continue its tradition of selling to individuals in the
workplace by using enhanced products, payroll deduction and other worksite
marketing techniques.
For more than 75 years, Combined Insurance Company of America has sold
supplemental life, health and accident coverage to individuals in their homes
and at their place of work.
Combined Insurance Company of America in brief:
o Operations in the U.S., U.K., Canada, Australia, Ireland, Germany, Mexico,
New Zealand, The Netherlands and Argentina
o Individual and employer insurance programs
o The largest issuer of individual accident policies in the U.S., Canada,
Australia and Ireland
o The 4th largest writer of individual accident and health insurance
premiums among U.S. companies
o The 2nd largest writer of individual accident and health premiums in
Canada
- 16 -
<PAGE>
*** PAGE 17 WAS OMITTED ***
- 17 -
<PAGE>
Management's Analysis of Operating Results and Financial Condition
CONSOLIDATED RESULTS
General
In 1997, Aon invested approximately $1.6 billion in business combinations in its
brokerage and consulting businesses. These business combinations were financed
primarily by the issuance of capital securities, internal funds and the issuance
of commercial paper. The major 1997 acquisitions include: Alexander & Alexander
Services Inc. (A&A)--a leading global insurance brokerage and consulting
company; Minet --a worldwide specialty reinsurance and wholesale brokerage
operation; Sodarcan --a Canadian insurance brokerage and consulting company;
and Jauch & Hubener --the largest insurance brokerage and consulting firm in
Germany. 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. These items were accounted for using the purchase method of accounting
and the goodwill created is amortized principally over forty years. Because of
these acquisitions all brokerage revenue and income comparisons are
significantly impacted.
In 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 after-tax proceeds from the sales were $1.2
billion. The sales resulted in a $21 million after-tax gain on sale. UFLIC and
LOV results are classified in the consolidated statements of income as
discontinued operations in 1996 and 1995. For purposes of the following
consolidated results discussions (1997 compared to 1996 and 1996 compared to
1995), comparisons against prior years' results are based on continuing
operations.
In 1996, Aon sold the distribution rights of its North American auto extended
warranty business. However, it is still being underwritten by Aon's subsidiary,
Virginia Surety Company, Inc. As part of the same transaction, Aon sold its
North American auto credit insurance and distribution operations. Results of
the auto credit underwriting business written prior to the sale are continuing
to run off as planned.
Special Charges
All of Aon's special charges are reflected in commissions and general expenses
in the consolidated statements of income. In first quarter 1997, Aon recorded
pretax special charges of $145 million ($91 million after-tax or $0.54 per
share), primarily related to management's commitment to a formal plan of
restructuring Aon's brokerage operations as a result of the acquisition of A&A.
Pretax restructuring charges include approximately $105 million associated with
real estate activities including the closure, abandonment and consolidation of
duplicate facilities around the world, and other consolidation costs. The
restructuring charges related to consolidating real estate space are expected to
be paid out over several years. Special charges for severance and related costs,
involving over 600 positions, were approximately $40 million. Terminations
resulting from workforce reductions are substantially complete. In connection
with the first quarter 1997 special charges, Aon had approximately $80 million
remaining unpaid in the commissions and general expenses liability at December
31, 1997.
In 1997, as a result of the acquisition of A&A, Aon had established
approximately $200 million of purchase accounting liabilities primarily
relating to costs associated with the consolidation of real estate activities
and severance liabilities for approximately 2,000 positions. In connection with
these items, Aon had approximately $100 million remaining unpaid in the
commission and general expense liability at December 31, 1997.
In second quarter 1997, Aon recorded pretax special charges of $27 million ($17
million after-tax or $0.10 per share) to recognize investment losses incurred at
A&A before Aon acquired A&A. Aon discovered in the second quarter that A&A's
investment portfolio, as it had been constructed before Aon's acquisition, had
included certain highly volatile securities which had been incorrectly
classified as high quality money market instruments. At Aon's acquisition date,
the carrying value of certain securities in A&A's portfolio was overstated by
the previously unrecognized investment losses.
In second quarter 1996, Aon recorded a $30 million pretax charge ($19 million
after-tax or $0.12 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.
In fourth quarter 1996, Aon's management committed to a formal plan of
restructuring Aon's European brokerage operations primarily as a result of the
Bain Hogg acquisition and recorded pretax special charges of $60 million ($40
million after-tax or $0.24 per share) primarily relating to this activity. 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 work-force reductions took place within one year from the date of
acquisition. 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.
- 18 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
In connection with the 1996 special charges, Aon had approximately $30 million
remaining in the commissions and general expenses liability at December 31, 1997
representing amounts related to the special charges that have not yet been
paid.
As a result of the Bain Hogg acquisition, approximately $85 million of purchase
accounting liabilities were established primarily relating to both the costs
associated with the consolidation of real estate activities and severance
liabilities. In connection with these items, Aon had approximately $55 million
remaining unpaid in the commission and general expense liability at December 31,
1997.
Revenue and Income Before Income Tax
Consolidated Results for 1997 Compared to 1996
Total revenues amounted to $5.8 billion, an increase of 48% in 1997. This
increase was largely attributable to growth in brokerage commissions and fees
resulting from business combination activity. Brokerage commissions and fees
increased 88% to $3.6 billion.
Premiums earned of $1.6 billion increased 5% in 1997. Extended warranty premiums
earned increased $110 million or 24% reflecting continued growth of new business
in the mechanical, appliance and the electronic lines. There was minimal growth
in direct sales business as a result of changes in the consumer insurance
market. The planned run-off of North American auto credit business partially
offset this growth in premiums earned.
Net investment income of $494 million increased 29% for the year primarily
attributable to brokerage acquisitions, and to income received on certain
private equity investment holdings. The investment portfolio yield declined five
basis points as a result of investment of new cash flows in lower yielding
investments, as well as the change in portfolio mix attributable to
acquisitions.
Pretax realized investment gains were $6 million in 1997 compared to $8 million
in 1996. Revenue excluding realized investment gains increased 48% or $1.9
billion when compared to 1996.
Commissions and general expenses (excluding interest expense) increased 70% for
the year primarily due to growth in the brokerage businesses. Benefits to
policyholders increased 7% when compared to 1996, reflecting a higher volume of
new extended warranty business, as well as growth in capital accumulation
products. This increase was partially offset by the profitable phase out of
certain specialty liability programs and the run-off of auto credit business as
planned. It is anticipated that this business will continue to run-off as
planned. Interest expense increased 73% as a result of acquisition financing.
Amortization of intangibles, which excludes deferred policy acquisition costs
(DPAC), increased $44 million or 58%, reflecting brokerage acquisitions.
Overall, benefit and expense margins for the insurance underwriting segment did
not suggest any significant shift in operating trends in 1997. Total benefits
and expenses increased 51% or $1.8 billion over 1996. The increase reflects the
inclusion of 1997 and 1996 pretax special charges of $172 million and $90
million, respectively. Total benefits and expenses, excluding the 1997 and 1996
special charges, increased 50% over 1996, primarily reflecting brokerage
acquisition activity.
References to income before income tax exclude minority interest related to the
issuance of 8.205% mandatorily redeemable preferred capital securities (capital
securities) (see note 8).
Income before income tax increased $96 million or 22% in 1997, primarily due to
acquisition activity. Excluding special charges, income before income tax
increased 33% or $178 million.
Fourth quarter revenue increased 42% to $1.5 billion when compared to 1996,
primarily reflecting brokerage business combination activity. Total benefits and
expenses, excluding special charges, increased 41% to $1.3 billion for the
quarter. Pretax income increased $126 million or 178% to $197 million. The
increase in pretax earnings reflects growth in the insurance brokerage and
consulting segment related to business combination activity. Excluding special
charges, pretax earnings increased 50% compared to fourth quarter 1996.
<TABLE>
<CAPTION>
CONSOLIDATED GEOGRAPHIC DATA
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
United States $ 3,413 $ 2,646 $ 2,449
United Kingdom 1,158 535 453
Continental Europe 439 394 316
Rest of world 741 313 248
- --------------------------------------------------------------------------------------
Total revenue $ 5,751 $ 3,888 $ 3,466
- --------------------------------------------------------------------------------------
Income before income tax:
United States $ 413 $ 357 $ 328
United Kingdom 168 87 61
Continental Europe 33 23 20
Rest of world 100 69 49
- --------------------------------------------------------------------------------------
Income before income tax
excluding special charges 714 536 458
Special charges 172 90 -
- --------------------------------------------------------------------------------------
Total income before income tax $ 542 $ 446 $ 458
======================================================================================
Identifiable assets
(continuing operations):
United States $10,122 $ 8,825 $ 6,427
United Kingdom 4,990 2,157 1,577
Continental Europe 2,139 1,764 1,344
Rest of world 1,440 977 679
- --------------------------------------------------------------------------------------
Identifiable assets at December 31 $18,691 $13,723 $10,027
======================================================================================
<FN>
Of the $172 million special charges in 1997, $60 million were U.S., $107 million
were European, and $5 million were rest of world. Of the $90 million special
charges in 1996, $35 million were U.S. and $55 million were European.
</FN>
</TABLE>
U.S. revenues increased 29% in 1997 compared to 1996, while pretax income before
special charges increased 16% over prior year, both due to acquisition activity,
organic growth and overall expense controls.
- 19 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
European revenue increased 72% in 1997 to $1.6 billion, and rest of world
revenue of $0.7 billion rose 137%. European pretax income before special
charges increased 83% to $201 million and rest of world pretax income before
special charges increased to $100 million. Both the revenue and pretax income
before special charges have increased primarily due to acquisitions.
Revenue and Income Before Income Tax
Consolidated Results for 1996 Compared to 1995
Total revenue amounted to $3.9 billion in 1996, an increase of 12%. Brokerage
commissions and fees increased 16% to $1.9 billion resulting from business
combination activity and internal growth. Premiums earned were $1.5 billion or
7% above 1995. A higher volume of new business in the auto extended warranty
line and in both the electronic and appliance lines was partially offset by the
continued phase-out of certain specialty liability programs. 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.
Commissions and general expenses (excluding interest expense) increased 17% for
the year primarily reflecting brokerage growth. 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 run-off since second quarter 1996.
Interest expense increased 8% reflecting higher levels of short-term borrowings
for the year. Total benefits and expenses increased 14% over 1995. Income before
income tax decreased by 3% or $12 million due largely 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.
MAJOR LINES OF BUSINESS
General
For purposes of the major lines of business discussion, comparisons against
1996 results exclude the discontinued operations and the special charges. A
discussion of discontinued operations follows the Major Lines of Business
section.
Insurance Brokerage and Consulting Services
Aon's retail brokerage, reinsurance and wholesale operations are included in
"Insurance and other services." Also included is Aon Warranty Group which
provides marketing and administrative services to clients. In addition,
"Insurance and other services" includes revenue from financing services
operations related to placement of insurance premiums and retail auto financing
receivables. Further, the start-up of Aon Capital Markets has been included.
<TABLE>
<CAPTION>
INSURANCE BROKERAGE AND CONSULTING SERVICES
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
Insurance and other services $3,221 $1,728 $1,477
Consulting 553 274 250
- --------------------------------------------------------------------------------------
Total revenue 3,774 2,002 1,727
- --------------------------------------------------------------------------------------
Operating expenses 3,240 1,705 1,467
Amortization of intangibles 40 40 48
- --------------------------------------------------------------------------------------
Total expenses 3,280 1,745 1,515
- --------------------------------------------------------------------------------------
Income before income tax
excluding special charges 494 257 212
Special charges 145 75 -
- --------------------------------------------------------------------------------------
Income before income tax $ 349 $ 182 $ 212
======================================================================================
Identifiable assets at December 31 $8,523 $5,025 $3,343
======================================================================================
</TABLE>
Total 1997 brokerage and consulting services revenue was $3.8 billion, up 89%.
Included in insurance and other services is retail revenue of $2.3 billion and
reinsurance & wholesale revenue of $0.9 billion. Acquisitions accounted for the
majority of this revenue growth. Excluding the impact of acquisitions, revenue
and income before income tax results related to brokerage core businesses grew
approximately 5% in a very competitive environment.
Insurance and other services results were positively impacted by acquisitions,
especially the inclusion of A&A in 1997. Retail brokerage results continued to
reflect 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.
Aon Warranty Group provides warranty marketing and administrative services to
clients. This activity generated revenue of $75 million in 1997. Also included
in insurance and other services revenue are financing service fees of $52
million, an increase of 49% over 1996.
In the consulting line of business, 1997 revenue increased 102% to $553 million.
Revenue growth was primarily influenced by acquisition activity and, to a lesser
extent, expansion of integrated human resources consulting programs. The growth
of consulting revenue and pretax income was offset by a decline in revenues in
the automotive consulting operations.
- 20 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
INSURANCE BROKERAGE AND CONSULTING SERVICES
GEOGRAPHIC DATA
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
United States $2,028 $1,291 $1,202
United Kingdom 864 297 194
Continental Europe 335 302 258
Rest of world 547 112 73
- --------------------------------------------------------------------------------------
Total revenue $3,774 $2,002 $1,727
- --------------------------------------------------------------------------------------
Income before income tax:
United States $ 265 $ 165 $ 153
United Kingdom 120 47 30
Continental Europe 40 29 26
Rest of world 69 16 3
- --------------------------------------------------------------------------------------
Income before income tax
excluding special charges 494 257 212
Special charges 145 75 -
- --------------------------------------------------------------------------------------
Total income before income tax $ 349 $ 182 $ 212
======================================================================================
</TABLE>
U.S. revenue of $2.0 billion in 1997 was up 57% from 1996, European revenue of
$1.2 billion increased 100% from 1996, and rest of world revenue increased to
$547 million. Total pretax income was $494 million in 1997, up 92% from $257
million in 1996. U.S. pretax income was up 61% from 1996. European pretax income
rose 111%, and rest of world pretax income was $69 million.
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.
<TABLE>
<CAPTION>
INSURANCE UNDERWRITING
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
Direct sales $1,035 $1,030 $1,014
Extended warranty 574 464 332
Specialty and other 249 280 294
- --------------------------------------------------------------------------------------
Total revenue 1,858 1,774 1,640
- --------------------------------------------------------------------------------------
Benefits to policyholders 842 790 699
Operating expenses 530 512 488
Amortization of DPAC 208 208 207
- --------------------------------------------------------------------------------------
Total benefits and expenses 1,580 1,510 1,394
- --------------------------------------------------------------------------------------
Income before income tax
excluding special charges 278 264 246
Special charges - 12 -
- --------------------------------------------------------------------------------------
Income before income tax $ 278 $ 252 $ 246
======================================================================================
Identifiable assets at December 31 $4,936 $4,786 $3,736
======================================================================================
</TABLE>
Revenue was $1.9 billion in 1997, up 5% from $1.8 billion in 1996, primarily due
to growth in the worldwide extended warranty lines. Direct sales business had
minimal growth reflecting difficult market conditions for accident, while life
and health grew satisfactorily. Direct sales continued to expand its product
distribution through work-site marketing programs. Direct sales accident and
health business improved its pretax margin in part due to good general expense
controls and good international health product sales. The run-off of certain
specialty liability programs is now substantially complete, while auto credit
business continues to run-off. Pretax income was $278 million in 1997, up 5%
from $264 million last year.
<TABLE>
<CAPTION>
INSURANCE UNDERWRITING
GEOGRAPHIC DATA
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenue:
<S> <C> <C> <C>
United States $1,308 $1,287 $1,188
United Kingdom 274 223 209
Continental Europe 102 84 81
Rest of world 174 180 162
- --------------------------------------------------------------------------------------
Total revenue $1,858 $1,774 $1,640
- --------------------------------------------------------------------------------------
Income before income tax:
United States $ 200 $ 187 $ 180
United Kingdom 41 31 27
Continental Europe 9 9 7
Rest of world 28 37 32
- --------------------------------------------------------------------------------------
Income before income tax
excluding special charges 278 264 246
Special charges - 12 -
- --------------------------------------------------------------------------------------
Total income before income tax $ 278 $ 252 $ 246
======================================================================================
</TABLE>
U.S. revenue of $1.3 billion was up 2% in 1997 while European revenue of $376
million rose 22%, principally due to growth in premiums earned in both the
extended warranty and capital accumulation products. Rest of world revenue
declined slightly. 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 before special charges rose 7% in 1997.
European pretax income increased 25% while rest of world pretax income declined
$9 million.
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. The remaining 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.
- 21 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
CORPORATE AND OTHER
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Revenue:
Investment income on
<S> <C> <C> <C>
capital and other $ 113 $ 104 $ 86
Realized investment gains 6 8 13
- --------------------------------------------------------------------------------------
Total revenue 119 112 99
- --------------------------------------------------------------------------------------
Operating expenses 26 20 27
Interest expense 70 40 37
Amortization of intangibles 81 37 35
- --------------------------------------------------------------------------------------
Total expenses 177 97 99
- --------------------------------------------------------------------------------------
Income (loss) before income tax
excluding special charges (58) 15 -
Special charges 27 3 -
- --------------------------------------------------------------------------------------
Income (loss) before income tax $ (85) $ 12 $ -
======================================================================================
Identifiable assets at December 31 $5,232 $3,912 $2,948
======================================================================================
</TABLE>
Revenue increased 6% over 1996 to $119 million. Higher levels of investment
income received on certain private equity investment holdings contributed to the
increase. Realized investment gains declined $2 million in 1997 when compared to
1996. Excluding these gains from both years, revenue increased 9%.
Pretax income decreased $73 million in 1997. Contributing to the decrease were
interest expense and goodwill amortization related to acquisitions. Excluding
realized investment gains from both years, pretax income decreased $71 million.
Discontinued Operations
Discontinued operations in 1997 are comprised of certain insurance underwriting
subsidiaries acquired with A&A that are currently in run-off and the
indemnification of certain liabilities relating to subsidiaries sold by A&A
prior to Aon's acquisition. Management believes that, based on current
esti-mates, these discontinued operations are adequately reserved. The liability
is included as a component of other liabilities on the consolidated statement of
financial position. The liability increased during the fourth quarter of 1997
due to the commutation of a finite risk reinsurance contract (see note 3).
Discontinued operations in 1996 and prior were composed principally of U.S.
based capital accumulation products and direct response insurance products.
After-tax income on these businesses has been segregated as "Income From
Dis-continued 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.
INCOME TAX AND NET INCOME
On March 21, 1997, the Board of Directors authorized a three-for-two stock
split, payable in the form of a stock dividend, of Aon's $1.00 par value common
stock. All references to share data in the accompanying management's discussion
and analysis and financial statements reflect the three-for-two stock split. The
earnings per share and average shares outstanding have been restated for
Financial Accounting Standards Board (FASB) Statement No. 128 "Earnings Per
Share," and the following discussion is on a dilutive basis. Basic net income on
a per share basis was $1.71 and $1.93 in 1997 and 1996, respectively.
Net income for 1997 was $299 million or $1.68 per share compared to $335 million
or $1.90 per share in 1996. Net income for fourth quarter 1997 amounted to $113
million or $0.65 per share compared to $46 million or $0.25 per share for 1996.
The decrease in 1997 net income and related per share amount is primarily
influenced by: (1) after-tax 1997 special charges of $108 million ($0.64 per
share) compared to after-tax 1996 special charges of $59 million ($0.36 per
share); (2) the 1997 deduction for after-tax distributions on the capital
securities (reflected as "minority interest" on the consolidated statement of
income); (3) operating results from 1996 discontinued operations due to the
completion of the sales of UFLIC and LOV in second quarter 1996 ($0.13 per
share); and (4) after-tax gain on sale of discontinued operations in 1996
($0.13 per share). Dividends on the 8% and redeemable preferred stocks in 1997
and dividends on the 8%, 6.25% and redeemable preferred stocks in 1996 and 1995
have been deducted from net income to compute earnings per share.
Operating income from continuing operations before special charges and realized
investment gains, was $402 million or $2.30 per share in 1997 compared to $346
million or $1.97 per share in 1996. Aon's effective operating income tax rate on
continuing operations was 37.5% in 1997 and 34.5% in 1996. Realized investment
gains were taxed at 37.5% and 36% for 1997 and 1996, respectively.
Average shares outstanding for 1997 increased 1% primarily due to business
combinations.
LIQUIDITY
Consistent with financial statement presentation, the following cash flow and
financial position discussion primarily reflects brokerage acquisitions. In
addition, the sales of UFLIC and LOV in 1996 have significantly impacted the
consolidated statements of equity and cash flows.
Aon's operating subsidiaries anticipate that there will be adequate liquidity
to meet their needs in the foreseeable future. Aon's routine liquidity needs are
primarily for servicing its debt and for the payment of dividends on stock
issues and the capital securities. Dividends from Aon's subsidiaries are the
primary source for meeting these requirements. After meeting its routine
dividend and debt servicing requirements, Aon used a majority of the remaining
dividends received throughout the year to invest in the operational segments of
its businesses. 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 1997 again exceeded the
risk-based capital target set by the National Association of Insurance
Commissioners by a satisfactory level. At December 31, 1997, Aon had back-up
lines of credit available of $900 million.
The businesses of Aon's operating subsidiaries continue to provide substantial
positive cash flow. Brokerage cash flow has
- 22 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
been used primarily for acquisition related activities. Given Aon's fixed
maturity portfolio's average life of 6.3 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.
In 1997, Aon completed various acquisitions with an aggregate purchase price of
approximately $1.6 billion, which were funded by the issuance of commercial
paper, internal funds, and the issuance of $800 million of capital securities.
The capital securities are designated on the consolidated statements of
financial position as "Company-obligated Mandatorily Redeemable Preferred
Capital Securities of Subsidiary Trust holding solely the Company's Junior
Subordinated Debentures" (see note 8).
Cash flow from operations per the Consolidated Statements of Cash Flows
increased $430 million from 1996 to $784 million. This increase primarily
reflects 1997 brokerage acquisitions, the timing of the settlement of insurance
segment receivables and payables, and payments on special charges and valuation
adjustments relating to the acquisitions.
Investing activities used cash of $1.4 billion in 1997, which was made available
from financing and operating activities. Investing activities provided cash of
$238 million in 1996.
Cash totaling $1.3 billion was provided by financing activities in 1997. The
increase primarily reflected the issuance of commercial paper and the proceeds
from the sale of the capital securities. Partially offsetting this increase was
the use of funds to purchase and retire 5,446,000 shares of the 8% preferred
stock at a total cost of $136 million. The net cash provided from capital
accumulation product deposits and withdrawals was $329 million in 1997. Cash was
used to pay dividends of $169 million on common stock, $11 million on the 8%
preferred stock, and $2 million on redeemable preferred stock.
Total assets increased $5.0 billion to $18.7 billion, primarily due to the
brokerage acquisitions. Invested assets at December 31, 1997 increased $709
million from year end 1996 levels.
Year 2000
Aon began work on the computer Year 2000 issue in 1995 and expects to complete
its efforts by mid 1999. Software applications, hardware, and technology
infrastructure have been upgraded or replaced both to improve the computing
capabilities for all businesses and ensure that all systems are Year 2000
compliant. Replacing hardware and software in this fashion is considered a
normal cost of doing business and is being expensed or capitalized as
appropriate. Aon's Year 2000 remediation cost for all lines of business is
expected to be less than $50 million through 1999.
Aon has established a full-time Year 2000 project coordinator and a global
contact for all major business units. The effort includes representatives from
Aon's legal and internal audit staffs. In addition, individual Aon business
units have formally evaluated their Year 2000 compliance status in a survey and
are identifying specific hardware and software compliance issues where
appropriate. These inventories include Aon's internal systems and services as
well as exposure from suppliers, service providers, and customers. The
individual business units will be making the necessary changes to become
compliant according to their plans and the progress will be monitored by Aon's
Year 2000 compliance coordinating team.
Aon has established a program to contact insurance underwriters and external
business partners in connection with their Year 2000 compliance programs. Aon
does not warrant, however, that these companies' Year 2000 compliance
activities will be completely successful.
INVESTMENT OPERATIONS
Aon 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 to
long-term instruments. Longer-term assets which support capital include private
equity investments that are expected to generate returns in excess of those
available in the public capital markets.
With a carrying value of $3.1 billion, Aon's total fixed maturity portfolio is
invested primarily in investment grade holdings (96.4%) and has a fair value
which is 104.3% of amortized cost.
<TABLE>
<CAPTION>
INVESTED ASSETS
(millions) As of December 31 1997 1996
- -----------------------------------------------------------------------
Short-term investments:
<S> <C> <C>
Brokerage and consulting $1,473 $ 875
Insurance and other 225 392
Fixed maturities 3,144 2,826
Equity securities 806 879
Other 274 241
- -----------------------------------------------------------------------
Total invested assets $5,922 $5,213
=======================================================================
</TABLE>
- 23 -
<PAGE>
MANAGEMENT'S ANALYSIS OF OPERATING RESULTS AND FINANCIAL CONDITION
<TABLE>
<CAPTION>
INVESTMENT INCOME
(millions) As of December 31 1997 1996
- -----------------------------------------------------------------------
Short-term investments:
<S> <C> <C>
Brokerage and consulting $ 164 $ 83
Insurance and other 14 22
Fixed maturities 210 197
Equity securities 95 61
Other 23 31
- -----------------------------------------------------------------------
Gross investment income 506 394
Investment expenses 12 10
- -----------------------------------------------------------------------
Net investment income $ 494 $ 384
=======================================================================
</TABLE>
Market Risk Exposure
Aon is subject to various market risk exposures including foreign exchange rate
risk, interest rate risk, and equity price risk. The following disclosure
reflects estimates of future performance and economic conditions. Actual results
may differ.
Aon is subject to foreign exchange rate risk associated with translating
financial statements of its foreign subsidiaries into U.S. dollars.
Additionally, certain of Aon's foreign subsidiaries receive revenues in
currencies that differ from the currency in which their operating expenses are
denominated. Aon's primary exposures are associated with the British Pound, the
Dutch Guilder, the Canadian Dollar, the Australian Dollar, and the German Mark.
Aon uses forward contracts and foreign currency futures and options to protect
against adverse transaction and translation effects due to exchange rate
fluctuations. The potential decrease to Aon's consolidated equity resulting from
a hypothetical 10% adverse change in quoted year end foreign currency exchange
rates amounts to $120 million. The impact to pretax net income in the event of a
hypothetical 10% adverse change in the quoted year end exchange rates would not
be material after consideration of derivative positions.
Due to the nature of Aon's businesses, operating earnings are affected by
changes in international and domestic short-term interest rates. Aon hedges
against fluctuations in short-term interest rates with Eurodollar and
Eurosterling futures contracts, interest rate swaps, and interest rate caps. A
hypothetical 1% decrease in interest rates would have a decrease, net of
derivative positions, of $24 million to pretax income. Aon's earnings are also
affected by interest rate risks related to short-term borrowings. A hypothetical
1% decrease in short-term interest rates would correspondingly decrease Aon's
interest expense by $8 million, partially offsetting the loss of short-term
investment income.
The valuation of Aon's fixed maturity portfolio is subject to long-term interest
rate risk. Aon generally uses treasury options and futures and interest rate
swaps to hedge the value of the fixed maturity portfolio. A hypothetical 1%
increase in long-term interest rates would decrease the fair value of the
portfolio, net of derivative positions, by approximately $155 million. Aon has
long-term notes payable and capital securities outstanding at December 31, 1997
with a fair value of $1.5 billion. Such fair value exceeded the carrying value
by approximately $100 million. A hypothetical 1% decrease in interest rates
would increase the fair value by approximately 10%.
The valuation of Aon's marketable equity portfolio is subject to equity price
risk. If market prices were to decrease 10%, the fair value of the equity
portfolio would have a corresponding decrease of $81 million. At December 31,
1997 there were no outstanding derivatives hedging the price risk on the equity
portfolio.
CAPITAL RESOURCES In 1997, short-term borrowings increased $551 million. This
increase was primarily attributable to commercial paper used primarily for
acquisition activity. Notes payable increased in 1997 by $116 million when
compared to year end 1996, due to both acquisition financing and acquired debt.
On November 3, 1997, Aon exercised its option to redeem all of the remaining
outstanding shares of 8% preferred stock at a redemption price of $25.00 per
share plus accrued dividends. The cost of repurchasing these shares was
approximately $136 million, financed primarily by short-term borrowings.
Aon Corporation borrows funds from and lends funds to its various subsidiaries.
As of December 31, 1997, Aon Corporation held obligations to its subsidiaries of
approximately $0.5 billion. Generally, these obligations have competitive
interest rates.
In 1997, common stockholders' equity per share increased to $16.80, up from
$16.21 in 1996. Total stockholders' equity decreased $11 million primarily due
to the retirement of the 8% preferred stock and the foreign exchange loss. The
foreign exchange loss results from lower exchange rates at year end 1997
compared to year end 1996 for most major European currencies. Principal factors
favorably contributing to equity were net income and net unrealized investment
gains.
- 24 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(millions except per share data) Years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
REVENUE
<S> <C> <C> <C>
Brokerage commissions and fees $3,605.2 $1,918.8 $1,651.3
Premiums earned 1,608.9 1,526.7 1,426.5
Net investment income (note 4) 494.0 384.0 329.4
Realized investment gains (note 4) 6.3 8.1 13.1
Other income 36.2 50.6 45.4
--------- ---------- ----------
Total revenue 5,750.6 3,888.2 3,465.7
==========================================================================================================
BENEFITS AND EXPENSES
Commissions and general expenses 3,968.3 2,328.6 1,982.3
Benefits to policyholders 842.3 789.5 698.5
Interest expense 69.5 40.1 37.3
Amortization of deferred policy acquisition costs 208.2 207.9 207.5
Amortization of intangible assets 120.7 76.5 82.1
--------- ---------- ----------
Total benefits and expenses 5,209.0 3,442.6 3,007.7
==========================================================================================================
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND
MINORITY INTEREST 541.6 445.6 458.0
Provision for income tax (note 6) 203.1 153.8 154.3
--------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST 338.5 291.8 303.7
Minority interest, net of tax--Company-obligated mandatorily
redeemable preferred capital securities (note 8) (39.7) - -
--------- ---------- ----------
INCOME FROM CONTINUING OPERATIONS 298.8 291.8 303.7
DISCONTINUED OPERATIONS (note 3):
Income from discontinued operations, net of tax - 22.4 99.1
Gain on sale of discontinued operations, net of tax - 21.0 -
--------- ---------- ----------
NET INCOME $ 298.8 $ 335.2 $ 402.8
==========================================================================================================
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 287.2 $ 316.4 $ 378.1
==========================================================================================================
DILUTIVE PER SHARE
Income from continuing operations $ 1.68 $ 1.64 $ 1.71
Discontinued operations - 0.26 0.59
--------- ---------- ----------
Net income 1.68 1.90 2.30
--------- ---------- ----------
BASIC PER SHARE
Income from continuing operations 1.71 1.67 1.72
Discontinued operations - 0.26 0.61
--------- ---------- ----------
Net income 1.71 1.93 2.33
--------- ---------- ----------
CASH DIVIDENDS PAID ON COMMON STOCK $ 1.02 $ 0.95 $ 0.89
==========================================================================================================
AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING--DILUTIVE 170.5 168.9 167.3
==========================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 25 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) As of December 31 1997 1996
- ----------------------------------------------------------------------------------------------------------
ASSETS
INVESTMENTS
<S> <C> <C>
Fixed maturities -- at fair value $ 3,143.6 $ 2,826.1
Equity securities -- at fair value 806.3 879.2
Short-term investments 1,697.7 1,266.3
Other investments 274.5 241.2
---------- ----------
Total investments 5,922.1 5,212.8
==========================================================================================================
CASH 1,084.7 410.1
RECEIVABLES
Insurance brokerage and consulting services receivables 5,320.5 3,565.9
Premiums and other 862.6 989.3
Accrued investment income 66.8 69.2
---------- ----------
Total receivables (net of allowance for doubtful
accounts: 1997--$126; 1996--$63) 6,249.9 4,624.4
==========================================================================================================
DEFERRED INCOME TAXES 137.0 -
DEFERRED POLICY ACQUISITION COSTS 549.0 598.8
INTANGIBLE ASSETS (net of accumulated amortization: 1997--$979; 1996--$859) 3,094.5 1,597.7
PROPERTY AND EQUIPMENT AT COST (net of accumulated
depreciation: 1997--$446; 1996--$339) 456.8 323.2
OTHER ASSETS 1,197.2 955.7
==========================================================================================================
TOTAL ASSETS $18,691.2 $13,722.7
==========================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 26 -
<PAGE>
<TABLE>
<CAPTION>
(millions) As of December 31 1997 1996
- ----------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
POLICY LIABILITIES
<S> <C> <C>
Future policy benefits $ 942.6 $ 1,079.4
Policy and contract claims 809.4 840.9
Unearned and advance premiums 1,869.7 1,925.2
Other policyholder funds 828.1 514.1
---------- ----------
Total policy liabilities 4,449.8 4,359.6
==========================================================================================================
INSURANCE PREMIUMS PAYABLE 6,379.8 4,143.7
GENERAL LIABILITIES
Commissions and general expenses 1,488.8 776.8
Accrued income taxes
Current 180.1 80.1
Deferred - 16.5
Short-term borrowings 764.2 213.4
Notes payable 637.1 521.2
Other liabilities 1,119.3 728.5
---------- ----------
TOTAL LIABILITIES 15,019.1 10,839.8
==========================================================================================================
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK 50.0 50.0
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY THE COMPANY'S
JUNIOR SUBORDINATED DEBENTURES 800.0 -
STOCKHOLDERS' EQUITY
Preferred stock--$1 par value
Authorized --25 shares; issued
8% cumulative perpetual preferred stock - 5.5
Common stock--$1 par value
Authorized --300 shares; issued 171.5 114.1
Paid-in additional capital 377.0 475.4
Net unrealized investment gains 189.0 153.1
Net foreign exchange gains (losses) (85.6) 1.0
Retained earnings 2,463.4 2,356.8
Less treasury stock at cost (shares: 1997--3.5; 1996--4.8) (93.2) (121.5)
Less deferred compensation (200.0) (151.5)
---------- ----------
TOTAL STOCKHOLDERS' EQUITY 2,822.1 2,832.9
==========================================================================================================
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $18,691.2 $13,722.7
==========================================================================================================
</TABLE>
- 27 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(millions) Years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PREFERRED STOCK Balance at January 1 $ 5.5 $ 8.1 $ 11.1
Retirement of preferred stock (5.5) (0.5) (3.0)
Conversion of preferred stock to common stock - (2.1) -
--------- ---------- ----------
- 5.5 8.1
==========================================================================================================
COMMON STOCK Balance at January 1 114.1 111.4 110.6
Effect of three-for-two stock split 57.1 - -
Shares issued for business combinations 0.3 0.1 0.8
Conversion of preferred stock to common stock - 2.6 -
--------- ---------- ----------
171.5 114.1 111.4
==========================================================================================================
PAID-IN ADDITIONAL CAPITAL Balance at January 1 475.4 431.8 485.2
Effect of three-for-two stock split (57.1) - -
Stock awards 79.1 55.2 19.2
Adjustment for business combinations 10.3 2.2 (0.6)
Retirement and conversion of preferred stock (130.7) (3.8) (72.0)
--------- ---------- ----------
377.0 475.4 431.8
==========================================================================================================
NET UNREALIZED INVESTMENT GAINS (LOSSES) Balance at January 1 153.1 123.1 (142.8)
Net unrealized investment gains 35.9 30.0 265.9
--------- ---------- ----------
189.0 153.1 123.1
==========================================================================================================
NET FOREIGN EXCHANGE GAINS (LOSSES) Balance at January 1 1.0 1.8 (19.7)
Net foreign exchange gains (losses) (86.6) (0.8) 21.5
--------- ---------- ----------
(85.6) 1.0 1.8
==========================================================================================================
RETAINED EARNINGS Balance at January 1 2,356.8 2,212.1 1,998.1
Net income 298.8 335.2 402.8
Dividends to stockholders (180.2) (171.8) (170.4)
Loss on treasury stock reissued (6.9) (16.0) (21.7)
Adjustment for business combinations (5.0) (2.4) 3.7
Retirement of preferred stock (0.1) (0.3) (0.4)
--------- ---------- ----------
2,463.4 2,356.8 2,212.1
==========================================================================================================
TREASURY STOCK Balance at January 1 (121.5) (97.3) (72.9)
Cost of shares acquired (11.4) (66.1) (71.8)
Shares reissued at average cost 39.7 41.9 47.4
--------- ---------- ----------
(93.2) (121.5) (97.3)
==========================================================================================================
DEFERRED COMPENSATION Balance at January 1 (151.5) (117.3) (112.2)
Issuance of stock awards (80.6) (56.8) (21.2)
Debt guarantee of employee stock ownership plan 13.0 10.7 8.7
Amortization of deferred compensation 19.1 11.9 7.4
--------- ---------- ----------
(200.0) (151.5) (117.3)
==========================================================================================================
STOCKHOLDERS' EQUITY AT DECEMBER 31 $2,822.1 $2,832.9 $2,673.7
==========================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 28 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income $ 298.8 $ 335.2 $ 402.8
Adjustments to reconcile net income to cash
provided by operating activities
Policy liabilities (154.6) 766.7 445.4
Deferred policy acquisition costs (163.6) (213.1) (410.3)
Amortization of deferred policy acquisition costs 208.2 235.6 302.7
Amortization of intangible assets 120.7 79.0 94.2
Other amortization and depreciation 120.5 65.0 63.7
Other operating assets and liabilities 358.4 (887.7) (284.6)
Realized investment gains, net of tax (4.3) (5.1) (4.3)
Gain on sale of discontinued operations - (21.0) -
--------- ---------- ----------
CASH PROVIDED BY OPERATING ACTIVITIES 784.1 354.6 609.6
==========================================================================================================
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments
Fixed maturities
Maturities 104.7 135.5 125.1
Calls and prepayments 155.6 204.5 391.5
Sales 2,175.0 979.7 2,428.8
Equity securities 1,827.3 636.1 1,215.6
Other investments 54.6 200.6 265.2
Purchase of investments
Short-term--net (31.3) (65.2) (126.9)
Fixed maturities (2,766.5) (1,843.3) (3,222.1)
Equity securities (1,723.7) (661.3) (1,131.0)
Other investments (111.2) (302.1) (362.9)
Acquisition of subsidiaries (1,648.9) (342.2) (109.6)
Disposition of subsidiaries - 1,370.0 -
Acquired fiduciary funds from acquisitions 734.0 - -
Property and equipment and other (145.9) (74.8) (97.9)
--------- ---------- ----------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,376.3) 237.5 (624.2)
==========================================================================================================
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock transactions --net 21.4 (40.1) (46.4)
Issuance (repayment) of short-term borrowings--net 541.7 (139.2) 108.8
Issuance of mandatorily redeemable preferred capital securities 800.0 - -
Issuance of long-term debt - - 20.1
Repayment of long-term debt (74.1) (5.7) (12.5)
Interest sensitive life, annuity and investment contracts
Deposits 373.2 508.1 1,287.5
Withdrawals (44.2) (437.4) (1,487.6)
Retirement of preferred stock (136.2) (14.2) (75.4)
Cash dividends to stockholders (182.1) (172.9) (171.3)
--------- ---------- ----------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 1,299.7 (301.4) (376.8)
==========================================================================================================
EFFECT OF EXCHANGE RATE CHANGES ON CASH (32.9) 4.1 (2.1)
INCREASE (DECREASE) IN CASH 674.6 294.8 (393.5)
CASH AT BEGINNING OF YEAR 410.1 115.3 508.8
--------- ---------- ----------
CASH AT END OF YEAR $ 1,084.7 $ 410.1 $ 115.3
==========================================================================================================
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
- 29 -
<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.
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.
The segment information located in the tables on pages 19 through 22 is
incorporated herein by reference.
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 and extended warranty products, premiums
collected are reported as earned in proportion to insurance protection provided
over the period covered by the policies. For life products, 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. Reinsurance receivables and prepaid
reinsurance premium amounts are reported as assets.
Special Charges
The special charges information located on pages 18 and 19 is incorporated
herein by reference.
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 is computed in accordance with the Financial Accounting
Standards Board (FASB) Statement No. 128 "Earnings Per Share."
Basic earnings per share is computed based on the weighted average number of
common shares outstanding, excluding any dilutive effects of options, awards and
convertible securities. Common shares outstanding include 4,230,000 shares,
4,520,000 shares and 4,901,000 shares held by the employee stock ownership plan
in 1997, 1996 and 1995, respectively. Income available to common shareholders is
net of all preferred dividends. Dilutive earnings per share is computed based
on the weighted average number of common shares outstanding plus the dilutive
effects of options, awards and convertible securities. The dilutive effect of
options and awards is calculated under the treasury stock method using the
average market price for the period. Earnings per share is calculated as
follows:
<TABLE>
<CAPTION>
(millions except per share data) 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income from continuing operations $ 299 $ 292 $ 304
8% preferred stock dividends (9) (11) (16)
Redeemable preferred stock dividends (3) (2) (2)
-------- -------- --------
Continuing income for dilutive $ 287 $ 279 $ 286
6.25% preferred stock dividends - (5) (7)
-------- -------- --------
Continuing income for basic $ 287 $ 274 $ 279
- --------------------------------------------------------------------------------------
Basic shares outstanding 168 164 162
Common stock equivalents 3 2 1
6.25% convertible preferred shares - 3 4
-------- -------- --------
Dilutive potential common shares 171 169 167
- --------------------------------------------------------------------------------------
Dilutive earnings per share $1.68 $1.64 $1.71
Basic earnings per share $1.71 $1.67 $1.72
======================================================================================
</TABLE>
A three-for-two stock split of Aon's $1.00 par value common stock was effected
on May 14, 1997 with 57 million shares issued to common stockholders of record
as of May 1, 1997. All references in the accompanying financial statements and
retroactively restated to reflect the stock split.
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
- 30 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
of discounts to maturity that are included in net investment income. 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. Other investments are carried generally at cost.
Realized investment gains or losses are computed using specific costs of
securities sold.
Investments that have declines in fair value below cost, which are judged to be
other than temporary, are written down to estimated fair values. Reserves for
certain other investments are established based on an evaluation of the
respective investment portfolio and current economic conditions. Write-downs and
changes in reserves are included in realized investment gains and losses in the
consolidated 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 other intangible assets
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. 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 investments are comprised of mortgage loans, policy loans,
real estate joint ventures and limited partnerships. 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. It was not practicable to estimate the fair value of
joint ventures and limited partnerships 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.
Future Policy Benefits, Unearned Premiums, and Policy and Contract Claims
Future policy benefit liabilities on non-universal life 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, 1997. Withdrawal assumptions are based principally on
insurance subsidiaries' experience and vary by plan, year of issue, and
duration. Policyholder liabilities on universal life 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 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. The deferred tax
benefit of foreign exchange losses is $51 million at December 31, 1997, compared
to the deferred tax effect of foreign exchange gains of $1 million at December
31, 1996 and 1995.
Accounting Changes
In 1997, the FASB issued Statement No. 128, "Earnings Per Share." Aon adopted
this statement in its December 31,
- 31 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1997 financial statements and has restated prior periods presented as required.
Implementation of this Statement did not have a material effect on Aon's
financial statements.
In 1997, the FASB issued Statement No. 130, "Reporting Comprehensive Income."
This Statement establishes standards for reporting and classifying components
of comprehensive income in the financial statements and requires that the
accumulated balance of other comprehensive income be displayed separately from
retained earnings and additional paid-in-capital in the equity section of a
statement of financial position. The FASB also issued Statement No. 131,
"Disclosures about Segments of an Enterprise and Related Information" in 1997.
This Statement establishes standards for providing disclosures related to
products and services, geographic area, and major customers. Aon anticipates
adopting these statements in its 1998 financial statements as required.
Implementation of these statements is not expected to have a material effect on
Aon's financial statements.
In 1997, Aon adopted FASB Statement No. 125, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities."
Implementation of this Statement did not have a material effect on Aon's
financial statements.
In 1996, Aon adopted the disclosure requirements of FASB Statement No. 123,
"Accounting for Stock-Based Compensation." As allowed by Statement No. 123, Aon
chose 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 (see
note 10).
Reclassification
Certain amounts in the prior years' consolidated financial statements have been
reclassified to conform to the 1997 presentation.
2. BUSINESS COMBINATIONS
Purchase Method
In 1997, Aon acquired Alexander & Alexander Services Inc. (A&A), the Minet Group
(Minet) and Jauch & Hubener for approximately $1.6 billion in transactions
accounted for by the purchase method. Certain purchase price allocations for
1997 acquisitions will be finalized in 1998. Additionally, Aon acquired certain
other operations at an aggregate cost of $86 million and $110 million in 1996
and 1995, respectively. The 1997 acquisitions were financed primarily by the
issuance of capital securities (see note 8), issuance of commercial paper and
internal funds. Intangible assets of approximately $1.5 billion were created by
these acquisitions. In 1997, as a result of the A&A acquisition, Aon established
approximately $200 million of purchase accounting liabilities, primarily
relating to severance and related costs for approximately 2,000 terminations and
the consolidation of real estate space. In connection with these items, Aon had
approximately $100 million remaining unpaid in the commission and general
expense liability at December 31, 1997. The 1997 consolidated statement of
income included the operations of A&A since January 1, 1997. If the A&A
acquisition had been consummated on January 1, 1996, the unaudited proforma
consolidation results of operations would have resulted in total revenues of
$5.2 billion, income from continuing operations of $258 million and net income
of $291 million.
In October 1996, Aon acquired Bain Hogg for approximately $260 million. This
acquisition was financed by internal funds. The 1996 consolidated statement of
income includes the operations of Bain Hogg since the date of acquisition.
Aon's 1996 revenues would have been approximately $260 million greater had the
acquisition occurred on January 1, 1996. As a result of this acquisition,
approximately $85 million of purchase accounting liabilities were established
primarily relating to both the costs associated with the consolidation of real
estate activities and severance liabilities. In connection with these items, Aon
had approximately $55 million remaining unpaid in the commission and general
expense liability at December 31, 1997.
Pursuant to a 1994 purchase agreement, Aon is contingently liable through 1999
to issue up to 292,000 additional shares of common stock based on a formula
relating to future earnings of that operation. In accordance with a 1992
purchase agreement, securities with a value of $50 million are being held in
escrow. The escrowed securities will be released on a predetermined schedule
between 1998 and 2007.
Pooling of Interests Method
In 1997, 1996 and 1995, Aon issued 274,000 shares, 819,000 shares and 2,106,000
shares of common stock, respectively, for mergers with insurance brokerage and
consulting organizations. In connection with several of the mergers, 760,000
shares issued to sellers are being held in escrow at December 31, 1997, 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.
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 after-tax
sales proceeds of approximately $1.2 billion. The gain on sale of discontinued
operations was $21 million, net of taxes.
For 1996 and 1995, the discontinued operations had revenues of $293 million and
$1,145 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 and $53 million in 1996 and 1995,
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 and
$18 million in 1996 and 1995, respectively. The allocation of interest expense
was based on the ratio of discontinued net assets to total consolidated equity
and debt.
- 32 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
A&A's Discontinued Operations
A&A discontinued its insurance underwriting operations in 1985, some of which
were then placed into run-off, the remainder sold in 1987. In connection with
those sales, A&A provided indemnities to the purchaser for various estimated and
potential liabilities, including provisions to cover future losses attributable
to insurance pooling arrangements, a stop-loss reinsurance agreement, and
actions or omissions by various underwriting agencies previously managed by an
A&A subsidiary.
As of December 31, 1997, the liabilities associated with the foregoing
indemnities and liabilities of insurance underwriting subsidiaries that are
currently in run-off were included in other liabilities in the accompanying
statement of financial position and amount to $152 million. Such liabilities are
net of reinsurance recoverables and other assets of $176 million.
The insurance liabilities represent estimates of known and future claims
expected to be made under occurrence-based insurance policies and reinsurance
business covering principally asbestos, environmental pollution, and latent
disease risks in the United States along with substantial litigation-related
expenses. Those claims are expected to develop and be settled over the next
twenty to thirty years.
The insurance liabilities cannot be estimated using conventional actuarial
reserving techniques because of, among other matters, the inadequacy of
available historical experience to support such techniques and because case law
and scientific standards for measuring the adequacy of site clean-up are still
evolving. Therefore, independent actuaries have combined available exposure
information with other relevant industry data and have used various projection
techniques to estimate the insurance liabilities, which liabilities consist
principally of incurred but not reported losses.
Although these insurance liabilities represent A&A's best estimate of the
probable liabilities, adverse developments may occur due to the nature of the
information available to A&A and the variables inherent in the estimation
processes. Based on current estimates, management believes that the established
liabilities of discontinued operations are sufficient to cover A&A's exposures.
4. INVESTMENTS
The components of net investment income are as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $210 $197 $164
Equity securities 95 61 59
Short-term investments 178 105 86
Other 23 31 28
- --------------------------------------------------------------------------------------
Gross investment income 506 394 337
Investment expenses 12 10 8
- --------------------------------------------------------------------------------------
Net investment income $494 $384 $329
======================================================================================
</TABLE>
Realized gains (losses) on investments are as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Gross gains $ 27 $13 $ 8
Gross losses (14) (9) (3)
Equity securities 20 12 12
Other (27) (8) (4)
- --------------------------------------------------------------------------------------
Total before tax 6 8 13
Less applicable tax 2 3 5
- --------------------------------------------------------------------------------------
Total net realized investment gains $ 4 $ 5 $ 8
======================================================================================
</TABLE>
The components of net unrealized gains (losses) are as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities $130 $112 $115
Equity securities 167 128 78
Deferred tax charge (108) (87) (70)
- --------------------------------------------------------------------------------------
Net unrealized investment gains $189 $153 $123
======================================================================================
</TABLE>
The changes in net unrealized investment gains (losses) are as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Fixed maturities:
Available for sale $18 $(3) $273
Held to maturity - - 234
Equity securities 39 50 128
- --------------------------------------------------------------------------------------
Total $57 $47 $635
======================================================================================
</TABLE>
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
As of December 31, 1997 Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- --------------------------------------------------------------------------------------
U.S. government
<S> <C> <C> <C> <C>
and agencies $ 209 $ 4 $ - $ 213
States and political
subdivisions 524 31 - 555
Foreign governments 842 51 (1) 892
Corporate securities 1,342 53 (10) 1,385
Mortgage-backed
securities 42 2 - 44
Other fixed maturities 55 1 (1) 55
- --------------------------------------------------------------------------------------
Total fixed maturities 3,014 142 (12) 3,144
Total equity securities 639 175 (8) 806
- --------------------------------------------------------------------------------------
Total $3,653 $317 $(20) $3,950
======================================================================================
</TABLE>
<TABLE>
<CAPTION>
Gross Gross
As of December 31, 1997 Amortized Unrealized Unrealized Fair
(millions) Cost Gains Losses Value
- --------------------------------------------------------------------------------------
U.S. government
<S> <C> <C> <C> <C>
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
======================================================================================
</TABLE>
- 33 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The amortized cost and fair value of fixed maturities, by contractual maturity
as of December 31, 1997, are 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 $ 110
Due after one year through five years 858 891
Due after five years through ten years 937 991
Due after ten years 1,068 1,108
Mortgage-backed securities 42 44
- -----------------------------------------------------------------------
Total $3,014 $3,144
=======================================================================
Securities on deposit for regulatory authorities as required by law amounted to
$309 million at December 31, 1997 and $308 million at December 31, 1996. As
required by the by-laws of Lloyd's brokers, assets subject to floating charges
for the benefit of insurance creditors amounted to $953 million and $853 million
at December 31, 1997 and 1996, respectively. Aon maintains premium trust bank
accounts for premiums collected from insureds but not yet remitted to insurance
companies of $1.4 billion and $0.6 billion at December 31, 1997 and 1996,
respectively.
At December 31, 1997 and 1996, respectively, Aon had $96 million and $42 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 1997 1996
- -----------------------------------------------------------------------
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
Debt guarantee of employee stock
ownership plan (ESOP) 33 46
Notes payable, due in varying installments,
with interest at 6% to 8% 154 25
- -----------------------------------------------------------------------
Total notes payable $637 $521
=======================================================================
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, excluding the debt guarantee of
ESOP, are $27 million, $108 million, $6 million, $2 million and $100 million in
1998, 1999, 2000, 2001 and 2002, respectively. In addition, Aon has $900
million of committed bank credit facilities at December 31, 1997 to support its
commercial paper program.
Information related to notes payable (excluding the debt guarantee of ESOP) and
short-term borrowings is as follows:
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest paid (millions) $70 $45 $54
Weighted average interest rates --
short-term borrowings 5.6% 5.3% 5.9%
======================================================================================
</TABLE>
Debt Guarantee of ESOP
Aon's 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 classified as notes payable in the accompanying statements of
financial position. An equivalent amount, representing deferred compensation, is
recorded as a deduction from stockholders' equity. The ESOP paid $16 million,
$15 million and $14 million in 1997, 1996 and 1995, 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. 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 642,000 shares in
1997. The remaining unallocated shares at December 31, 1997, will be released
for allocation annually through 1999.
The following table details the shares held by the ESOP:
(thousands) As of December 31 1997 1996
- -----------------------------------------------------------------------
Allocated 2,787 2,435
Committed to be released 709 642
Unallocated 734 1,443
- -----------------------------------------------------------------------
Total 4,230 4,520
=======================================================================
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, 1997 are:
(millions) Minimum Lease Payments
- -----------------------------------------------------------------------
1998 $ 177
1999 160
2000 143
2001 121
2002 95
Later years 417
- -----------------------------------------------------------------------
Total minimum payments required $1,113
=======================================================================
Rental expenses for all operating leases for the years ended December 31, 1997,
1996 and 1995, amounted to $177 million, $114 million and $103 million,
respectively.
- 34 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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:
<TABLE>
<CAPTION>
Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income (3.1) (3.7) (3.8)
State income taxes 2.8 3.5 2.8
Other--net 2.8 (0.3) (0.3)
- --------------------------------------------------------------------------------------
Effective tax rate 37.5% 34.5% 33.7%
======================================================================================
The provision for income tax is made up of the following components:
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Current:
Federal $ 21 $115 $111
Foreign 35 55 45
State 18 25 20
- --------------------------------------------------------------------------------------
Total current $74 $195 $176
- --------------------------------------------------------------------------------------
Deferred (credit):
Federal $100 $ (9) $(17)
Foreign 24 (31) (4)
State 5 (1) (1)
- --------------------------------------------------------------------------------------
Total deferred 129 (41) (22)
- --------------------------------------------------------------------------------------
Provision for income tax $203 $154 $154
======================================================================================
</TABLE>
During 1997, Aon's consolidated statement of income reflects a tax benefit of
$24 million on the capital securities.
Significant components of Aon's deferred tax assets and liabilities are as
follows:
(millions) As of December 31 1997 1996
- -----------------------------------------------------------------------
Deferred tax assets:
Insurance reserve amounts $ 129 $ 140
Net operating loss and tax credit carryforwards 86 -
Certain purchase accounting
and restructuring liabilities 100 40
Other--net 83 54
- -----------------------------------------------------------------------
Total deferred tax assets 398 234
- -----------------------------------------------------------------------
Deferred tax liabilities:
Policy acquisition costs (54) (65)
Unrealized investment gains (108) (87)
Other--net (43) (99)
- -----------------------------------------------------------------------
Total deferred tax liabilities (205) (251)
- -----------------------------------------------------------------------
Valuation allowance (56) -
- -----------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 137 $ (17)
=======================================================================
As of December 31, 1997, a U.S. subsidiary of Aon (A&A) had U.S. federal net
operating loss carryforwards of $96 million which expire in years 2008 through
2010, and federal foreign tax credit carryforwards of $18 million which expire
in years 1998 through 2000.
The Internal Revenue Code imposes limitations on the utilization of federal net
operating loss and tax credit carry-forwards after a change of control,
consequently, there will be annual limitations on the realization of these tax
assets. Accordingly, in connection with the purchase of A&A, a $56 million
valuation allowance was established. Subsequently recognized tax benefits for
these items would reduce goodwill. Although future earnings cannot be predicted
with certainty, management currently believes that realization of the net
deferred tax asset after consideration of the valuation allowance is more likely
than not.
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, 1997, 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 taxes payable
would be $127 million.
The amount of income taxes paid in 1997, 1996 and 1995 was $137 million, $387
million and $256 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:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Ceded premiums earned $609 $508 $316
Ceded premiums written 713 667 369
Assumed premiums earned 298 292 83
Assumed premiums written 284 276 101
Ceded benefits to policyholders 286 220 153
======================================================================================
</TABLE>
- 35 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Activity in the liability for policy contract claims is summarized as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Liabilities at beginning of year $ 535 $ 715 $ 681
Incurred losses:
Continuing operations --current year 814 774 672
Continuing operations --prior year (50) (36) (17)
Discontinued operations* - 90 361
- --------------------------------------------------------------------------------------
Total 764 828 1,016
- --------------------------------------------------------------------------------------
Payment of claims:
Current year (538) (552) (651)
Prior years (241) (283) (331)
- --------------------------------------------------------------------------------------
Total (779) (835) (982)
- --------------------------------------------------------------------------------------
Liability for business sold - (173) -
- --------------------------------------------------------------------------------------
Liabilities at end of year
(net of reinsurance recoverables:
1997--$289, 1996--$306,
1995--$256) $ 520 $ 535 $ 715
======================================================================================
<FN>
*excludes A&A discontinued operations.
</FN>
</TABLE>
8. REDEEMABLE PREFERRED STOCK, CAPITAL SECURITIES AND STOCKHOLDERS' EQUITY
Redeemable Preferred Stock
At December 31, 1997, 1,000,000 shares of redeemable preferred stock are
outstanding. 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.
Capital Securities
In January 1997, Aon created Aon Capital A, a wholly-owned statutory business
trust, for the purpose of issuing mandatorily redeemable preferred capital
securities (Capital Securities). The sole asset of Aon Capital A is $824 million
aggregate principal amount of Aon's 8.205% Junior Subordinated Deferrable
Interest Debentures due January 1, 2027. The back-up guarantees, in the
aggregate, provide a full and unconditional guarantee of the Trust's obligations
under the 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 A&A acquisition. 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. The capital securities are categorized
on the consolidated statement of financial position as "Company-obligated
Mandatorily Redeemable Preferred Capital Securities of Subsidiary Trust holding
solely the Company's Junior Subordinated Debentures." The after-tax interest
incurred on the capital securities is reported as minority interest on the
consolidated statement of income.
8% Cumulative Perpetual Preferred Stock
At December 31, 1996, 5,446,000 shares of 8% cumulative perpetual preferred
stock were outstanding. Dividends were cumulative at the annual rate of $2.00
per share. In November 1997, Aon purchased and retired all of the remaining
outstanding shares at a total cost of $136 million.
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 1.83 shares of com-mon stock for a total
of 3,909,000 common shares.
Common Stock
Aon repurchased 202,000, 1,931,000 and 2,969,000 shares in 1997, 1996 and 1995,
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:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Redeemable preferred stock $ 2 $ 2 $ 2
8% cumulative perpetual
preferred stock 9 11 16
6.25% cumulative convertible
exchangeable preferred stock - 5 7
Common stock 169 154 145
- --------------------------------------------------------------------------------------
Total dividends incurred $180 $172 $170
======================================================================================
</TABLE>
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 in
1995 and the statutory gain on the sale of LOV and UFLIC in 1996), is summarized
as follows:
(millions) Years ended December 31 1997 1996 1995
- ---------------------------------------------------------------------------
Life insurance $265 $807 $197
Property casualty 66 71 58
===========================================================================
Statutory capital and surplus of the insurance subsidiaries is summarized as
follows:
(millions) As of December 31 1997 1996 1995
- ---------------------------------------------------------------------------
Life insurance $724 $612 $766
Property casualty 438 364 296
===========================================================================
- 36 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. EMPLOYEE BENEFITS
Savings and Profit Sharing Plans
Certain of Aon's subsidiaries maintain contributory savings plans 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 plans are based
on a match of 100% of employee contributions up to a maximum of 3% of eligible
compensation. Provisions made for these plans were $22 million in 1997, and $14
million in 1996 and 1995, respectively. The provision made in 1997 increased as
compared to 1996 primarily due to the acquisition of A&A.
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 $14 million, $12 million and $11 million in 1997, 1996 and
1995, respectively.
Domestic Pension Plan
Certain of Aon's subsidiaries maintain non-contributory defined benefit pension
plans 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 plans 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 1997, 1996 and 1995 is as follows:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Defined benefit plan:
<S> <C> <C> <C>
Service cost-benefit earned $ 32 $ 21 $ 17
Interest cost on projected
benefit obligation 46 21 19
Actual return on plan assets (159) (51) (66)
Net amortization and deferral 97 29 44
- --------------------------------------------------------------------------------------
Net periodic pension cost $ 16 $ 20 $ 14
======================================================================================
</TABLE>
The weighted average assumptions used in accounting for the defined benefit plan
were:
Years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------
Assumed discount rate 7.5% 7.8% 7.5%
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%
=============================================================================
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.
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 plans.
(millions) As of December 31 1997 1996
- -----------------------------------------------------------------------
Actuarial present value of benefit obligations:
Vested benefit obligation $(580) $(255)
Accumulated benefit obligation (595) (261)
- -----------------------------------------------------------------------
Projected benefit obligation (692) (305)
Plan assets at fair value 853 317
- -----------------------------------------------------------------------
Difference between projected
benefit obligation and plan assets 161 12
Unrecognized net gain (123) (63)
Unrecognized prior service cost 1 1
- -----------------------------------------------------------------------
Pension cost included in other assets
(liabilities) $ 37 $ (50)
- -----------------------------------------------------------------------
1997 includes the A&A pension plan, including a projected benefit obligation of
$336 million and plan assets at fair value of $469 million.
Plan assets include marketable equity securities and corporate and government
debt securities, including securities issued by Aon totaling $50 million and $35
million in 1997 and 1996, respectively.
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:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
United Kingdom:
<S> <C> <C> <C>
Service cost-benefit earned $ 44 $ 11 $ 11
Interest cost on projected
benefit obligation 85 17 15
Actual return on plan assets (197) (28) (29)
Net amortization and deferral 71 6 11
- --------------------------------------------------------------------------------------
Net periodic pension cost $ 3 $ 6 $ 8
======================================================================================
The Netherlands:
Service cost-benefit earned $ 4 $ 4 $ 4
Interest cost on projected
benefit obligation 8 9 9
Actual return on plan assets (10) (11) (11)
Net amortization and deferral - - -
- --------------------------------------------------------------------------------------
Net periodic pension cost $ 2 $ 2 $ 2
======================================================================================
</TABLE>
- 37 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The weighted average assumptions used in accounting for these defined benefit
plans were:
Years ended December 31 1997 1996 1995
- ----------------------------------------------------------------------------
United Kingdom:
Assumed discount rate 7.0% 8.0% 9.0%
Rate of compensation increase 5.5% 5.5% 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 1997 and 1996 consolidated statements of financial position for Aon's
foreign defined benefit pension plans.
United Kingdom:
(millions) As of December 31 1997 1996
- -----------------------------------------------------------------------
Projected benefit obligation $(1,501) $(617)
Plan assets at fair value 1,602 680
- -----------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 101 63
Unrecognized net loss 138 6
Unrecognized prior service cost - 1
Unrecognized net transition obligation 1 1
- -----------------------------------------------------------------------
Prepaid pension cost included in
other assets $ 240 $71
=======================================================================
The Netherlands:
(millions) As of December 31 1997 1996
- -----------------------------------------------------------------------
Projected benefit obligation $(122) $(136)
Plan assets at fair value 149 165
- -----------------------------------------------------------------------
Plan assets in excess of projected
benefit obligation 27 29
Unrecognized net loss 15 18
- -----------------------------------------------------------------------
Prepaid pension cost included in
other assets $ 42 $ 47
=======================================================================
The funded status and the amounts recognized in the consolidated statements of
financial position increased in 1997 as compared to 1996 primarily due to
acquisitions.
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:
<TABLE>
<CAPTION>
As of December 31, 1997 1996
(millions) Medical Life Medical Life
- --------------------------------------------------------------------------------------
Accumulated postretirement
benefit obligation:
<S> <C> <C> <C> <C>
Retirees $(30) $(11) $(17) $ (7)
Fully eligible active
plan participants (5) (1) (5) (2)
Other active plan
participants (12) (2) (7) (2)
- --------------------------------------------------------------------------------------
(47) (14) (29) (11)
- --------------------------------------------------------------------------------------
Plan assets at fair value - 7 - -
- --------------------------------------------------------------------------------------
Unrecognized prior service (12) (4) (16) (5)
Unrecognized net gain (15) (8) (20) (7)
- --------------------------------------------------------------------------------------
Accrued postretirement
benefit liability $(74) $(19) $(65) $(23)
======================================================================================
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
(millions) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Service cost $ 2 $ 1 $ 1
Interest cost 4 3 3
Return on assets (1) - -
Amortization of prior service (6) (7) (7)
- --------------------------------------------------------------------------------------
Net periodic postretirement
benefit credit $ (1) $ (3) $ (3)
======================================================================================
</TABLE>
For measurement purposes in 1997, 1996 and 1995, an 8.5%, 9.5% and 10.5%,
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.
Assumptions used in determining the APBO are summarized below:
As of December 31 1997 1996 1995
- -----------------------------------------------------------------------
Weighted-average discount rate 7.5% 7.8% 7.5%
Weighted-average rate of
compensation increase 5.0% 5.0% 5.0%
=======================================================================
- 38 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. STOCK COMPENSATION PLANS
Stock Award Plan
In 1997, Aon's stockholders approved an amendment to the Aon Stock Award Plan
that increased the aggregate number of common stock that Aon could award up to
12,900,000 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:
<TABLE>
<CAPTION>
(thousands) Years ended December 31 1997 1996 1995
- --------------------------------------------------------------------------------------
Shares outstanding at beginning
<S> <C> <C> <C>
of year 5,210 3,914 3,254
Granted 1,869 1,793 1,063
Vested and exercised (570) (398) (324)
Canceled (95) (99) (79)
- --------------------------------------------------------------------------------------
Shares outstanding at end of year 6,414 5,210 3,914
======================================================================================
</TABLE>
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. In 1997, Aon's stockholders approved an
amendment to the Aon Stock Option Plan that increased the aggregate number of
common stock that Aon could issue up to 23,300,000 shares. 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 applies Accounting Principles Board Option No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its plans.
Accordingly, no compensation expense has been recognized for its stock-based
compensation plans other than the Aon Stock Award Plan. Had compensation cost
for the stock award and the stock option plans been determined based upon the
fair value at the grant date for these plans consistent with the methodology
prescribed under Statement No. 123, Aon's net income and net income per share
for 1997, 1996 and 1995 would have been reduced to the following pro forma
amounts:
<TABLE>
<CAPTION>
(millions except per share data) Years ended December 31 1997 1996 1995
- -------------------------------------------------------------------------------------------
Net income:
<S> <C> <C> <C>
As reported $299 $335 $403
Pro forma 292 330 401
Net income per share:
Diluted
As reported 1.68 1.90 2.30
Pro forma 1.64 1.87 2.29
Basic
As reported 1.71 1.93 2.33
Pro forma 1.67 1.90 2.32
===========================================================================================
</TABLE>
The fair value per share of options and awards granted is estimated as $8.97
and $41.59 in 1997, $8.19 and $30.87 in 1996, and $5.60 and $22.39 in 1995,
respectively, on the grant date using the Black-Scholes option pricing model
with the following weighted average assumptions: dividend yield of 2.5%;
expected volatility of 20%, risk-free interest rate of 6%; and an expected term
life of 1.35 years and 0 years for the stock option plan and the stock award
plan, respectively. The compensation cost as generated by the Black-Scholes
model, may not be indicative of the future benefit, if any, that may be received
by the option holder.
The proforma information reflected above may not be representative of the
amounts to be expected in future years as the fair value method of accounting
contained in FASB Statement No. 123 has not been applied to options granted
prior to January 1995.
A summary of Aon's stock option activity and related information consists of
the following:
<TABLE>
<CAPTION>
Years ended December 31, 1997 1996 1995
- ------------------------------------------------------------------------------------------
Weighted Weighted
Average Average
Exercise Exercise Price
(shares in thousands) Shares Price Shares Price Shares Range
- ------------------------------------------------------------------------------------------
Beginning
<S> <C> <C> <C> <C> <C> <C> <C>
Outstanding 5,276 $26 5,212 $21 5,019 $ 9-24
Granted
(at fair value) 1,646 48 1,535 35 1,629 21-25
Exercised (579) 20 (732) 17 (1,121) 9-19
Canceled (291) 29 (739) 23 (315) 11-24
- ------------------------------------------------------------------------------------------
Ending
outstanding 6,052 31 5,276 26 5,212 13-25
- ------------------------------------------------------------------------------------------
Exercisable at
end of year 696 21 465 19 638 13-23
- ------------------------------------------------------------------------------------------
Options available
for grant 5,727 1,295 2,175
==========================================================================================
</TABLE>
A summary of options outstanding and options exercisable is as follows:
<TABLE>
<CAPTION>
As of December 31, 1997
(shares in thousands) Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (years) Price Exercisable Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$17.33-$22.29 651 2.2 $20.00 296 $18.92
22.64- 22.64 1,070 3.2 22.64 251 22.64
22.83- 23.83 1,052 3.2 23.41 23 23.07
23.89- 32.58 382 2.7 24.57 126 24.47
34.33- 54.97 2,897 8.0 44.95 - -
- ----------------------------------------------------------------------------------
$17.33-$54.97 6,052 5.2 $31.10 696 $21.41
==================================================================================
</TABLE>
- 39 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
As of December 31, 1996
(shares in thousands) Options Outstanding Options Exercisable
- ----------------------------------------------------------------------------------
Weighted
Average Weighted Weighted
Range of Remaining Average Average
Exercise Shares Contractual Exercise Shares Exercise
Prices Outstanding Life (years) Price Exercisable Price
- ----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$16.33-$22.29 1,038 2.7 $19.29 353 $17.63
22.64- 22.64 1,203 4.2 22.64 - -
22.83- 23.83 1,119 5.1 23.77 21 22.97
23.89- 32.58 465 3.7 24.51 91 24.00
34.33- 40.17 1,451 6.3 34.75 - -
- ----------------------------------------------------------------------------------
$16.33-$40.17 5,276 4.6 $25.71 465 $19.12
==================================================================================
</TABLE>
11. FINANCIAL INSTRUMENTS
Financial Risk Management
Aon is exposed to market risk from changes in foreign currency exchange rates,
interest rates and equity prices. 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,
1997 and 1996, Aon placed securities in escrow amounting to $6 million and $13
million, respectively, relating to these derivative contracts.
Foreign Exchange Risk Management
Aon uses foreign currency futures, options, and forward contracts to manage the
effects of foreign currency fluctuations on the translation of the financial
statements of Aon's foreign operations. Generally, related gains and losses on
these contracts are reflected as an adjustment to income when settled. For
contracts designated as hedges of a net investment in foreign subsidiary,
realized and unrealized gains 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 and options 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. Forward contracts
entered into require no up-front premium and settle at the expiration of the
related contract.
Interest Rate Risk Management
Aon uses interest rate derivative contracts to manage the interest rate risk
associated with assets and liabilities underlying its underwriting and
brokerage businesses. Interest rate derivatives are also utilized to manage the
company's funding and other corporate risks.
Interest rate swap agreements are used 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, 1997
and 1996, 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.
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 also enters into interest rate swap and cap agreements and purchases
exchange-traded Eurodollar and Eurosterling futures to limit its exposure to
decreasing short-term interest rates, primarily relating to brokerage fiduciary
funds. The net effect of swap payments are settled periodically and reported in
income. There is no settlement of underlying notional amounts. Exchange-traded
Eurodollar and Eurosterling futures are valued and settled daily, with amounts
reported in income when the contract expires. The commission paid for these
futures contracts represents the cost basis of the position, until it is expired
or closed.
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. 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.
In most cases, derivatives hedging the invested asset portfolio are hedging
groups of invested assets. The sale, maturity or extinguishment of a hedged
invested asset within a group would not affect the accounting method for the
derivative. The accounting relating to the termination of a hedge would differ
from the company's regular accounting practices if the hedge ceases to meet the
criteria for hedge accounting.
The following criteria must be met in order for a derivative to qualify for
hedge accounting. The derivative must be designated as a hedge at inception and
be consistent with Aon's policy for risk management. The hedged group of
invested assets must have a reliably measurable fair value and changes in fair
value must have the potential to affect future earnings.
- 40 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Changes in the fair value of the derivative must be expected to
substantially offset changes in the fair value of the designated group of
invested assets attributable to the risk being hedged.
If the criteria for hedge accounting is not met, the resulting gain or loss from
the hedge would be realized through the statement of operations in the current
period.
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.
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 1997 1996
- ----------------------------------------------------------------------------
Foreign currency management
Forwards $ 208 $ 157
Futures 435 -
Interest rate and asset/liability
duration management
Eurodollar futures 639 1,741
Eurosterling futures 664 -
Treasury futures - 220
Call options 4 72
Put options 60 -
Interest rate caps 120 -
Interest rate swaps --pay fixed 93 90
Interest rate swaps --receive fixed 502 85
Basis rate swaps --pay and receive variable 140 90
Interest rate management for anticipated transactions
Treasury futures - 100
Call options - 250
Put options - 500
Interest rate caps - 22
=============================================================================
Aon amortized $3 million in 1997, 1996 and 1995, respectively, of net deferred
gains relating to derivatives into income. Realized losses related to
anticipated transactions were immaterial for the years ended December 31, 1997
and 1996.
The interest rates on Aon's outstanding swaps at December 31 are presented
below:
Receive Pay Pay Receive
Fixed Variable Fixed Variable
- ------------------------------------------------------------
1997 4.0-8.4% 5.8% 6.0-9.7% 5.6-6.5%
1996 5.8-6.8% 5.6% 6.0-9.7% 5.6-6.0%
============================================================
As of December 31, 1997, swaps have maturities ranging from January 1998 to
January 2007. 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
have maturities ranging from December 2000 to August 2002 and require payments
based on the three month LIBOR index and provide for receipts based on the
two-year treasury rate. Other outstanding contracts generally have terms that
are less than one year.
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, 1997 and 1996 totaled $173
million and $154 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 1998. As of December 31, 1997 and 1996, the maximum commitment
contained in these agreements was $2.0 billion and $1.2 billion, respectively.
Aon's credit risk relates to amounts that may be due under recourse provisions
that could exceed recorded estimates. At December 31, 1997 and 1996, this
exposure was approximately $93 million and $42 million, respectively.
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:
<TABLE>
<CAPTION>
As of December 31 1997 1996
- --------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
millions) Value Value Value Value
- --------------------------------------------------------------------------------------
Assets:
Fixed maturities and
<S> <C> <C> <C> <C>
equity securities $3,950 $3,950 $3,705 $3,705
Other investments 248 247 241 240
Cash, receivables and
short-term investments 9,169 9,169 6,301 6,301
Derivatives* - 8 - 10
Liabilities:
Investment type
insurance contracts $ 823 $ 831 $ 507 $ 509
Short-term borrowings,
premium payables and
commissions and general
expenses 8,770 8,770 5,134 5,134
Notes payable 637 643 521 524
Capital securities 800 900 - -
======================================================================================
<FN>
*Derivatives with a carrying value of $21 million and a fair value of $21
million are included in other asset categories at December 31, 1997 and 1996.
</FN>
</TABLE>
- 41 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. CONTINGENCIES
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.
At the time of Aon's acquisition of A&A in January 1997, A&A was facing various
legal claims, several of which remain ongoing. In a 1988 action, alleging that
certain A&A subsidiaries placed risks with financially unsound reinsurance
companies, plaintiffs sought $36 million in damages. Most of the exposure to
these claims was extinguished as a result of the Lloyd's of London
Reconstruction and Renewal Plan. Aon currently believes the loss that might
result from the remaining exposure would not be material to its financial
position or results of operation. In 1992, the purchaser of a company A&A sold
in 1987 asserted claims under the indemnification provision of the sales
agreement. While the possibility of substantial exposure remains, based on
current facts and circumstances, Aon believes the possibility of material loss
resulting from these exposures is remote.
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 con-solidated financial position of Aon.
- 42 -
<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, 1997 and 1996, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1997. 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, 1997 and 1996, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1997, in conformity with generally accepted accounting principles.
Ernst & Young LLP
Chicago, Illinois
February 10, 1998
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, 1997, 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 Audit Committee, without the presence of management, to
discuss the adequacy of internal control and to review the quality of financial
reporting.
- 43 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(millions except common stock and per share data) 1997 1996 1995 1994 1993
- --------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Brokerage commissions and fees $ 3,605 $ 1,919 $ 1,651 $ 1,389 $ 1,190
Premiums earned 1,609 1,527 1,427 1,322 1,278
Net investment income 494 384 329 257 227
Realized investment gains 6 8 13 19 30
Other income 37 50 46 54 46
--------------------------------------------------------------------
Total revenue 5,751 3,888 3,466 3,041 2,771
====================================================================================================================
Operating income* $ 402 $ 346 $ 295 $ 256 $ 214
Income from continuing operations 299 292 304 269 228
Discontinued operations - 43 99 91 96
Net income 299 335 403 360 324
====================================================================================================================
DILUTIVE PER SHARE DATA**
Operating income* $ 2.30 $ 1.97 $ 1.66 $ 1.44 $ 1.18
Income from continuing operations 1.68 1.64 1.71 1.51 1.27
Discontinued operations - 0.26 0.59 0.57 0.63
Net income 1.68 1.90 2.30 2.08 1.90
BASIC PER SHARE DATA**
Income from continuing operations 1.71 1.67 1.72 1.53 1.28
Net income 1.71 1.93 2.33 2.12 1.92
====================================================================================================================
BALANCE SHEET DATA
ASSETS
Investments $ 5,922 $ 5,213 $10,639 $ 9,783 $ 9,652
Brokerage receivables 5,320 3,566 2,264 1,882 1,615
Other 7,449 4,944 6,833 6,257 5,012
--------------------------------------------------------------------
Total assets $18,691 $13,723 $19,736 $17,922 $16,279
====================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Policy liabilities $ 4,450 $ 4,360 $ 9,556 $ 9,310 $ 8,776
Insurance premiums payable 6,380 4,144 2,723 2,409 1,948
Notes payable 637 521 554 561 594
General liabilities 3,552 1,815 4,179 3,335 2,673
--------------------------------------------------------------------
Total liabilities 15,019 10,840 17,012 15,615 13,991
Redeemable preferred stock 50 50 50 50 -
Capital securities 800 - - - -
Stockholders' equity 2,822 2,833 2,674 2,257 2,288
--------------------------------------------------------------------
Total liabilities and
stockholders' equity $18,691 $13,723 $19,736 $17,922 $16,279
====================================================================================================================
COMMON STOCK DATA**
Dividends paid per share $ 1.02 $ 0.95 $ 0.89 $ 0.84 $ 0.79
Stockholders' equity per share 16.80 16.21 15.18 12.20 12.63
Price range 587/8-403/16 431/8 -315/8 337/8-207/8 237/8-191/2 26-20
Market price at year-end 58.625 41.375 33.250 21.375 21.500
Common stockholders 12,698 13,030 13,520 14,163 14,615
Shares outstanding (in millions) 168.0 166.4 162.4 161.5 152.4
====================================================================================================================
<FN>
* Operating income is from continuing operations and excludes after-tax
realized investment gains, 1997 special charges of $108 million, 1996
special charges of $59 million and a retroactive tax charge in 1993 of $5
million.
** Per share and common stock data have been restated to reflect the 1997
three-for-two stock split. The earnings per share amounts prior to 1997 have
been restated as required to comply with FASB Statement No. 128, "Earnings
Per Share."
</FN>
</TABLE>
- 44 -
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1997
- --------------------------------------------------------------------------------------------------------------------
INCOME STATEMENT DATA
<S> <C> <C> <C> <C> <C>
Brokerage commissions and fees $ 842 $ 885 $ 923 $ 955 $3,605
Premiums earned 384 409 398 418 1,609
Net investment income 116 118 119 141 494
Realized investment gains 2 - 3 1 6
Other income 10 13 8 6 37
--------------------------------------------------------------------
Total revenue 1,354 1,425 1,451 1,521 5,751
--------------------------------------------------------------------
Operating income* 90 101 99 112 402
Net income 1 84 101 113 299
====================================================================================================================
DILUTIVE PER SHARE DATA**
Operating income* $ 0.52 $ 0.58 $ 0.56 $ 0.65 $ 2.30
Net income (loss) (0.02) 0.48 0.57 0.65 1.68
BASIC NET INCOME (LOSS) PER SHARE** (0.02) 0.48 0.58 0.66 1.71
====================================================================================================================
COMMON STOCK DATA**
Dividends paid per share $ 0.24 $ 0.26 $ 0.26 $ 0.26 $ 1.02
Stockholders' equity per share 15.34 16.04 16.60 16.80 16.80
Price range 447/8-405/8 533/8-403/16 561/8-501/16 587/8-501/4 587/8-403/16
Shares outstanding (in millions) 166.9 167.2 167.7 168.0 168.0
Average monthly trading volume (in millions) 3.3 3.7 3.9 4.1 3.8
====================================================================================================================
<FN>
* Operating income is from continuing operations and excludes after-tax
realized investment gains of $4 million and $5 million in 1997 and 1996,
respectively, after-tax special charges of $91 million and $17 million in
first quarter 1997 and second quarter 1997, respectively, and after-tax
special charges of $19 million and $40 million in second quarter 1996 and
fourth quarter 1996, respectively.
** Per share and shares outstanding data have been restated to reflect the 1997
three-for-two stock split. The 1996 and first three quarters of 1997
earnings per share amounts have been restated as required to comply with
FASB Statement No. 128, "Earnings Per Share."
</FN>
</TABLE>
<TABLE>
<CAPTION>
(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 $ 445 $ 455 $ 551 $1,919
Premiums earned 378 381 382 386 1,527
Net investment income 85 93 92 114 384
Realized investment gains - - 3 5 8
Other income 11 13 12 14 50
--------------------------------------------------------------------
Total revenue 942 932 944 1,070 3,888
--------------------------------------------------------------------
Operating income* 97 85 82 82 346
Income from continuing operations 97 65 84 46 292
Discontinued operations 22 21 - - 43
Net income 119 86 84 46 335
====================================================================================================================
DILUTIVE PER SHARE DATA**
Operating income* $ 0.55 $ 0.48 $ 0.47 $ 0.47 $ 1.97
Income from continuing operations 0.55 0.36 0.48 0.25 1.64
Discontinued operations 0.13 0.13 - - 0.26
Net income 0.68 0.49 0.48 0.25 1.90
BASIC NET INCOME PER SHARE** 0.70 0.50 0.48 0.26 1.93
====================================================================================================================
COMMON STOCK DATA**
Dividends paid per share $ 0.23 $ 0.24 $ 0.24 $ 0.24 $ 0.95
Stockholders' equity per share 15.17 15.43 15.53 16.21 16.21
Price range 367/8-321/2 371/4-331/4 363/8-315/8 431/8-36 431/8-315/8
Shares outstanding (in millions) 162.7 161.9 162.4 166.4 166.4
Average monthly trading volume (in millions) 3.0 4.7 2.3 3.6 3.4
====================================================================================================================
<FN>
* Operating income is from continuing operations and excludes after-tax
realized investment gains of $4 million and $5 million in 1997 and 1996,
respectively, after-tax special charges of $91 million and $17 million in
first quarter 1997 and second quarter 1997, respectively, and after-tax
special charges of $19 million and $40 million in second quarter 1996 and
fourth quarter 1996, respectively.
** Per share and shares outstanding data have been restated to reflect the 1997
three-for-two stock split. The 1996 and first three quarters of 1997
earnings per share amounts have been restated as required to comply with
FASB Statement No. 128, "Earnings Per Share."
</FN>
</TABLE>
Exhibit 21
<TABLE>
<S> <C>
Aon Corporation Delaware
120524 Canada Inc. Canada
164226 Canada Inc. Canada
1e Katharinastrase 29 Vermogensverwaltungsges mbH Germany
2674025 Canada Inc. Canada
2711613 Canada Inc. Canada
2e Katharinastrase 29 Vermogensverwaltungsges mbH Germany
3194680 Canada Inc. Canada
3381455 Canada Inc. Canada
A Morel & Cie Sa France
A&A (UK) Limited United Kingdom
A&A Real Estate Services Inc. New York
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
A.H.E. Alexander Howden de Espana S.A. Spain
A.H.G. Far East Ltd. Hong Kong
A.H.O.H. (Bermuda) Limited Bermuda
A/S Assurance Norway
AA & JG Denison & Company Ltd. United Kingdom
AAA Auto Club South Finance, L.P. Illinois
AAA Missouri Automotive Financial Services Illinois
AARE Corporation New York
ABS Insurance Agency Ltd. United Kingdom
ACGLRA Corp. Texas
ACGMGA Corp. Texas
ACN 006 278 226 Australia
ACN 008 497 318 Australia
ACN 051 158 984 Australia
ACP Insurance Agency, Inc. Texas
AGR Disposition Company Inc. California
AIS Affinity Insurance Agency, Inc. California
AIV Beteiligungsgesellschaft mbh Germany
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
ASCOMIN S.A. Belgium
ATJ Capital Forsakringsmakleri AB Sweden
AUSCO, Inc. Illinois
AV Agrar Versicherungsdienst GmbH Germany
Acedale Co. Ltd. Hong Kong
Adam & Adam Limited New Zealand
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 of Washington, Inc. Washington
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
Agte Gebruder GmbH Germany
Aidec Ciskei (Pty) Ltd. South Africa
Aidec Gazankulu (Pty) Limited South Africa
Aidec Kangwane (Pty) Limited South Africa
Aidec Kwandebele (Pty) Limited South Africa
Aidec Lebowa (Pty) Limited South Africa
Aidec M.I.B. North West (Pty) Limited South Africa
Aidec Venda (Pty) Limited South Africa
Aircrew Underwriting Agencies Ltd. United Kingdom
Airscope Insurance Services Limited United Kingdom
Aldebaran S.R.L. Rome Italy
Alexander & Alexander (Asia) Holdings Pte. Ltd. Singapore
Alexander & Alexander (C.I.) Limited Guernsey
Alexander & Alexander (Hong Kong) Holdings Ltd. Hong Kong
Alexander & Alexander (Ireland) Limited Ireland
Alexander & Alexander (Isle of Man) Limited United Kingdom
Alexander & Alexander (Malaysia) Sdn. Bhd. Malaysia
Alexander & Alexander (PNG) Pty. Ltd. Papau New Guinea
Alexander & Alexander (Taiwan) Ltd. Taiwan
Alexander & Alexander (Thailand) Ltd. Thailand
Alexander & Alexander (UK) Ltd. United Kingdom
Alexander & Alexander Australia Holdings Ltd. Australia
Alexander & Alexander B.V. Netherlands
Alexander & Alexander Benefits Services (Arizona) Inc. Arizona
Alexander & Alexander Benefits Services Inc. New Jersey
Alexander & Alexander Benefits Services Inc. Ohio
Alexander & Alexander Benefits Services Inc. Virginia
Alexander & Alexander Benefits Services Inc. (TX) Texas
Alexander & Alexander Benefits Services of Louisiana Louisiana
Alexander & Alexander Canada Inc. Canada
Alexander & Alexander Consultants S.A. France
Alexander & Alexander Consulting Group Inc. New Jersey
Alexander & Alexander Consulting Group, Inc. Texas
Alexander & Alexander Corretores e Consultores de Seguros Lda. Portugal
Alexander & Alexander Europe B.V. Netherlands
Alexander & Alexander Europe GmbH Austria
Alexander & Alexander Europe Ltd. United Kingdom
Alexander & Alexander Far East Inc. California
Alexander & Alexander Far East Partners Hong Kong
Alexander & Alexander Finance Limited United Kingdom
Alexander & Alexander France S.A. France
Alexander & Alexander Galicia, S.A. Spain
Alexander & Alexander Holdings (NZ) Ltd. New Zealand
Alexander & Alexander Holdings B.V. Netherlands
Alexander & Alexander Inc. Maryland
Alexander & Alexander Insurance Agency Ltd. Taiwan
Alexander & Alexander Insurance Benefits Services Inc. Massachusetts
Alexander & Alexander Insurance Brokers - Hungary Hungary
Alexander & Alexander Insurance Brokers Ltd. Poland Poland
Alexander & Alexander International Inc. Maryland
Alexander & Alexander Italia S.P.A. Italy
Alexander & Alexander Korea Inc. Korea
Alexander & Alexander LTDA. Corretores de Seguros Brazil
Alexander & Alexander Limited Australia
Alexander & Alexander Limited United Kingdom
Alexander & Alexander Ltd. Fiji
Alexander & Alexander Ltd. New Zealand
Alexander & Alexander Ltd. (Thailand) Thailand
Alexander & Alexander Mexico Agente de Seguros y de Fianza S.A. de C.V. Mexico
Alexander & Alexander Middle East Limited Bermuda
Alexander & Alexander Pte. Ltd. Singapore
Alexander & Alexander Risk Management Services, Inc. Taiwan
Alexander & Alexander S.R.O. (Czech. Republic) Czech Republic
Alexander & Alexander Scandinavia AB Sweden
Alexander & Alexander Securities Corporation Delaware
Alexander & Alexander Services (India) Pvt. Ltd. India
Alexander & Alexander Services UK Limited Scotland
Alexander & Alexander Sigorta Musavirlk Anomim Sirketi Turkey
Alexander & Alexander Spain Correduria de Seguros, S.A. Spain
Alexander & Alexander Telemarketing Brazil
Alexander & Alexander Trustee Jersey Ltd. Jersey, Channel Islands
Alexander & Alexander U.K. Pension Trustees Ltd. United Kingdom
Alexander & Alexander of California, Inc. California
Alexander & Alexander of Colombia Ltda. Colombia
Alexander & Alexander of Connecticut Inc. Connecticut
Alexander & Alexander of Idaho, Inc. Idaho
Alexander & Alexander of Japan, Inc. Nevada
Alexander & Alexander of Kansas, Inc. Kansas
Alexander & Alexander of Kentucky, Inc. Kentucky
Alexander & Alexander of Long Island Inc. Connecticut
Alexander & Alexander of Michigan, Inc. Michigan
Alexander & Alexander of Mississippi Inc. Mississippi
Alexander & Alexander of Missouri Inc. Missouri
Alexander & Alexander of New York Inc. New York
Alexander & Alexander of Ohio, Inc. Ohio
Alexander & Alexander of Texas, Inc. Texas
Alexander & Alexander of Virginia, Inc. Virginia
Alexander & Alexander of Washington Inc. Washington
Alexander & Alexander of Wyoming, Inc. Wyoming
Alexander & Alexander of the Carolinas Inc. North Carolina
Alexander & Alexander, Inc. Florida
Alexander & Alexander, Inc. Louisiana
Alexander & Alexander, Inc. Massachusetts
Alexander & Alexander, Inc. Oklahoma
Alexander & Alexander, Inc. Tennessee
Alexander & Alexander, Inc. West Virginia
Alexander & Associates Inc. Texas
Alexander & Davidson de Colombia LTDA. Colombia
Alexander Administration Services Ltd. Isle of Man
Alexander Clay Communications Limited United Kingdom
Alexander Clay and Partners Consulting United Kingdom
Alexander Consulting Investment Services Inc. Maryland
Alexander Coyle Hamilton Ltd. Ireland
Alexander Financial Services Ltd. Scotland
Alexander Hellas E.P.E. Greece
Alexander Howden (Hellas) Ltd. Guernsey
Alexander Howden (Kazakhstan) Ltd. Kazakhstan
Alexander Howden Asia Pacific Ltd. United Kingdom
Alexander Howden Brasil Ltda. Brazil
Alexander Howden Canada Limited Canada
Alexander Howden Del Peru S.A. Reinsurance Brokers Peru
Alexander Howden Energy & Partners Scandinavia Norway
Alexander Howden Far East Ptd. Ltd. Singapore
Alexander Howden Financial Services Limited United Kingdom
Alexander Howden Group (Asia) Pte. Ltd. Singapore
Alexander Howden Group (Australia) Limited Australia
Alexander Howden Group (Bermuda) Ltd. Bermuda
Alexander Howden Group Agency Management Ltd. United Kingdom
Alexander Howden Group Canada Limited Canada
Alexander Howden Group Limited Bermuda
Alexander Howden Holdings Limited United Kingdom
Alexander Howden Insurance Services of Texas, Inc. Texas
Alexander Howden International Limited United Kingdom
Alexander Howden Leasing Ltd. United Kingdom
Alexander Howden Limited United Kingdom
Alexander Howden North America, Inc. Georgia
Alexander Howden North America, Inc. Massachusetts
Alexander Howden North America, Inc. New York
Alexander Howden North America, Inc. Ohio
Alexander Howden North America, Inc. Texas
Alexander Howden Ossa De Colombia SA Colombia
Alexander Howden Previsionales y Personas Ltda. Colombia
Alexander Howden Reinsurance Brokers (Australia) Ltd. Australia
Alexander Howden Reinsurance Brokers (NZ) Ltd. New Zealand
Alexander Howden Reinsurance Intermediaries, Inc. New York
Alexander Howden UK Limited United Kingdom
Alexander Howden Underwriting Limited United Kingdom
Alexander Howden Y Asociados S.A. de C.V. Mexico
Alexander Howden de Espana Spain
Alexander Howden de Venezuela Venezuela
Alexander Insurance Managers (Barbados) Ltd. Barbados
Alexander Insurance Managers (Cayman) Ltd. Cayman Islands
Alexander Insurance Managers (Dublin) Ltd. Ireland
Alexander Insurance Managers (Guernsey) Ltd. Guernsey
Alexander Insurance Managers (Holdings) Ltd. Guernsey
Alexander Insurance Managers (Isle of Man) Ltd. Isle of Man
Alexander Insurance Managers (Jersey) Ltd. Jersey, Channel Islands
Alexander Insurance Managers (Luxembourg) S.A. Luxembourg
Alexander Insurance Managers (Singapore) Pte. Ltd. Singapore
Alexander Insurance Managers Ltd. Bermuda
Alexander Insurance Managers N.V. Netherlands
Alexander Lippo (Hong Kong) Ltd. Hong Kong
Alexander MacFarlane Corretora de Seguros Ltda. Brazil
Alexander Portfolio Management Ltd. New Zealand
Alexander R.M.C. Brown Partners Ltd. Australia
Alexander Reinsurance Intermediaries, Inc. New York
Alexander Risk Management and Consulting Services, Inc. Texas
Alexander Stenhouse & Partners Limited Scotland
Alexander Stenhouse Belgium International Belgium
Alexander Stenhouse Insurance Agency, Inc. Texas
Alexander Stenhouse Limited United Kingdom
Alexander Stenhouse Magee Limited Ireland
Alexander Stenhouse Management Services Ltd. Scotland
Alexander Stenhouse Nominees Ltd. Australia
Alexander Stenhouse Risk Management S.A. Spain
Alexander Stenhouse UK Ltd. United Kingdom
Alexander Underwriting Agencies Limited Bermuda
Alexander Underwriting Services Inc. Maryland
Alexander Underwriting Services Limited United Kingdom
Alexander Watkins S.A. de C.V. Mexico
Alexander of Hawaii Inc. Hawaii
Alexander of Texas Inc. Texas
Alexander y Alexander Chile Ltda. Chile
Alexander, Ayling, Barrios & Cia, S.A. Argentina
Allen Insurance Associates California
Alpenbeck Limited United Kingdom
American Associates, Inc. Texas
American Insurance Brokers, Ltd. Indiana
American National General Agencies, Inc. Colorado
American Special Risk Insurance Company Delaware
Anchor Reinsurance Company, Ltd. Bermuda
Anchor Underwriting Managers, Ltd. Bermuda
Anderson and Anderson Insurance Brokers, Inc. California
Anderson and Anderson of Los Angeles Insurance Brokers, Inc. California
Anderson and Anderson of Orange County Insurance Brokers, Inc. California
Anderson and Anderson/Benefits Insurance Brokers, Inc. California
Anderson and Anderson/D-K&S Insurance Brokers, Inc. California
Anglo-Swiss Reinsurance Brokers Ltd. Switzerland
Anistics Ltd. United Kingdom
Anscor Insurance Brokers Inc. Philippines
Aon WACUS Kreditversicherungsmakler GmbH & Co. Germany
Aon WACUS Verwaltungs GmbH Germany
Aon (Deutschland) GmbH Germany
Aon (Panama) Ltd. S.A. Panama
Aon Advisors (U.K.) Limited United Kingdom
Aon Advisors, Inc. Virginia
Aon Alexander & Alexander N.V. Belgium
Aon Annuity Group, Inc. Texas
Aon Antillen nv Netherland Antilles
Aon Artscope Kunstversicherungsmakler GmbH Germany
Aon Aruba nv Netherland Antilles
Aon Asia Insurance Services bv Netherlands
Aon Automotive Group, Inc. Illinois
Aon Aviation, Inc. Illinois
Aon Belgium nv Belgium
Aon Benefit Services, Inc. Massachusetts
Aon Benefits Insurance Brokers (Singapore) Pte. Ltd. Singapore
Aon Boels & Begault S.A. Belgium
Aon Broker Services, Inc. Illinois
Aon Capital A 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 Captive Services Aruba nv Netherland Antilles
Aon Ceska republika spol. s.r.o. Czech Republic
Aon Compensation and Benefits Limited United Kingdom
Aon Construction Services International Limited United Kingdom
Aon Consulting & Insurance Services California
Aon Consulting Agency, Inc. Texas
Aon Consulting Belgium S.A. Belgium
Aon Consulting Denmark A/S Denmark
Aon Consulting Financial Services Limited United Kingdom
Aon Consulting GmbH Germany
Aon Consulting Hong Kong Ltd. Hong Kong
Aon Consulting Limited United Kingdom
Aon Consulting Nederland cv Netherlands
Aon Consulting Pty Limited Australia
Aon Consulting South Africa (Pty) Ltd. South Africa
Aon Consulting Thailand Ltd. Thailand
Aon Consulting Worldwide, Inc. Maryland
Aon Consulting, Inc. Florida
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, Limited Les Consultants Aon, Limitee Quebec
Aon Credit Services Corporation Delaware
Aon Denmark A/S Denmark
Aon Direct Group Small Company Life and Health Agents Illinois
Aon Eesti AS Estland
Aon Employee Benefits of Ohio, Inc. Ohio
Aon Enterprise Insurance Services, Inc. Illinois
Aon Entertainment Risk Services Limited United Kingdom
Aon Entertainment, Ltd. New York
Aon European Investments Limited United Kingdom
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 Funds Delaware
Aon GGI Acquisition Corporation, Inc. Texas
Aon General Agency, Inc. Texas
Aon Groep Nederland bv Netherlands
Aon Group Limited United Kingdom
Aon Group, Inc. Maryland
Aon Hamond & Regine, Inc. New York
Aon Hazard Limited United Kingdom
Aon Health Services Inc. Texas
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 Asia bv Netherlands
Aon Holdings Australia Ltd. Australia
Aon Holdings Deutschland GmbH Germany
Aon Holdings New Zealand Pty. Ltd. New Zealand
Aon Holdings bv Netherlands
Aon Home Warranty Services, Inc. Delaware
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 Hudig-Schreinemacher V.O.F. Netherlands
Aon ISI, Inc. Colorado
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 Managers (USA) Inc. Vermont
Aon Insurance Services California
Aon Insurance Services, Inc. Pennsylvania
Aon Intermediaries (Bermuda) Ltd. Bermuda
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 Consulting (Pty) Ltd. South Africa
Aon Lumley South Africa (Pty) Ltd. South Africa
Aon Magyarorszag Alkusz Kft. Hungary
Aon Managed Care Risk & Insurance Services, Inc. California
Aon Management Hong Kong Ltd. Hong Kong
Aon Management Institute, Inc. Connecticut
Aon Medical Consultants, Inc. Delaware
Aon Mibrag Versicherungsvermittlungs GmbH Germany
Aon Natural Resources Ltd. Labuan
Aon Nominees Limited United Kingdom
Aon Norway A/S Norway
Aon OWA Insurance Services GmbH & Co. Germany
Aon OWA Verwaltungs GmbH Germany
Aon Overseas Holdings Limited United Kingdom
Aon Partnership Limited United Kingdom
Aon Pension Trustees Limited United Kingdom
Aon Polska sp.z.o.o. Poland
Aon Portugal, Corretores de Seguros, S.A. Portugal
Aon Private Risk Management Insurance Agency, Inc. Illinois
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 Reed Stenhouse Acquisition Corp. Canada
Aon Reed Stenhouse Inc. Canada
Aon Risk Consultants (Bermuda ) Ltd. Bermuda
Aon Risk Consultants (Europe) Limited United Kingdom
Aon Risk Consultants BV Netherlands
Aon Risk Consultants, Inc. Illinois
Aon Risk Management Services Italia srl. Italy
Aon Risk Management Services Scandinavia A/S Denmark
Aon Risk Managers, Inc. Illinois
Aon Risk Resources Insurance Agency, Inc. Illinois
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 (Ireland) Limited Ireland
Aon Risk Services Australia Ltd. Australia
Aon Risk Services Canada Inc. Canada
Aon Risk Services Companies, Inc. Maryland
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 Singapore (Insurance Brokers) Pte. Ltd. Singapore
Aon Risk Services Taiwan Ltd. Taiwan
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 Mexico New Mexico
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 Services Group Limited United Kingdom
Aon Services Group of Tennessee, Inc. Tennessee
Aon Services Group, Inc. Delaware
Aon Sigorta Brokerlik ve Musavirlik AS Turkey
Aon Slovensko spol.s r.o. Slovak Republic
Aon South Africa (Pty) Ltd. South Africa
Aon Special Risks, Inc. Illinois
Aon Specialty Denmark A/S Denmark
Aon Stockholm AB Sweden
Aon Superannuation Pty Limited Australia
Aon Surety & Guarantee Limited United Kingdom
Aon Sweden AB Sweden
Aon Sweden Syd AB Sweden
Aon Technical Insurance Services, Inc. Illinois
Aon Technology Brokers, Inc. California
Aon Telecom, Inc. Illinois
Aon Trade Credit Insurance Services, Inc. California
Aon Trade Credit, Inc. Illinois
Aon Trade Credit, Inc. New York
Aon UK Holdings Limited United Kingdom
Aon UK Limited United Kingdom
Aon Vietnam Vietnam
Aon Warranty Group Limited (UK) United Kingdom
Aon Warranty Group, Inc. Illinois
Aon Warranty Services, Inc. Illinois
Aon Worldwide Resources, Inc. Illinois
Aon bv Netherlands
Aon makelaars in assurantien bv Netherlands
Aon/Albert G. Ruben Company (New York) Inc. New York
Aon/Albert G. Ruben Insurance Services, Inc. California
Aon/Brockinton Agency of Texas, Inc. Texas
Aporia Leasing Limited United Kingdom
Artscope Insurance Services Limited United Kingdom
Artscope International Insurance Services Limited United Kingdom
Ascom Nijmegen B.V. Netherlands
Asesores Kennedy Agente de Seguros y de Fianzas, S.A. de C.V. Mexico
Asesores y Corredores De Seguros, S.A. Republica Dominica
Asia Area Underwriters Ltd. Hong Kong
Asian American Finance Limited Bermuda
Asian Reinsurance Underwriters Ltd. Hong Kong
Assekurazkontor fur Industrie und Verkehr GmbH Germany
Assistance Au Management Et A La Prevention Des Risques De L'Entreprise France
Associated Brokers International Zimbabwe
Associated Fund Adminstrators Botswana (Pty) Limited Botswana
Associated Ins. Broker of Botswana Botswana
Assuco Holdings Ltd. Guernsey
Assurances D.M.L. Itee Canada
Assurantie Groep Langeveldt c.v. Netherlands
Atkins Kroll Insurance Inc. Guam
Atlanta International Insurance Company New York
Attorneys' Advantage Insurance Agency, Inc. Illinois
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 E P International (Canada) Holding Inc. Canada
B E P International Corp. New Jersey
B E P International Holding Inc. Canada
B E P International US Inc. Delaware
B.L. Carnie Hogg Robinson Ltd. United Kingdom
B.N. Shepp Associates Ltd. Alberta
B.N.H. Group Ltd. United Kingdom
B.V. Assurantiekantoor Langeveldt-Schroder Netherlands
BEC Insurance Services Limited United Kingdom
BH No. 1 Ltd. United Kingdom
BHR, Inc. Delaware
BKB Direct Marketing Research Inc. Canada
BRIC, Inc. North Carolina
Bailiwick Consultancy & Management Co. Ltd. Guernsey
Bain Clarkson (HK) Ltd. Hong Kong
Bain Clarkson Forsakringskonsult AB, Stockholm Sweden
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 Limited 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. 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 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
Barros & Carrion, Inc. Puerto Rico
Beck Kudlich Pacific Associates, Inc. Hawaii
Beck Kudllich & Swartman, Inc. Hawaii
Bekouw Mendes Reinsurance B.V. Netherlands
Bekouw Mendes Risk Management B.V. Netherlands
Bell Nicholson Henderson (Holdings) Ltd. United Kingdom
Bell Nicholson Henderson Ltd. United Kingdom
Bene-Fund Administrative Services Ltd. Canada
BenefitsMedia, Inc. Tennessee
Benoit & Borg (Europe) Limited Ireland
Benoit & Borg Insurance Agencies Inc. Canada
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
Bloemers & Co. Herverzekering bv Netherlands
Blom & Van der Aa BV Netherlands
Blom & Van der Aa Holding BV Netherlands
Boels & Begault France S.A. France
Boels & Begault Luxembourg S.a.r.l. Luxembourg
Boels & Begault Re S.A. Belgium
Boels & Begault Vlaanderen S.A. Belgium
Boels Begault Holding SA Belgium
Bonnor & Company A/S Denmark
Bowes & Company, Inc., of New York New York
Bowes Holdings, Inc. Illinois
Bowring and Minet (Swaziland) (Pty) Ltd. Swaziland
Brennan Group, Inc., The Delaware
British Continental and Overseas Agencies (BCOA) SA France
Broadgate Holdings Ltd. United Kingdom
Brons Orobio Groep B.V. Netherlands
Brons Van Lennep B.V. Netherlands
Brons Van Lennep Den Haag B.V. Netherlands
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 Ohio
Bryson Associates Incorporated Pennsylvania
Bryson Associates Incorporated of Georgia Georgia
Bureau d'Assurances Pirrotte GmbH Luxembourg
Bureau d'Assurances Pirrotte GmbH & Co. KG Luxembourg
Burlington Insurance Services Ltd. United Kingdom
Burnio Enterprises Pty. Ltd. Papau New Guinea
C A Rolinson & Partners Ltd. United Kingdom
C.I.C. Realty, Inc. Illinois
C.V. 'T Huys Ter Merwe Netherlands
CAP Managers Bermuda
CCC Agency, Inc. of Illinois Illinois
CCM McGrath Berrigan Ltd. Ireland
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
CIA USA Holdings, Inc. Delaware
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
Campbell & Co., Inc. Idaho
Camperdown 100 Limited United Kingdom
Camperdown 101 Limited United Kingdom
Cananwill Canada Limited Ontario
Cananwill Corporation Delaware
Cananwill, Inc. California
Cananwill, Inc. Pennsylvania
Captive Assurance Partners California
Carstens & Schues GmbH & Co. Germany
Carstens & Schues Poland Ltd. Poland
Carstens & Schues Verwaltungs GmbH Germany
Catz & Lips B.V. Netherlands
Centris Services Limited United Kingdom
Centurion, Agente de Seguros, S.A. de C.V. Mexico
Chemical & Oil Insurance Brokers (Pty) Ltd. South Africa
Christopher Paul Insurance Services Ltd. United Kingdom
Cinema Completions International, Inc. Delaware
Citadel Insurance Company Texas
City and County Purchasing Group Unknown
Citytrust Insurance Brokers Association Philippines
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
Clay & Partners (1987) Limited United Kingdom
Clay & Partners Independent Trust Corporation Ltd. United Kingdom
Clay & Partners Ltd. United Kingdom
Clay & Partners Pension Trustees Limited United Kingdom
Claytime Ltd. United Kingdom
Clinton, Curtis, Melling Ltd. Ireland
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
Corks Bay & Fisher Ltd. United Kingdom
Corks Bays & Fisher (Life & Pensions) Ltd. United Kingdom
Corporation Long Island CA Venezuela
Correteje de Reaseguros Bain Hogg Venezolana C.A. Venezuela
Coughlan General Insurances Limited Ireland
Couparey Nominees Ltd. United Kingdom
Cranebox Ltd. United Kingdom
Credit & Political Insurance Services Ltd. United Kingdom
Credit & Political Risks Reinsurance Consultants Ltd. United Kingdom
Credit Indemnity & Financial Services Ltd. United Kingdom
Credit Insurance Research Unit Ltd. United Kingdom
Crotty MacRedmond Insurance Limited Ireland
Customer Loyalty Institute Michigan
D. Hudig & Co. b.v. Netherlands
DA&A Insurance Agency, Inc. Texas
DUO A/S Norway
Dale & Compagnie (1990) Itee Canada
Dale Intermediaries Ltd. Canada
Dale-Parizeau International Inc. Canada
Dale-Parizeau Management Ltd. Bermuda
Dealer Development Services, Ltd. United Kingdom
Deanborne Limited United Kingdom
Denison Pension Trustees Ltd. United Kingdom
Diot Minet (France) SA France
Dobson Park L. G. Limited Guernsey
Document Risk Management Limited United Kingdom
Dominion Mutual Insurance Brokers Ltd. Canada
Don Flower Aviation Underwriters, Inc. Kansas
Dormante Holdings Limited United Kingdom
Downes & Burke (Special Risks) Ltd. United Kingdom
Dreadnaught Insurance Company Limited Bermuda
DuPage Care Administrators, Inc. Illinois
Duggan Insurances Limited Ireland
Dunn-Parizeau (1995) Inc. Quebec
Duoband Enterprises Ltd. United Kingdom
Durin Financial Corporation Wisconsin
E. Lillie & Co. Limited United Kingdom
ECCO Services, Inc. Texas
ENTAB Insurance Services Ltd. United Kingdom
ERAS (International) Ltd. United Kingdom
EX-TRA Excesos y Tradados CA Venezuela
EXKO Excess Versicherungsagentur GmbH Germany
Eastaf Holdings Ltd. United Kingdom
Eastward Insurance Services Limited Unknown
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
Energy Insurance Brokers & Risk Management Consultants Ltd. United Kingdom
Entertainment Managers Insurance Services, Inc. California
Entertainment Managers Insurance Services, Inc. Ontario
Ernest A. Notcutt & Co. Ltd. United Kingdom
Ernest A. Notcutt (Overseas) Ltd. United Kingdom
Ernest Notcutt Insurance Services Ltd. United Kingdom
Essar Insurance Consultants Ltd. Taiwan
Essar Insurance Services Ltd. Hong Kong
Europa Services Ltd. Malta
Ewbar Limited United Kingdom
ExcelNet (Guernsey) Ltd. Guernsey
ExcelNet Ltd. United Kingdom
Excess Underwriters Agency, Inc. New York
Excess Versicherungsagentur GmbH Germany
Expatriate Consultancy Limited, The United Kingdom
FS Insurance Agency of California, Inc. California
FS Insurance Agency, Inc. Ohio
Fabels-Versteeg b.v. Netherlands
Far East Agency Korea
Fides Alexander (A.G.) Switzerland Switzerland
Figurecheck Ltd. United Kingdom
Finance Associates, Inc. Texas
Financial Solutions Insurance Services, Inc. Illinois
France Cote D'Afrique France
France Fenwick Limited United Kingdom
Frank B. Hall & Co. (N.S.W.) Pty. Ltd. Australia
Frank B. Hall & Co. Holdings (N.Z.) Limited New Zealand
Frank B. Hall (Ireland) Limited Ireland
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 Re (Latin America) Inc. Panama
Friis & Company, Inc. California
Futuro 3000 S.R.L. Italy
G.E.F. Insurance Ltd. U.S. Virgin Islands
Garantie Europeene de Publication S.A. France
Gardner Mountain Barr, Inc. New York
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
Gestas (1995) Inc. Canada
Gestionnaires Westpar (1995) Itee Canada
Gilliland & McReynolds, Inc. Texas
Gilman Swire Willis Ltd. Hong Kong
Gilroy Broome & Scrini (Trustees) Ltd. United Kingdom
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
Gras Savoye Rumania Romania
Greville Baylis Parry & Associates Ltd. United Kingdom
Greyfriars Marketing Services Pty Ltd. Australia
Groupe DPI Inc. Quebec
Groupement Europeen d'Assurances Generales France
Growth Enterprises Ltd. Bahamas
Guardrisk Insurance Company Limited South Africa
Guernsey Nominees (Pty) Limited Guernsey
Gwelforth Ltd. United Kingdom
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. Unknown
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
Halford, Shead & Co. Limited United Kingdom
Hall & Company (Overseas) Ltd. United Kingdom
Hall & Company (UK) Ltd. United Kingdom
Hamburger Gesellschaft zur Forderung des Versicherungswesen mbH Germany
Hamburger Ruckversicherungs - Agentur GmbH Germany
Hanse Assekuranz-Vermittlungs GmbH Germany
Hanseatische Assekuranz Kontor GmbH Germany
Hanseatische Assekuranz Vermittlungs AG Germany
Harbour Pacific Holdings Pty., Ltd. Australia
Harbour Pacific Underwriting Management Pty Limited Australia
Harmony Home Warranty Company, Inc. California
Heath Hudig Langeveldt Sdn. Bhd. Malaysia
Heiland Versicherungs-Service GmbH Germany
Heli Agency Korea
Hellenic Bain Hogg S.A. Greece
Hemisphere Marine & General Assurance Ltd. Bermuda
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 North America, Inc. Delaware
Hogg Robinson Services (Kenya) Ltd. Kenya
Howden Chile Consultores Ltda. Chile
Howden Chile Reaseguros Ltda. Chile
Howden Cover Hispanoamericana (Bermuda) Ltd. Bermuda
Howden Dastur Reinsurance Brokers (Private) Ltd. India
Howden Management & Data Services Ltd. United Kingdom
Howden Sterling Asia Limited Hong Kong
Howell King & Company Ltd. United Kingdom
Hudig Langeveldt Pte Ltd. Singapore
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 Pensioenbureau B.V. Netherlands
Hudig-Langeveldt Reinsurance B.V. Netherlands
Hudig-Langeveldt Saat B.V. Netherlands
Human Relations Strategies Limited United Kingdom
Huntington T. Block Insurance Agency, Inc. District of Columbia
Huntington T. Block Insurance Agency, Inc. Ohio
Hydrocarbon Risk Consultants Ltd. United Kingdom
IOC Reinsurance Brokers Ltd. Canada
IRBJ Disposition Company Illinois
IRBJ Disposition Company United Kingdom
IRISC (London) Limited United Kingdom
IRISC Limited United Kingdom
IRISC Specialty, Inc. Delaware
IRISC Technical Services (Hong Kong) Limited Hong Kong
IRISC, Inc. New Jersey
IRM France S.A. France
ISPP Purchasing Group Missouri
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 Holdings (HK) Ltd. Hong Kong
Inchcape Insurances (Macau) Ltd. Macau
Indemnity Insurance Services (Pty) Limited South Africa
Independent Dealer Services, Inc. Missouri
Independent Engineering Services Ltd. United Kingdom
Inmobiliaria Ramos Rosada, S.A. de C.V. Mexico
Insurance Administrators Inc. Texas
Insurance Brokers Service, Inc. Illinois
Insurance Broking Services (Pty) Limited Guernsey
Insurance Holdings Africa Ltd. Kenya
Insurance Planning, Inc. Nevada
Insurance Underwriters Agency, Inc. Arizona
Integrated Risk Finance Limited United Kingdom
Integrated Risk Resources Limited United Kingdom
Interbroke Ltd. Switzerland
Interglobe Management AG Switzerland
Interims Limited United Kingdom
International Industrial Insurances Limited Ireland
International Insurance Brokers Ltd. Jamaica
International Insurance Brokers Ltd. New Zealand
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 H Minet (Insurance) Ltd. Ireland
J H Minet & Company (Tanzania) Ltd. Tanzania
J H Minet (Inter-Gremium) AG Switzerland
J H Minet Agencies Ltd. United Kingdom
J H Minet Puerto Rico Inc. Puerto Rico
J H Minet Reinsurance Brokers Ltd. United Kingdom
J&H Risk Management Consultants GmbH Germany
J&H Unison Holdings BV Netherlands
J&H Vorsorgefonds Switzerland
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. Ltd. Bahamas
JFS (Sudamerica) SA Uruguay
JFS Fenchurch Limited United Kingdom
JFS Greig Fester Limited United Kingdom
JML-Minet A.G. Switzerland
James S. Kemper & Co. International Ltd. Bermuda
Jaspers Industrie Assekuranz GmbH & Co. KG Germany
Jauch & Hubener (KG) Austria
Jauch & Hubener AG Switzerland
Jauch & Hubener Beratungs AG Switzerland
Jauch & Hubener CSFR Spol s.r.o. Slovak Republic
Jauch & Hubener Ges mbH & Co. KG Austria
Jauch & Hubener GmbH Austria
Jauch & Hubener KGaA Germany
Jauch & Hubener Kft. Hungary
Jauch & Hubener Management betriebliche Versorgungen Germany
Jauch & Hubener Personalvorsorgestiftung Switzerland
Jauch & Hubener Privates Vorsorgemanagement GmbH Germany
Jauch & Hubener Reinsurance Brokers Ltd. United Kingdom
Jauch & Hubener Reinsurance Inter. Services of North America New Jersey
Jauch & Hubener Ruckversicherungs-Vermittlungsges mbH Germany
Jauch & Hubener Vergutungs-und Vorsorgemanagement GmbH Germany
Jauch & Hubener Verwaltungs- GmbH Germany
Jauch & Hubener d.o.o. Slovak Republic
Jauch & Hubener do Brasil Ltda. Brazil
Jauch & Hubener spol sro Czech Republic
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 C. Lloyd Reinsurance Brokers Ltd. Australia
John Scott Insurance Brokers Limited United Kingdom
Johnson & Higgins PB Co. Thailand
Joost & Preuss GmbH Germany
Joseph U. Moore, Inc. Florida
Jover Prevision Correduria de Seguros Spain
K & K Insurance Brokers, Inc. Canada Ontario
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 California Insurance Services, Inc. California
K & K of Nevada, Inc. Nevada
Karl Alt & Co. GmbH Germany
Keeling & Company California
Keith Rayment & Associates Ltd. United Kingdom
Key-Royal Automotive Company, Inc. Alabama
Keyaction Ltd. United Kingdom
Kininmonth Limited Ireland
Kroller Holdings B.V. Netherlands
L & G LMX Limited United Kingdom
L & G Seascope Insurance Holdings Limited United Kingdom
L. & F. Longobardi SRL Italy
LIB Financial Services Ltd. United Kingdom
LIB Ltd. United Kingdom
La Societe de Courtage Meloche Alexander Inc. Canada
Langeveldt Groep B.V. Netherlands
Langeveldt de Vos b.v. Netherlands
Laurila, Kauriala & Grig Ltd. Russia
Laverack & Haines, Inc. New York
Les Intermediaires Dale-Parizeau Itee Canada
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 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 Y A Ltda. Asesorias Integrales Colombia
M Y A Salud - Agentes De Medicina Prepagada (Colombia) Colombia
M&M Insurance Agency, Inc. Texas
M.I. B. Healthcare Services (Pty) Limited South Africa
M.I.B. Aidec (Pty) Limited South Africa
M.I.B. Border (Pty) Limited South Africa
M.I.B. Employee Benefits (Pty) Limited South Africa
M.I.B. Group (Pty) Limited South Africa
M.I.B. Holdings Co. Ltd. Malta
M.I.B. House Investment (Pty) Limited South Africa
M.I.B. Property Holdings (Pty) Limited South Africa
M.I.B. Reinsurance Brokers (Namibia) (Pty) Limited Namibia
M.I.B. Reinsurance Brokers (Pty) Limited South Africa
MAB Insurance Services Ltd. United Kingdom
MC Brokers Co. Ltd. Thailand
MIB UK (Holdings) Ltd. United Kingdom
MLH & A (Canada) Inc. Canada
MLH & A Inc. Canada
MLH International Inc. Ontario
MTF Insurance Agency, Inc. Texas
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
Management and Regulator Services, Inc. New York
Mansell Investments Ltd. Gibraltar
Mansfeld, Hubener & Partners Gmbh Germany
Manzitti Howden Beck s.p.a. Italy
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
Marvyn Hughes International Ltd. United Kingdom
Max Mattiessen AB Sweden
Media/Professional Insurance Agency Limited United Kingdom
Media/Professional Insurance Agency, Inc. Missouri
Mediterranean Insurance Brokers Ltd. Malta
Mediterranean Insurance Training Centre Malta
Mibsa Investments (Namibia) (Pty) Limited Namibia
Minahan Reinsurance Management Limited United Kingdom
Minerva Holdings (Pvt) Limited Zimbabwe
Minet (Singapore) Pte. Ltd. Singapore
Minet (Taiwan) Ltd. Taiwan
Minet AB Sweden
Minet AS Norway
Minet Africa Holdings Ltd. United Kingdom
Minet Agricultural Insurance Brokers Pty. Ltd. Australia
Minet Airport Insurance Services Ltd. United Kingdom
Minet Archer Ltd. New Zealand
Minet Australia Holdings Pty. Ltd. Australia
Minet Australia Ltd. Australia
Minet Benefit Services (International) Ltd. Guernsey
Minet Botswana (Pty) Ltd. Botswana
Minet Burn & Roche Pty. Ltd. Australia
Minet China Ltd. Hong Kong
Minet Commercial Ltd. United Kingdom
Minet Consultancy Services Ltd. (Kenya) Kenya
Minet Consultancy Services Ltd. (UK) United Kingdom
Minet Denison Financial Services Ltd. United Kingdom
Minet Denison Insurance Services Ltd. United Kingdom
Minet Direct Marketing Services Ltd. United Kingdom
Minet Duncan Insurance Brokers Ltd. United Kingdom
Minet Employees' Trust Company Ltd. United Kingdom
Minet Europe Holdings Ltd. United Kingdom
Minet Financial Services Ltd. United Kingdom
Minet Firstbrokers Oy Finland
Minet Group Holdings United Kingdom
Minet Group PLC United Kingdom
Minet Group Services Ltd. United Kingdom
Minet Holdings Guernsey Limited Guernsey
Minet Holdings Inc. New York
Minet Hong Kong Ltd. Hong Kong
Minet ICDC Insurance Brokers Ltd. Kenya
Minet Inc. (Canada) Canada
Minet Ins. Brokers (Holdings) (NZ) Ltd. New Zealand
Minet Ins. Brokers (Zimbabwe) (Pvt) Ltd. Zimbabwe
Minet Insurance Brokers (Holdings) Ltd. United Kingdom
Minet Insurance Brokers (Thailand) Ltd. Thailand
Minet Insurance Brokers (Uganda) Limited Uganda
Minet Insurance Brokers, Inc. Unknown
Minet Insurance Services (UK) Ltd. United Kingdom
Minet Insurance Services, Inc. California
Minet Insurance Services, Inc. of Texas Texas
Minet International (Holdings) Ltd. United Kingdom
Minet Italia & Partners SpA Italy
Minet Italia srl Italy
Minet Kingsway (Lesotho) (Pty) Ltd. Lesotho
Minet Limited Uganda
Minet Limited (Bermuda) Bermuda
Minet Lindgren i Helsingborg Sweden
Minet Ltd. United Kingdom
Minet Members Agency Holdings Ltd. United Kingdom
Minet New Zealand Ltd. New Zealand
Minet Nigeria Nigeria
Minet Nominees Ltd. United Kingdom
Minet Professional Services (Europe) Ltd. United Kingdom
Minet Professional Services Ltd. (Australia) Australia
Minet Professional Services Ltd. (UK) United Kingdom
Minet Properties (1989) Ltd. United Kingdom
Minet Properties Ltd. United Kingdom
Minet RAIA Insurance Brokers Limited Hong Kong
Minet Re (Bermuda) Limited Bermuda
Minet Re GmbH Germany
Minet Re International Ltd. United Kingdom
Minet Re North America, Inc. Georgia
Minet Risk Services (Barbados) Ltd. Barbados
Minet Risk Services (Bermuda) Ltd. Bermuda
Minet Risk Services (Guernsey) Ltd. Guernsey
Minet Risk Services (Jersey) Ltd. Jersey, Channel Islands
Minet Risk Services (Singapore) Ltd. Singapore
Minet Risk Services (Vermont), Inc. (USA) Vermont
Minet S.A. de C.V. Mexico
Minet Settlement Services, Inc. Minnesota
Minet Trans Risk Services Ltd. United Kingdom
Minet Trustees Ltd. United Kingdom
Minet West Africa Ltd. United Kingdom
Minet Zambia Limited Zambia
Minet Zimbabwe (Pvt) Ltd. Zimbabwe
Minet a.s. Czech Republic
Minet, Inc. (USA) New Jersey
Minken Properties Ltd. Kenya
Montgomery General Agency of New Jersey, Inc. New Jersey
Morency, Weible & Sapa, Inc. Illinois
Motorists Service Corporation Delaware
Motorplan Limited United Kingdom
Muirfield Underwriters, Ltd. Delaware
N.V. Verzekering Maatschappij Van 1890 Netherlands
NB Life Agents, Inc. New York
NRC Reinsurance Company Ltd. Bermuda
NSU Benefit Corporation Indiana
National Care Provider Insurance, Inc. California
National Product Care Company Illinois
National Sports Underwriters, Inc. Indiana
Needler Heath (UK) Ltd. United Kingdom
Needler Heath Dixon Ltd. United Kingdom
New Co. #1 L.L.C. Delaware
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
Nissho Iwai (Japan) Japan
Nixon Constable & Company Ltd. United Kingdom
North Derbyshire Finance Company Limited, The United Kingdom
Norwegian Insurance Partners A/S Norway
Norwegian Insurance Partners as (Non-Marine) Norway
Nova Reinsurance Brokers, Inc. Illinois
OLD ARS-AZ INC. Arizona
OLD ARS-IN CORP. Indiana
OUM & Associates of California, A Corporation California
OUM & Associates of New York, A Corporation New York
OUM & Associates of Ohio, A Corporation Ohio
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
Oak Brook Holding, Inc. Delaware
Oak Brook Life Insurance Company Arizona
Ohio Cap Insurance Company, Inc. Unknown
Ohrinsoo Agency Korea
Olarescu & B. I. Davis Asesores y Corredores de Seguros S.A. Peru
Old RHH North, Inc. California
Orobio Mees Herman B.V. Netherlands
P I Insurance Brokers (Pty) Limited South Africa
P M R Re, Inc. New York
P.I. Consultants Ltd. Hong Kong
P.T. Alexander Lippo Indonesia Indonesia
PBA Inc. Minnesota
PLCM Group, Inc. Florida
PLCM Group, Inc. Illinois
PLCM Group, Inc. Pennsylvania
PROVIA Gesselschaft fur betriebliche Risicoanalyse mbH Germany
PT RNJ Ratna Nusa Jaya Indonesia
Pacific Wholesale Insurance Brokers Pty Limited Australia
Paladin Reinsurance Corporation New York
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
Pilots International Association North Dakota
Pinerich Limited Ireland
Poitras, Lavigueur (1995) Inc. Quebec
Poland Puckle Insurance Brokers Ltd. United Kingdom
Premier Auto Finance, Inc. Delaware
Premier Auto Finance, L.P. Illinois
Prescot Insurance Holdings Ltd. United Kingdom
Private Client Trustees Ltd. Ireland
Product Care, Inc. Illinois
Professional & General Ins. Company (Bermuda) Ltd. Bermuda
Professional Liability Services Limited United Kingdom
Professional Sports Insurance Co. Ltd. Bermuda
Progressive Ideal Sdn Bhd. Malaysia
Promotora Zircon S.A. de C.V. Mexico
Property Owners Database Limited United Kingdom
Proruck Ruckversicherungs - AG Germany
Provider Services, Ltd. Bermuda
R&M Reinsurance Intermediaries Ltd. Trinidad
R.B. Jones Corporation Delaware
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
REISA Insurance Brokers Pty. Ltd. Australia
REIV Insurance Brokers (Pty) Ltd. Australia
RHH Empreendimentos e Servicos Ltda. Brazil
RHH Surety & Guarantee Limited United Kingdom
RIP Services Limited Guernsey
Ralph S. Harris (Insurance) Pty. Ltd. Zimbabwe
Rath & Strong, Inc. Massachusetts
Reed Stenhouse Asia Pacific Ltd. Scotland
Reed Stenhouse Companies Ltd. Canada
Reed Stenhouse Europe Holdings B.V. Netherlands
Reed Stenhouse Gmbh Germany
Reed Stenhouse Netherlands B.V. Netherlands
Reed Stenhouse Underwriting Management Ltd. Scotland
Resource Insurance Services, Inc. Indiana
Revasa S.p.A. Italy
Risconcept Inc. Canada
Risk Funding Services (Pty) Limited South Africa
Risk Management Consultants Ltd. United Kingdom
Risk Management Consultants of Canada Ltd. Canada
RiskNet Worldwide, Inc. Oregon
Risque et Finance SA France
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 Associates B.V. Netherlands
Rollins Hudig Hall Finance bv Netherlands
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 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
Royal Home Protection Plan, Inc. Delaware
Ruben Entertainment Insurance Services 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
Rydata Limited United Kingdom
S A Credit & Insurance Brokers (Pty) Limited South Africa
S W Holdings (SA) (Pty) Limited South Africa
S W Insurance Brokers (Pty) Limited South Africa
S. Hammond Story Agency, Inc. Georgia
S. Mark Brockinton & Associates of Texas, Inc. Texas
S. Mark Brockinton & Associates, Inc. Arkansas
SASE France Societe Des Assures Du Sud Set France
SHL Pacific Regional Holdings Inc. California
SIS Services of New York, Inc. New York
SLE Worldwide Australia Pty Limited Australia
SLE Worldwide Limited United Kingdom
SLE Worldwide Mexico, Agente de Seguros, S.A. de C.V. Mexico
SLE Worldwide, Inc. Delaware
SRA, Inc. Texas
SRS General Insurance Services, Inc. California
SRS Insurance Services, Inc. California
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
Savoy Insurance Brokers Ltd. United Kingdom
Saxonbeech Ltd. United Kingdom
Scarborough & Company, Inc. Delaware
Scarborough Insurance Agency of Massachusetts, Inc. Massachusetts
Sceptre Agency, Inc. Texas
Scottish & Commonwealth Insurance Co. Ltd. Bermuda
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
Securities Guarantee Company 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 of Virginia, Inc. Virginia
ServicePlan, Inc. Illinois
Services De Risques Aon Inc. Canada
Servicios A.B.S., S.A. Mexico
Servicios Inmoboliarios Guadalajara, S.C. Mexico
Servicios Y Garantias Ryan S.L. Spain
Sherwood Insurance Services California
Sherwood Insurance Services of Washington, Inc. Washington
Shoreline Insurance Agency, Inc. Rhode Island
Simco Insurance Brokers Pte Singapore
Singer Group, Inc., The Texas
Singer Plan, Inc. Delaware
Societe Generale de Courtage d'Assurances France
Societe canadienne de gestion de reassurance, inc. Quebec
Sodarcan Inc. Canada
Sodartec Inc. Canada
Soriero & Company, Inc. Texas
Sorim (1987) Ltd. United Kingdom
Sorim Services (1987) Ltd. United Kingdom
Southern Cross Underwriting Pty. Limited Australia
Special Risk Services Limited United Kingdom
Special Risk Services, Inc. New Jersey
Spicafab Limited United Kingdom
Square One, Inc. Texas
Steetley Leslie & Godwin Limited Guernsey
Steeves Lumley Ltd. Australia
Stenhouse (South East Asia) Pte. Ltd. Singapore
Stenhouse Marketing Services (London) Ltd. United Kingdom
Stenhouse Marketing Services, Inc. Delaware
Stenhouse Reed Shaw Africa (Pty) Ltd. South Africa
Sterling Life Insurance Company Arizona
Stichting Employee Fund Aon Netherlands
Stichting Werknemerscertificaten HLG Netherlands
Structured Compensation Ltd. United Kingdom
Sumner & McMillan United Kingdom
Sumner & McMillan Limited (Ireland) Ireland
Superannuation Fund (CICNZ) Limited New Zealand
Surety & Guarantee Consultants Limited United Kingdom
Surveyors Claims Services Ltd. United Kingdom
Swaziland Construction Insurance Brokers (Pty) Ltd. Swaziland
Swaziland Corporate Risk Management (Pty) Ltd. Swaziland
Swaziland Employee Benefit Consultants (Pty) Ltd. Swaziland
Swaziland Insurance Brokers (Pty) Ltd. Swaziland
Swaziland Reinsurance Brokers (Pty) Ltd. Swaziland
Swett & Crawford California
Swett & Crawford Ins. Agency of Massachusetts, Inc. Massachusetts
Swett & Crawford of Arizona, Inc. Arizona
Swett & Crawford of Connecticut, Inc. Connecticut
Swett & Crawford of Hawaii, Inc. Hawaii
Swett & Crawford of Pennsylvania, Inc. Pennsylvania
Swett & Crawford of Texas, Inc. Texas
Swett Insurance Managers of California, Inc. California
Swett Insurance Managers of Idaho, Inc. Idaho
Swett Insurance Managers of Maine, Inc. Maine
Swett Insurance Managers of Nevada, Inc. Nevada
Swett Insurance Managers of Pennsylvania, Inc. Pennsylvania
Swett Insurance Managers, Inc. Colorado
T M Insurance Brokers (Pty) Limited South Africa
TREV Properties Corporation Delaware
TTF Insurance Services Ltd. United Kingdom
Tabma-Hall Insurance Services Pty. Limited Australia
Tethercrest Ltd. United Kingdom
Texas Star Insurance Agency Not Applicable
Texecur Versicherungs Vermittlungs GmbH Germany
The Alexander Consulting Group Ltd. Canada
The Alexander Consulting Group Ltd. New Zealand
The Alexander Consulting Group Ltd. Scotland
The Credit Insurance Association France SA France
The Credit Insurance Association Ltd. United Kingdom
The Entertainment Coalition Not Applicable
The Swett & Crawford Group, Inc. California
Tholwana MIB Pty Limited South Africa
Trans Caribbean Insurance Services, Inc. American Samoa
Travellers Club International Ltd. United Kingdom
Trent Insurance Company Ltd. Bermuda
Trust Property & Casualty Insurance Company Vermont
U.S. Rating Bureau, Inc. Delaware
Underwriters Marine Services Limited United Kingdom
Underwriters Marine Services of Texas, Inc. Texas
Underwriters Marine Services, Inc. Louisiana
Union Centurion, S.A.de C.V. Mexico
Unison Consultants Europe E.E.I.G. Belgium
Unison GEIE Belgium
Unison SA Belgium
Unison Technical Services Belgium
United Car & Van Rental Ltd. United Kingdom
United Iranian Insurance Services plc Teheran Iran
Uzbeksugurta Howden Lihou Republic of Uzbekistan
VECCI Insurance Services Ltd. Australia
VOL Mortgage Corporation Delaware
VOL Properties Corporation Delaware
Valex Insurance Agency, Inc. Texas
Varity Risk Management Services Ltd. United Kingdom
Vassal Properties (Pty) Ltd. Botswana
Verband der Jauch & Hubener Unterstutzungskassen Germany
Vesselforward Ltd. United Kingdom
Virginia Surety Company, Inc. Illinois
WACUS Kreditversicherungsmakler GmbH Austria
WACUS Magyarorszag Hitelbitzositasi Tanacsado es Kozvetito Kft. Hungary
WAS Betriebsfuhrungs-GmbH Germany
WAVECA CA Venezuela
WMD Underwriting Agencies Ltd. United Kingdom
Wackerbarth H. Limited United Kingdom
Wackerbarth Hardman (Holdings) Limited United Kingdom
Wackerbarth International Holdings Bv Netherlands
Wexford Underwriting Managers, Inc. Delaware
Whitehouse Moorman Holdings Ltd. United Kingdom
Wilfredo Armstrong S.A. Argentina
William Gallagher Associates of California, Inc. California
William Gallagher Associates of Maryland, Inc. Maryland
William Gallagher Associates of New Jersey, Inc. New Jersey
Willis Corroon (PVT) Ltd. Zimbabwe
Winchester Financial Services (Pty) Limited South Africa
Windhock Insurance Brokers (Pty) Limited Namibia
World Insurance Network Ltd. Cardiff
Worldwide Insurance Network Limited United Kingdom
Worldwide Integrated Services Company Texas
Wyrm Systems Pty Limited South Africa
XB-Lumley Insurance Brokers (Pty) Ltd. South Africa
Y&D Properties Ltd. Canada
ZAO Aon Insurance Brokers Russia
Zimbabwe Risk Managers (Pvt) Ltd. Zimbabwe
nv Insurance Louis Delhaize (en abrege INSURDEL) Belgium
</TABLE>
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 10, 1998, included in the 1997
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 10, 1998, 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.
We also consent to the incorporation by reference in the Registration Statements
pertaining to the employer's stock option, stock award and savings plans (Form
S-8 Nos. 33-27984, 33-42575 and 33-59037) and the offer to exchange Capital
Securities (Form S-4 No. 333-21237) of Aon Capital A of our report dated
February 10, 1998, 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, 1998
<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> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 JAN-01-1997 JAN-01-1997 JAN-01-1997
<PERIOD-END> DEC-31-1997 SEP-30-1997 JUN-30-1997 MAR-31-1997
<DEBT-HELD-FOR-SALE> 3,144 3,027 2,903 2,734
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 806 858 814 711
<MORTGAGE> 15 22 24 25
<REAL-ESTATE> 12 12 12 14
<TOTAL-INVEST> 5,922 5,527 5,151 5,061
<CASH> 1,085 1,404 1,332 1,270
<RECOVER-REINSURE> <F7> 61 0 0 0
<DEFERRED-ACQUISITION> 549 560 570 575
<TOTAL-ASSETS> 18,691 17,832 17,407 17,317
<POLICY-LOSSES> 943 1,083 1,080 1,081
<UNEARNED-PREMIUMS> 1,870 2,015 2,017 1,980
<POLICY-OTHER> 809 834 835 841
<POLICY-HOLDER-FUNDS> 828 695 679 558
<NOTES-PAYABLE> <F1> 1,401 1,272 1,147 964
<F3> 50 50 50 50
<F4> 0 6 6 6
<COMMON> <F2> 171 171 171 171
<OTHER-SE> 2,651 2,744 2,641 2,519
<TOTAL-LIABILITY-AND-EQUITY> 18,691 17,832 17,407 17,317
1,609 1,192 793 384
<INVESTMENT-INCOME> 494 353 233 116
<INVESTMENT-GAINS> 6 5 2 2
<OTHER-INCOME> <F5> 3,642 2,680 1,750 852
<BENEFITS> 842 634 421 205
<UNDERWRITING-AMORTIZATION> 208 159 112 54
<UNDERWRITING-OTHER> 4,159 2,921 1,907 935
<INCOME-PRETAX> 542 345 167 15
<INCOME-TAX> 203 129 63 6
<INCOME-CONTINUING> 299 186 104 9
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 299 186 85 1
<EPS-PRIMARY> <F6> 1.71 1.05 0.47 (0.02)
<EPS-DILUTED> <F6> 1.68 1.03 0.46 (0.02)
<RESERVE-OPEN> 535 535 535 535
<PROVISION-CURRENT> <F7> 814 0 0 0
<PROVISION-PRIOR> <F7> (50) 0 0 0
<PAYMENTS-CURRENT> <F7> 538 0 0 0
<PAYMENTS-PRIOR> <F7> 241 0 0 0
<RESERVE-CLOSE> <F7> 520 0 0 0
<CUMULATIVE-DEFICIENCY> <F7> 0 0 0 0
<FN>
<F1> Includes short-term borrowings and debt guarantee of ESOP.
<F2> Common stock at par value; adjusted to reflect the three-for-two stock
split on May 14, 1997.
<F3> Does not include Company-obligated Mandatorily Redeemable Preferred
Capital Securities of Subsidiary Trust holding solely the Company's Junior
Subordinated Debentures.
<F4> Preferred stock at par value; Aon purchased and retired all outstanding
shares in November 1997.
<F5> Includes brokerage commissions and fees and other income.
<F6> Aon adopted Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" effective December 31, 1997 and announced a three-for-two stock
split effective May 14, 1997. Accordingly, all prior period per share
amounts have been restated.
<F7> Available on an annual basis only.
</FN>
</TABLE>
<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> <C> <C> <C>
<PERIOD-TYPE> 12-MOS 9-MOS 6-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 JAN-01-1996 JAN-01-1996 JAN-01-1996
<PERIOD-END> DEC-31-1996 SEP-30-1996 JUN-30-1996 MAR-31-1996
<DEBT-HELD-FOR-SALE> 2,826 2,707 2,559 7,490
<DEBT-CARRYING-VALUE> 0 0 0 0
<DEBT-MARKET-VALUE> 0 0 0 0
<EQUITIES> 879 821 773 975
<MORTGAGE> 29 34 34 656
<REAL-ESTATE> 18 19 23 39
<TOTAL-INVEST> 5,213 4,923 5,047 10,679
<CASH> 410 226 104 26
<RECOVER-REINSURE> <F8> 35 0 0 0
<DEFERRED-ACQUISITION> 599 622 630 1,286
<TOTAL-ASSETS> 13,723 12,227 11,999 20,123
<POLICY-LOSSES> 1,080 886 877 1,483
<UNEARNED-PREMIUMS> 1,925 1,675 1,627 1,706
<POLICY-OTHER> 841 867 870 978
<POLICY-HOLDER-FUNDS> 514 367 361 5,354
<NOTES-PAYABLE> <F1> 735 583 624 890
50 50 50 50
<F3> 6 8 8 8
<COMMON> <F2> 114 112 112 111
<OTHER-SE> 2,713 2,598 2,575 2,546
<TOTAL-LIABILITY-AND-EQUITY> 13,723 12,227 11,999 20,123
1,527 1,141 759 378
<INVESTMENT-INCOME> 384 270 177 85
<INVESTMENT-GAINS> 8 3 0 0
<OTHER-INCOME> <F4> 1,969 1,405 938 479
<BENEFITS> 790 582 379 186
<UNDERWRITING-AMORTIZATION> 208 156 108 53
<UNDERWRITING-OTHER> 2,445 1,706 1,141 557
<INCOME-PRETAX> 446 375 247 146
<INCOME-TAX> 154 129 85 49
<INCOME-CONTINUING> 292 246 162 97
<DISCONTINUED> 43 43 43 22
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 335 289 205 119
<EPS-PRIMARY> <F5> 1.93 1.68 1.20 0.70
<EPS-DILUTED> <F5> 1.90 1.65 1.17 0.68
<RESERVE-OPEN> 715 715 715 715
<PROVISION-CURRENT><F6><F8> 864 0 0 0
<PROVISION-PRIOR> <F6><F8> (36) 0 0 0
<PAYMENTS-CURRENT> <F7><F8> 725 0 0 0
<PAYMENTS-PRIOR> <F8> 283 0 0 0
<RESERVE-CLOSE> <F8> 535 0 0 0
<CUMULATIVE-DEFICIENCY> <F8> 0 0 0 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> Aon adopted Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" effective December 31, 1997 and announced a three-for-two stock
split effective May 14, 1997. Accordingly, all prior period per share
amounts have been restated.
<F6> Includes discontinued operations.
<F7> Includes liability for business sold of $173 million.
<F8> Available on an annual basis only.
</FN>
</TABLE>
<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-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<DEBT-HELD-FOR-SALE> 7,687
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 1,006
<MORTGAGE> 632
<REAL-ESTATE> 37
<TOTAL-INVEST> 10,639
<CASH> 115
<RECOVER-REINSURE> 19
<DEFERRED-ACQUISITION> 1,262
<TOTAL-ASSETS> 19,736
<POLICY-LOSSES> 1,475
<UNEARNED-PREMIUMS> 1,646
<POLICY-OTHER> 971
<POLICY-HOLDER-FUNDS> 5,464
<NOTES-PAYABLE> 907 <F1>
50
8 <F3>
<COMMON> 111 <F2>
<OTHER-SE> 2,555
<TOTAL-LIABILITY-AND-EQUITY> 19,736
1,427
<INVESTMENT-INCOME> 329
<INVESTMENT-GAINS> 13
<OTHER-INCOME> 1,697 <F4>
<BENEFITS> 699
<UNDERWRITING-AMORTIZATION> 208
<UNDERWRITING-OTHER> 2,101
<INCOME-PRETAX> 458
<INCOME-TAX> 154
<INCOME-CONTINUING> 304
<DISCONTINUED> 99
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 403
<EPS-PRIMARY> 2.33 <F5>
<EPS-DILUTED> 2.30 <F5>
<RESERVE-OPEN> 681
<PROVISION-CURRENT> 1,030 <F6>
<PROVISION-PRIOR> (14) <F6>
<PAYMENTS-CURRENT> 651
<PAYMENTS-PRIOR> 331
<RESERVE-CLOSE> 715
<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> Aon adopted Statement of Financial Accounting Standards No. 128 "Earnings
Per Share" effective December 31, 1997 and announced a three-for-two stock
split effective May 14, 1997. Accordingly, all prior period per share
amounts have been restated.
<F6> Includes discontinued operations.
</FN>
</TABLE>
