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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, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 1-7933
Aon Corporation
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of 36-3051915
Incorporation or Organization) (I.R.S. Employer
123 NORTH WACKER DRIVE, Identification No.)
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 701-3000
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
------------------- -------------------
Common Stock, $1 par value New York Stock Exchange*
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 24, 1999 was $8,787,962,898.
Number of shares of $1.00 par value Common Stock outstanding as of February
24, 1999: 170,793,734.
Documents From Which Information is Incorporated By Reference:
Annual Report to Stockholders of the Registrant for the Year 1998
(Parts I, II and IV)
Notice of Annual Meeting of Holders of Common Stock and Series C Preferred
Stock and Proxy Statement for Annual Meeting of Stockholders on April 16, 1999
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 three distinct segments: (i) insurance brokerage and other services,
(ii) consulting, and (iii) 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.; Aon Group Limited; and Alternative Market Operations ("AMO")
provide reinsurance intermediary services, benefits consulting and commercial
insurance brokerage services. Aon Group revenues grew significantly in fiscal
1996, 1997, and 1998 when the Registrant acquired, among other companies, Bain
Hogg Group plc ("Bain Hogg") in 1996; Alexander & Alexander Services Inc.
("A&A"), The Minet Group, and Jauch & Hubener in 1997; and Le Blanc de
Nicolay, Gil y Carvajal and Auto Insurance Specialists, Inc. in 1998.
Combined Insurance Company of America ("Combined Insurance") engages in
the marketing and underwriting 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").
The Registrant hereby incorporates by reference pages 6 through 12 and
pages 17 through 23 of the Annual Report to Stockholders of the Registrant for
the Year 1998 ("Annual Report").
COMPETITION AND INDUSTRY POSITION
(1) INSURANCE BROKERAGE AND OTHER 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 Re Worldwide, Inc. ("Aon Re"); Aon
Group Limited ("AGL"); Alternative Market Operations ("AMO").
Aon Group is the holding company for the Registrant's commercial brokerage
and consulting operation. Aon Group companies have 550 offices around the world
in approximately 120 countries. In 1998, Aon Group employed over 34,000
professionals and support personnel to serve the diverse needs of clients.
Aon Risk Services Companies' 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 provide risk
management services, including insurance placement, claims management, loss
control and administrative services. It has also developed certain specialist
niche areas such as marine, aviation, directors and officers liability,
financial institutions, construction, energy, media and entertainment. In 1998,
significant investments were made in professional talent, technology and the
development of specialized products and services to meet the evolving needs of
clients.
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 acquisitions of Jauch & Hubener, Le Blanc de Nicolay and Gil
y Carvajal strengthened the Registrant's presence throughout Europe.
Aon Services Group addresses the highly specialized product development,
consulting and administrative needs of professional groups, service businesses,
governments, health-care providers and commercial organizations.
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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 augmented
Aon Services Group's already strong expertise in wholesale brokerage and
professional liability programs. The 1998 acquisition of Auto Insurance
Specialists, Inc., an insurance broker specializing in automobile insurance
coverages, gives Aon Services Group a significant presence in that market with
opportunities for wide geographic application.
Aon's reinsurance brokerage activities are organized under Aon Re in the
United States and AGL in the United Kingdom. Aon Re is the largest reinsurance
broker in the world, offering reinsurance, analytical services and alternative
risk financing vehicles. 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.
AMO was established by Aon in late 1997 and is a leading provider of
custom-designed products and services which feature specialty underwriting
capabilities that produced an annual premium volume in excess of $1 billion.
Several of AMO's specialties include entertainment, public entities,
professional liability, workers compensation, and media business and financial
institutions.
(2) CONSULTING
Aon Consulting Worldwide, Inc. ("Aon Consulting")
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, job design and competency modeling; compensation and
reward systems; human resources compliance and risk management; and individual
and organizational change management. 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 strengthened
the Registrant's consulting expertise in Quebec.
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(3) 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 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,
while 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's current product portfolio often allows policyholders the option of
paying premiums monthly through a pre-authorized check mechanism. Those
policyholders are still called on by an agent to add additional coverage.
Combined Insurance offers a wide range of accident-only and sickness-only
insurance products, including short-term disability, cancer aid, Medicare
supplement, disability income and long-term care coverage. Most of 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 has expanded its product distribution
through payroll deduction, worksite marketing programs. Combined Insurance's
business is conducted by the Registrant's operations in the United States,
Canada, Latin America, Europe and Asia Pacific.
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 1997.
The Registrant's extended warranty and specialty insurance business,
conducted by VSC subsidiaries in North America, South America, Asia Pacific 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 are among 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, Argentina, Brazil, Australia
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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(4) 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 40 of the Annual Report.
A&A's Discontinued Operations
The Registrant hereby incorporates by reference note 3 of the Notes to
Consolidated Financial Statements on page 40 of the Annual Report.
LICENSING AND REGULATION
Regulatory authorities in the states or countries 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 in the United States and in most foreign countries, regulatory
authorities have relatively broad discretion with respect to granting, renewing
and revoking brokers' and agents' licenses to transact business in the state or
country. The manner of operating in particular states and countries may vary
according to the licensing requirements of the particular state or country,
which may require, among other things, that a firm operate in the state or
country through a local corporation. In a few states and countries, 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 or country.
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 statutory 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. Any 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.
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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.
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. Congress is actively considering a
Financial Services Modernization Act commonly known as H.R.10. While H.R.10.
would make substantial changes in allowing financial organizations to diversify,
the Registrant does not believe the enactment of H.R.10 would have a material
affect on the business of its insurance institutions.
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 44,000 employees at the
end of 1998 of whom approximately 36,000 are salaried and hourly employees and
the remaining 8,000 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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ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 12 of the Notes to
Consolidated Financial Statements on page 50 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 17, 1998 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 16, 1999. Ages shown are as of December 31, 1998.
For information concerning certain directors and executive officers of the
Registrant, see item 10 below. As of March 31, 1999, the following individuals
are also executive officers of the Registrant as defined in Rule 16a-1(f):
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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Harvey N. Medvin, 62 1972 Mr. Medvin became Vice President and
Executive Vice President and Chief Financial Officer of the
Chief Financial Officer Registrant in 1982 and was elected
to his current position in 1987.
He also serves as a Director or
Officer of certain of the
Registrant's subsidiaries.
Daniel T. Cox, 52 1986 Mr. Cox was elected to his current
Executive Vice President position in 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, 51 1990 Mr. Conway was Vice President of
Senior Vice President and Combined Insurance from 1980 to
Senior Investment Officer 1984. Following other employment,
Mr. Conway rejoined the Registrant
in 1990 as Senior Vice President of
Combined Insurance and was elected
to his current position in 1991. He
also serves as Director or Officer
of certain of the Registrant's
subsidiaries.
Michael D. O'Halleran, 48 1987 Mr. O'Halleran was appointed
President and Chief Operating President and Chief Operating
Officer of Aon Group, Inc. Officer of Aon Group, Inc. in 1995.
Prior thereto, since joining the
Registrant in 1987, he held a
variety of senior positions in the
Registrant's insurance and
reinsurance brokerage operations. He
also serves as a Director or Officer
of certain of the Registrant's
subsidiaries.
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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 53 of the Annual Report.
The Registrant had approximately 13,300 holders of record of its Common
Shares as of February 24, 1999.
The Registrant hereby incorporates by reference note 8 of the Notes to
Consolidated Financial Statements on pages 43 and 44 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 52 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Registrant hereby incorporates by reference "Financial and Operations
Highlights - Management's Discussion and Analysis" on pages 14 through 30 and
"Information Concerning Forward-Looking Statements" on the inside back cover of
the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant hereby incorporates by reference "Market Risk Exposure" on
page 29 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant hereby incorporates by reference the following statements,
notes and data from the Annual Report.
Page(s)
-------
Consolidated Financial Statements ...................... 31 - 35
Notes to Consolidated Financial Statements .......... 36 - 50
Report of Ernst & Young LLP, Independent Auditors ...... 51
Quarterly Financial Data ............................. 53
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 16,
1999, 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 10 through 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 1998 Fiscal Year" and
"Pension Plan Table" on pages 14 through 16 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 21 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:
Annual
Report
Page(s)
-------
Consolidated Statements of Income - Years Ended December 31, 1998,
1997 and 1996 31
Consolidated Statements of Financial Position - As of December 31,
1998 and 1997 32-33
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1998, 1997 and 1996 34
Consolidated Statements of Cash Flows - Years Ended December 31,
1998, 1997 and 1996 35
Notes to Consolidated Financial Statements 36-50
Report of Ernst & Young LLP, Independent Auditors 51
Financial statement schedules of the Registrant and
consolidated subsidiaries not included in the Annual Report
but filed herewith:
Consolidated Financial Statement Schedules -
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Schedule
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Condensed Financial Information of Registrant I
Valuation and Qualifying Accounts II
All other schedules for Aon Corporation and Subsidiaries have been omitted since
the required information is not present in amounts sufficient to require
submission of the schedules or because the information required is included in
the respective financial statements or notes thereto. The following
supplementary schedules have been provided for Aon Corporation and Subsidiaries
as they relate to the insurance underwriting operations:
Schedule
--------
Summary of Investments Other than Investments in Related Parties II.1
Reinsurance II.2
(a)(3). EXHIBITS
(a) Second Restated Certificate of Incorporation of the Registrant -
incorporated by reference to Exhibit 3(a) to the Registrant's Annual
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1991 (the "1991 Form 10-K").
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation - incorporated by reference to Exhibit
3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (the "First Quarter 1994 Form 10-Q").
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(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.
(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.
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(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.
(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, 1998 (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 1998
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-59037, 333-21237, 333-50607 and
333-55773.
(z) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1998 - 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.
- 12 -
<PAGE>
(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.
(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, 1998.
- 13 -
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 24th day of
March, 1999.
Aon Corporation
By:/s/ PATRICK G. RYAN
-----------------------------
Patrick G. Ryan,
Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ PATRICK G. RYAN Chairman, President, Chief March 24, 1999
- - - - - - - - - - - - - - - - - -------------------------- Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/ DANIEL T. CARROLL Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Edgar D. Jannotta
/s/PERRY J. LEWIS Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Perry J. Lewis
/s/ANDREW J. McKENNA Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Andrew J. McKenna
/s/NEWTON N. MINOW Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Newton N. Minow
/s/RICHARD C. NOTEBAERT Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Richard C. Notebaert
- 14 -
<PAGE>
Signature Title Date
--------- ----- ----
/s/DONALD S. PERKINS Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Arnold R. Weber
/s/CAROLYN Y. WOO Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Carolyn Y. Woo
/s/HARVEY N. MEDVIN Executive Vice President March 24, 1999
- - - - - - - - - - - - - - - - - ---------------------------- and Chief Financial Officer
Harvey N. Medvin (Principal Financial and
Accounting Officer)
- 15 -
<PAGE>
SCHEDULE I
<TABLE>
<CAPTION>
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31
---------------------------
(millions) 1998 1997
----------- -----------
<S> <C> <C>
ASSETS
Investments in subsidiaries ................... $ 5,305.4 $ 4,667.8
Notes receivable - subsidiaries ............... 239.0 745.3
Cash and cash equivalents ..................... 5.5 9.5
Other assets .................................. 46.1 166.2
----------- -----------
TOTAL ASSETS ............................. $ 5,596.0 $ 5,588.8
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings ......................... $ 436.2 $ 764.2
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 .............. 100.0 99.9
6.7% long-term debt securities ................ 149.8 149.7
Subordinated debt ............................. 800.0 800.0
Notes payable - subsidiaries .................. 588.1 488.8
Notes payable - other ......................... 70.0 70.0
Debt guarantee of employee stock ownership plan 17.5 33.1
Accrued expenses and other liabilities ........ 168.0 111.3
----------- -----------
Total Liabilities ........................ 2,529.3 2,716.7
----------- -----------
Redeemable Preferred Stock .................... 50.0 50.0
STOCKHOLDERS' EQUITY .......................
Common stock .................................. 171.5 171.5
Paid-in additional capital .................... 450.4 377.0
Accumulated other comprehensive income (loss) . (116.1) 103.4
Retained earnings ............................. 2,782.0 2,463.4
Less treasury stock at cost ................... (58.5) (93.2)
Less deferred compensation .................... (212.6) (200.0)
----------- -----------
Total Stockholders' Equity ............... 3,016.7 2,822.1
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,596.0 $ 5,588.8
=========== ===========
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
- 16 -
<PAGE>
SCHEDULE I
(Continued)
<TABLE>
<CAPTION>
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
----------------------------------
(millions) 1998 1997 1996
--------- ---------- ----------
<S> <C> <C> <C>
REVENUE
Dividends from subsidiaries ................... $ 351.2 $ 179.6 $ 1,026.6
Other investment income ....................... 68.5 51.8 33.1
----------------------------------
TOTAL REVENUE ............................ 419.7 231.4 1,059.7
----------------------------------
EXPENSES
Operating and administrative .................. 20.0 6.3 5.7
Interest - subsidiaries ....................... 94.2 85.3 20.6
Interest - other .............................. 75.6 61.7 43.2
----------------------------------
TOTAL EXPENSES (1) ....................... 189.8 153.3 69.5
----------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES .......... 229.9 78.1 990.2
Income tax benefit .................................. 53.9 43.0 3.6
----------------------------------
283.8 121.1 993.8
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES ...... 256.7 177.7 (658.6)
----------------------------------
NET INCOME .................................... $ 540.5 $ 298.8 $ 335.2
==================================
<FN>
See notes to condensed financial statements.
(1) Interest expense - other allocated to discontinued operations was $5
million for the year ended December 31, 1996.
</FN>
</TABLE>
- 17 -
<PAGE>
SCHEDULE I
(Continued)
<TABLE>
<CAPTION>
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31
-------------------------------
(millions) 1998 1997 1996
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES .................... $ 445.5 $ 124.3 $1,016.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries ......................... (93.3) (1,354.8) (319.3)
Notes receivables from subsidiaries ................. (16.3) (135.2) (10.8)
--------- --------- ---------
Cash Used by Investing Activities .............. (109.6) (1,490.0) (330.1)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions - net ................... (18.4) 21.4 (40.1)
Issuance (repayment) of short-term borrowings - net . (328.1) 541.7 (139.2)
Issuance of company-obligated mandatorily redeemable
preferred capital securities of subsidiary trust - 800.0 -
Issuance (repayment) of notes payable and long-term
debt - net ..................................... 200.3 113.5 (105.6)
Retirement of preferred stock ....................... - (136.2) (14.2)
Cash dividends to stockholders ...................... (193.7) (182.1) (172.9)
--------- --------- ---------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES ... (339.9) 1,158.3 (472.0)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (4.0) (207.4) 214.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......... 9.5 216.9 2.1
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................ $ 5.5 $ 9.5 $ 216.9
========= ========= =========
<FN>
See notes to condensed financial statements.
</FN>
</TABLE>
- 18 -
<PAGE>
SCHEDULE I
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) See notes to consolidated financial statements incorporated by reference
from the Annual Report. Certain amounts in prior years' Condensed
Statements of Income have been reclassified to conform to the 1998
presentation.
(2) 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 $292 million may be subject to approval by regulatory
authorities.
(3) Subsidiary Guarantees
---------------------
In 1998, Aon guaranteed a committed bank credit facility under which
certain European subsidiaries can borrow up to EUR 400 million ($470
million). At December 31, 1998, loans of EUR 348 million ($408 million)
were outstanding under this facility.
Aon Financial Products, Inc. ("AFP"), an investment banking affiliate of
Aon Corporation ("Aon"), manages an $80 million investment portfolio held
in a collateral trust at Citibank related to catastrophe reinsurance notes
issued by Pacific Re, Ltd., a Cayman Islands based reinsurance company.
AFP is obligated to produce specified investment returns for the portfolio
and to back the losses produced in the portfolio. Aon Corporation has
unconditionally guaranteed the obligations of Aon Financial Products.
(4) During 1998, Aon Corporation (Parent Company) reclassified $523 million of
notes receivables-subsidiaries to investments in subsidiaries related to
its brokerage operations.
(5) Subsequent Event
----------------
On March 19, 1999, Aon's directors approved a three-for-two stock split,
payable on May 17, 1999 in the form of a stock dividend of one common
share for every two shares held, to stockholders of record as of the close
of business on May 4, 1999. Because the stock split was approved
subsequent to the distribution of Aon's 1998 Annual Report to
Stockholders, references to common stock and earnings per share data in
the Annual Report to Stockholders and in this Annual Report on Form 10-K
have not been retroactively adjusted. Retroactively adjusting such
information to give effect to the stock split for 1998, 1997 and 1996,
respectively, would result in dilutive net income per share of $2.07,
$1.12, and $1.27, basic net income per share of $2.11, $1.14 and $1.29 and
dividends per share of $0.73, $0.68 and $0.63.
- 19 -
<PAGE>
SCHEDULE II
<TABLE>
<CAPTION>
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
(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
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 1998
----------------------------
Reserve for losses (3)
(deducted from mortgage loans on real estate) $ 0.3 $ - $ (0.1) $ - $ 0.2
Reserve for losses (3)
(deducted from other long-term investments) 8.7 - 0.5 - 9.2
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
receivables) 81.5 20.5 (5.1) (3.4) 93.5
Allowance for doubtful accounts
(deducted from premiums and other) 5.0 0.4 0.1 - 5.5
YEAR ENDED DECEMBER 31, 1997
----------------------------
Reserve for losses (3)
(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
receivables) 59.9 9.3 26.7 (14.4) 81.5
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
receivables) 47.4 9.5 13.4 (10.4) 59.9
Allowance for doubtful accounts (2)
(deducted from premiums and other) 3.9 2.1 (2.9) - 3.1
<FN>
(1) Amounts deemed to be uncollectible.
(2) Amounts shown in additions credited to other accounts primarily represent
reductions due to sale of discontinued operations.
(3) Amounts shown in additions charged/(credited) to other accounts represent
income (losses) on disposals.
(4) Amounts shown in additions charged/(credited) to other accounts represent
reserves related to acquired business.
</FN>
</TABLE>
- 20 -
<PAGE>
SCHEDULE II.1
<TABLE>
<CAPTION>
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1998
Amount shown
in Statement
Amortized Fair of Financial
(millions) Cost or Cost Value Position
------------ ----------- -------------
<S> <C> <C>
FIXED MATURITIES - AVAILABLE FOR SALE:
U.S. government and agencies ................ $ 95.5 $ 101.0 $ 101.0
States and political subdivisions ........... 485.2 517.4 517.4
Debt securities of foreign governments
not classified as loans ................ 740.1 801.2 801.2
Corporate securities ........................ 1,534.0 1,539.0 1,539.0
Public utilities ............................ 62.0 64.8 64.8
Mortgage-backed securities .................. 25.0 26.0 26.0
Other fixed maturities ...................... 53.3 53.5 53.5
----------- ----------- -----------
Total fixed maturities ................. 2,995.1 3,102.9 3,102.9
----------- ----------- -----------
EQUITY SECURITIES - AVAILABLE FOR SALE:
Common stocks:
Banks, trusts, and insurance companies .. 238.4 266.9 266.9
Industrial, miscellaneous, and all other 112.3 102.0 102.0
Non-redeemable preferred stocks ............. 404.9 398.8 398.8
----------- ----------- -----------
Total equity securities ................ 755.6 767.7 767.7
----------- ----------- -----------
Mortgage loans on real estate ................... 9.3 * 9.1 *
Real estate - net of depreciation ............... 10.9 * 10.9 *
Policy loans .................................... 58.7 * 58.7 *
Other long-term investments ..................... 290.5 * 281.3 *
Short-term investments .......................... 2,221.3 2,221.3
----------- -----------
TOTAL INVESTMENTS ...................... $ 6,341.4 $ 6,451.9
=========== ===========
<FN>
* These investment categories are combined and are shown as other
investments in the Statement of Financial Position. Differences between
amortized cost and amounts shown in the Statement of Financial Position
for investments other than fixed maturities and equity securities result
from certain valuation allowances.
</FN>
</TABLE>
- 21 -
<PAGE>
SCHEDULE II.2
<TABLE>
<CAPTION>
Aon Corporation and Subsidiaries
REINSURANCE
Year Ended December 31, 1998
-----------------------------------------------------------------------------------
Ceded to Assumed Percentage of
other from other amount
(millions) Gross amount companies companies Net amount assumed to net
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
LIFE INSURANCE IN FORCE (1) ........... $ 10,653.0 $ 9,813.0 $ 5,509.9 $ 6,349.9 86.8%
=========== =========== =========== =========== ==========
PREMIUMS AND POLICY FEES
Life Insurance ....................... $ 235.1 $ 103.5 $ 7.2 $ 138.8 5.2%
A&H Insurance ........................ 1,133.7 235.0 46.4 945.1 4.9%
Specialty Property & Casualty (2) .... 734.6 241.0 95.6 589.2 16.2%
------------ ------------ ----------- ----------- ----------
TOTAL PREMIUMS AND POLICY FEES (3) . $ 2,103.4 $ 579.5 $ 149.2 $ 1,673.1 8.9%
============ ============ =========== =========== ==========
Year Ended December 31, 1997
------------------------------------------------------------------------------------
Ceded to Assumed Percentage of
other from other amount
(millions) Gross amount companies companies Net amount assumed to net
-----------------------------------------------------------------------------------
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 (3) . $ 1,920.9 $ 609.5 $ 297.5 $ 1,608.9 18.5%
============ ============ =========== =========== ==========
Year Ended December 31, 1996
-----------------------------------------------------------------------------------
Ceded to Assumed Percentage of
other from other amount
(millions) Gross amount companies companies Net amount assumed to net
-----------------------------------------------------------------------------------
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 (3) . $ 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.
(3) Insurance underwriting premiums written, net of reinsurance ceded, were
$1,667.6 million, $1,596.2 million and $1,581.6 million for the years
ended December 31, 1998, 1997, and 1996, respectively.
</FN>
</TABLE>
- 22 -
<PAGE>
Cross Reference Sheet, Pursuant
to General Instruction G(4)
ITEM IN FORM 10-K INCORPORATED BY REFERENCE TO
- - - - - - - - - - - - - - - - - ----------------- ----------------------------
PART I
Item 1. Business Annual Report to Stockholders of
the Registrant for the Year 1998
("Annual Report") pages 6 through
12, 17 through 23 and 40.
Item 3. Legal Proceedings Annual Report page 50 (note 12 of
Notes to Consolidated Financial
Statements).
PART II
Item 5. Market for the Registrant's Annual Report pages 43 and 44 (note
Common Stock and Related Security 8 of Notes to Consolidated
Holder Matters Financial Statements) and page 53
("Dividends paid per share" and
"Price range").
Item 6. Selected Financial Data Annual Report page 52.
Item 7. Management's Discussion and Annual Report pages 14 through 30
Analysis of Financial Condition and inside back cover ("Information
and Results of Operations Concerning Forward-Looking
Statements").
Item 7A. Quantitative and Qualitative Annual Report page 29 ("Market Risk
Disclosures about Market Risk Exposure").
Item 8. Financial Statements and Annual Report pages 31 through 51
Supplementary Data and 53.
PART III
Item 10. Directors and Executive Proxy Statement For Annual Meeting
Officers of the Registrant of Stockholders on April 16, 1999
of the Registrant ("Proxy
Statement") pages 3, 7, and 10
through 12.
Item 11. Executive Compensation Proxy Statement pages 14 through
16.
Item 12. Security Ownership of Proxy Statement pages 2, 9 and 10.
Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Proxy Statement page 21
Related Transactions ("Transactions With Management").
PART IV
Item 14. Exhibits, Financial Statement Annual Report pages 31 through 51.
Schedules, And Reports on
Form 8-K
- 23 -
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- - - - - - - - - - - - - - - - - ------------- -------------
(3) Articles of incorporation and bylaws:
(a) Second Restated Certificate of Incorporation of the
Registrant - incorporated by reference to Exhibit 3(a)
to the 1991 Form 10-K.
(b) Certificate of Amendment of the Registrant's Second
Restated Certificate of Incorporation - incorporated by
reference to Exhibit 3 to the First Quarter 1994 Form
10-Q.
(c) Bylaws of the Registrant - incorporated by reference to
Exhibit (d) to the 1982 Form 10-K.
(d) Certificate of Designation for the Registrant's 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.
- 24 -
<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.
- 25 -
<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.
- 26 -
<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, 1998.
(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 1998 Annual Report to Stockholders and into Aon's
Registration Statement Nos. 33-27984, 33-42575, 33-59037,
333-21237, 333-50607 and 333-55773.
(99) Annual Report to the Securities and Exchange Commission on Form
11-K for the Aon Savings Plan for the year ended December 31,
1998 - to be filed by amendment as provided in Rule 15d-21(b).
- 27 -
<PAGE>
Exhibit 12(a)
<TABLE>
<CAPTION>
Aon CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Years Ended December 31,
-------------------------------------------------
(millions except ratios) 1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes (1) $ 930.4 $ 541.6 $ 445.6 $ 458.0 $ 397.0
ADD BACK FIXED CHARGES:
Interest on indebtedness 87.2 69.5 44.7 55.5 46.4
Interest on ESOP 2.4 3.5 4.3 5.3 5.9
Portion of rents representative of
interest factor 50.4 44.3 28.6 21.4 28.7
--------- --------- --------- --------- ---------
INCOME AS ADJUSTED $1,070.4 $ 658.9 $ 523.2 $ 540.2 $ 478.0
========= ========= ========= ========= =========
FIXED CHARGES:
Interest on indebtedness $ 87.2 $ 69.5 $ 44.7 $ 55.5 $ 46.4
Interest on ESOP 2.4 3.5 4.3 5.3 5.9
Portion of rents representative of
interest factor 50.4 44.3 28.6 21.4 28.7
--------- --------- --------- --------- ---------
TOTAL FIXED CHARGES $ 140.0 $ 117.3 $ 77.6 $ 82.2 $ 81.0
========= ========= ========= ========= =========
RATIO OF EARNINGS TO FIXED CHARGES 7.6 5.6 6.7 6.6 5.9
========= ========= ========= ========= =========
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 $90 million
for 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>
Exhibit 12(b)
<TABLE>
<CAPTION>
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) 1998 1997 1996 1995 1994
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes (1) $ 930.4 $ 541.6 $ 445.6 $ 458.0 $ 397.0
ADD BACK FIXED CHARGES:
Interest on indebtedness 87.2 69.5 44.7 55.5 46.4
Interest on ESOP 2.4 3.5 4.3 5.3 5.9
Portion of rents representative of
interest factor 50.4 44.3 28.6 21.4 28.7
========= ========= ========= ========= =========
INCOME AS ADJUSTED $1,070.4 $ 658.9 $ 523.2 $ 540.2 $ 478.0
========= ========= ========= ========= =========
FIXED CHARGES AND PREFERRED STOCK DIVIDENDS:
Interest on indebtedness $ 87.2 $ 69.5 $ 44.7 $ 55.5 $ 46.4
Preferred stock dividends 69.7 82.1 28.7 37.5 48.4
--------- ---------- ---------- ---------- ----------
INTEREST AND DIVIDENDS 156.9 151.6 73.4 93.0 94.8
Interest on ESOP 2.4 3.5 4.3 5.3 5.9
Portion of rents representative of
interest factor 50.4 44.3 28.6 21.4 28.7
TOTAL FIXED CHARGES AND PREFERRED ========= ========= ========= ========= =========
STOCK DIVIDENDS $ 209.7 $ 199.4 $ 106.3 $ 119.7 $ 129.4
========= ========= ========= ========= =========
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS (2) 5.1 3.3 4.9 4.5 3.7
========= ======== ========= ========= =========
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 $90 million
for the years ended December 31, 1997 and 1996, respectively.
(2) Included in total fixed charges and preferred stock dividends for the
years ended December 31, 1998 and 1997 are $66 million and $64 million,
respectively, of pretax distributions on the 8.205% mandatorily redeemable
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>
NEED
OPPORTUNITY CONCEPT
STRATEGY
SOLUTION
IMPLEMENT
EXECUTE
- 6 -
<PAGE>
GROWTH
Aon has evolved into a leading global provider of brokerage, consulting and
consumer insurance services. This dramatic growth in scale, capabilities and
geographic reach has been carefully planned and executed to enhance our
competitiveness and to create value for all of our stakeholders.
Aon's strategy for sustaining long-term profitable growth and
creating stockholder value is twofold: first, generate true organic
growth from internal efficiencies and interdependent services; and
second, expand our global distribution network and service offerings
by acquisitions, when they fit appropriately with our strategy and
our culture.
Our organic growth stems from several efforts: developing new products and
services; establishing long-term relationships with trusted insurance
providers; capitalizing on our niche specialties; and managing our
businesses more efficiently through initiatives such as segmentation and
strategic account management.
We operate as a decentralized, highly responsive organization and continue to
make efficiency gains by eliminating excess administration and distribution
costs. We are leaner, more effective and have a greater focus. We do this in
part by increasing our investment in information technology and taking the lead
in electronic commerce.
Our goal is to have each business segment be number one or two in its
market; to diversify our products and services; and to leverage our
resources of expertise, technology and strategic partnerships.
Our organization has been put to the test in integrating acquisitions
effectively. We rose to the occasion and assimilated six major acquisitions
smoothly during the last 18 months. We did this in an environment of ongoing
industry consolidation where we seized opportunities when they arose.
Recently, we have acquired Jauch & Hubener, Germany's premier brokerage and
consulting firm; Gil y Carvajal, the largest retail and reinsurance broker in
Spain; Le Blanc de Nicolay, the foremost reinsurance broker in France; Greig
Insurance, Norway's largest broker; and SGAP, a leading French broker. In the
United States, we acquired Auto Insurance Specialists, which specializes in
automobile insurance coverages.
There is a growing need for large-scale risk management worldwide.
In the United States, we are expanding our capital markets solutions
and risk-transfer services. Latin America and Europe require new
types of insurance products, and we are confident Asia will be a
growing market in the years to come.
Aon in Action: AonLine
Aon is creating another competitive advantage through its innovative application
of electronic commerce to risk management. AonLine, our industry-leading
Extranet service, helps risk managers save time and resources with a
cost-effective network of interactive risk management tools.
AonLine subscribers have immediate access to timely and accurate data, rating
services, regulatory information and news of global weather, political and
economic conditions. Clients can customize the secure service with relevant
information such as policies, exposures, bonds, claims and certificates of
insurance.
AonLine not only automates transactions and processes, it offers the collective
knowledge of Aon account teams and practice leaders. With the wide acceptance of
AonLine, Aon has established itself as the leading information resource for risk
managers while providing a new distribution channel for our services.
PICTURE OMITTED (Caption listed below)
Working to sustain Aon's long-term growth are (from left) Mike Rice, Arlene
Hardy, Harvey Medvin, David Cole and Dennis Mahoney.
- 7 -
<PAGE>
RETAIL BROKERAGE
PROGRAMS AND SERVICES
REINSURANCE WHOLESALE BROKERAGE
CONSULTING
PERSONAL LINES
WARRANTY
- 8 -
<PAGE>
OPPORTUNITIES
As the pacesetter in a dynamic industry, Aon has learned to anticipate and
maneuver the turns in our ever-changing business landscape. We have a proven
track record of meeting challenges head-on and turning them into opportunities
for growth and value creation. To stay competitive, we are always in the process
of changing the way we do business.
To optimize our leadership in risk management, consulting and
global distribution, Aon has reinvested more than $3 billion in
expanding our businesses during the last decade.
There is a convergence in the financial services industry. Banks, accounting
firms, insurance companies and brokerages are seeking a share of the market in
risk management services, consulting and global distribution. We are clearly the
leader in providing professional insurance and consulting services and in
distributing insurance products. We intend to stay in the lead by meeting
customer demands and by seizing opportunities to market our innovative services
and distribution channels.
Insurance buyers need a knowledgeable advocate to help them identify and
manage risk effectively in these complex times. We fill that intermediary
role better than anyone else. We are adding real value by being advocates
-- not just suppliers -- for our clients.
Aon is developing a new consumer products strategy that will capitalize on
our marketing and distribution skills. We have given the broker a
reinvigorated role in the distribution of consumer insurance products, a
market where we see tremendous opportunity. We also see great potential in
being the high quality, low cost provider of group and association
insurance products. We intend to expand our affinity services and create
new ones to build an even more efficient distribution system that can
vertically integrate affinity products with life, accident and health
insurance.
Aon Capital Markets, our investment banking unit, took steps early
in the year to provide more integrated risk management and
investment banking services to Aon's insurance, reinsurance and
corporate clients. It has quickly become a leader in the transfer of
insurance risk to the capital markets.
We do business around the world and our clients look to us for timely, accurate
data and communications. Our commitment to the innovative use of technology has
never been stronger as we lead the industry in effective applications of
electronic commerce and information technology.
Aon in Action: Managed Care
Rapid changes in the delivery and funding of healthcare services prompted Aon to
develop creative solutions for healthcare organizations. Aon Healthcare Alliance
was created to bring all of Aon's resources together to help healthcare
providers better manage their risk. The market for managed care stop loss
coverage is growing rapidly and is expected to reach $1.5 billion this year. Aon
is playing a lead role in providing solutions to this exciting sector.
Through Aon Managed Care, a business unit of Aon Healthcare, we offer an
insurance product nationwide to hospital physicians and provider-owned HMOs that
are entering into capitated, managed care contracts. Aon insures them against
catastrophic exposures with products developed jointly by several Aon units.
While helping healthcare providers contain costs and minimize financial risk,
Aon has taken a commanding lead in the U.S. market and is pioneering managed
care stop loss coverage in Europe and Latin America.
PICTURE OMITTED (Caption listed below)
From left: Kevann Cooke, Richard Ravin, Paul Davies and Dick Riley identify
opportunities to enhance Aon's leadership position.
- 9 -
<PAGE>
INTERDEPENDENCE
CLIENT FOCUS
PARTNERSHIP
ENTREPRENEURIAL SPIRIT
COLLECTIVE EXPERTISE
INNOVATION
- 10 -
<PAGE>
CULTURE
Aon's culture is based on a core set of beliefs, the most important of which is
a commitment to working together for mutual success. We succeed by bringing
together different companies and diverse people into a common culture dedicated
to excellence.
The name Aon in Gaelic connotes unity or oneness and signifies what
we want our company to always be: united in purpose and action to
achieve our mission of being the premier global provider of
innovative insurance and consulting services.
We are a service organization committed to putting our clients
first. We provide advice, service and consulting as the
industry's leading global distribution organization. Everything
we do is ultimately focused on creating value for our clients,
and we do it best through our interdependence, another primary
value of our culture. Interdependence, as we define it, means
bringing together two or more business units of Aon to develop a
holistic solution to our clients needs.
By pooling our collective expertise, skills, experience and creativity, we
foster dynamic decision making, innovative thinking and unbeatable results.
We encourage grass-roots product development and an open exchange of
ideas that makes the most of the collective knowledge and experience
of the individuals that make up Aon. Operating in this team
environment fosters a creative and entrepreneurial spirit. We are
builders and innovators who have the competency to develop solutions
for today's needs, the foresight to anticipate future service needs
and the tools it will take to deliver them. Most importantly, the
Aon culture gives us the freedom to express ourselves, to make
decisions, to develop our professional skills and to become valued
contributors.
Aon in Action: Aon University
As a premier provider of innovative insurance and consulting solutions, Aon
needs dynamic, creative, talented, knowledgeable, committed and competent
employees. With 44,000 employees worldwide, the challenge is not just keeping a
diverse work force informed but also assimilating thousands of employees from
recent acquisitions. Aon's new training and development unit, Aon University, is
helping employees to compete successfully in an environment of explosive growth
and change.
Interactive classes are conducted at various locations around the world and are
focused on formalizing the learning process about our company, culture and
vision. Course work includes programs in leadership, people management and
client service. Through team assignments, participants learn experientially
about Aon's core value of interdependence, which brings together various Aon
resources to provide clients the most innovative solutions and comprehensive
services.
PICTURE OMITTED (Caption listed below)
From left: Ken LeStrange, Dan Cox, Kevin Callahan and Ricky Byrdsong share their
vision of Aon's entrepreneurial culture.
- 11 -
<PAGE>
Aon's culture is based on a team spirit that empowers individuals to do better
so that as an organization we can do more. Our confidence and determination give
us that extra edge and will to succeed.
We are constantly striving to be better, to provide greater service,
to help clients manage their risk and to ensure their success.
People work at Aon and clients stay with Aon because of a shared
commitment to excellence. Acting as advocates for our clients, we
offer them our specialized skills, industry experience and
knowledge, innovative technology and professionalism. And, we do all
this within an organization that is flexible and responsive.
While Aon's culture is based on unity, we also value individuality, diversity,
regional customs and local business practices. We respect each other and share
long-term goals and commitments. In all of our business dealings, we conduct
ourselves with integrity, fairness and ethical standards.
More than 30% of Aon's stock is owned by employees who have a direct
stake in the company's profitable growth and share the goals of
fellow stockholders.
To achieve our vision and sustain success, Aon recognizes the
importance of nurturing a corporate culture that is supportive of
and is aligned with the organization's business goals and strategy.
Our shared values, experience and attitudes drive our organizational
behavior, client service and ultimate success. The Aon team has
created a culture that not only reinforces its business strategies,
but also is continuously learning, adapting and responding to
changing markets and competitive environments.
"We never underestimate our competition," says Mike O'Halleran, Aon Group
President. "The way we differentiate ourselves is by learning together, working
together and bringing the best of Aon together to build value for our clients.
By doing that, we also create value and success for each other and our
stockholders."
PICTURE OMITTED (Caption listed below)
Aon's commitment to employee training and personal development is a company-wide
objective supported by (from left) Melody Jones, Mike O'Halleran, Mike Conway
and Dirk Verbeek.
- 12 -
<PAGE>
***** TABLE OF CONTENTS OMITTED *****
- 13 -
<PAGE>
FINANCIAL AND OPERATIONS HIGHLIGHTS
MANAGEMENT'S DISCUSSION AND ANALYSIS
This annual report contains forward-looking statements as that term is defined
in the Private Securities Litigation Reform Act of 1995. See "Information
Concerning Forward-Looking Statements" on the inside of the back cover of this
annual report.
Aon is a leading provider of professional insurance brokerage and consulting
services and a distributor of insurance products. Aon serves commercial and
industrial businesses, associations and affinity groups, insurance organizations
and individual policyholders through nearly 44,000 employees in 550 offices in
120 countries.
Aon provides insurance, reinsurance, wholesale and specialty brokerage; employee
benefits and human resources consulting; personal lines insurance; warranty and
credit insurance; and niche insurance services. The company is a pioneer in the
development of new products and services for a wide range of applications, from
the use of capital markets for catastrophe risk financing to the development of
innovative long-term care coverages for senior citizens.
The following sections provide a discussion of 1998 consolidated results,
information on business segments and related financial data.
CONSOLIDATED RESULTS
GENERAL
In 1998, Aon invested approximately $374 million in business combinations in its
brokerage and consulting businesses. These business combinations were financed
primarily by bank loans, internal funds and the reissuance of common stock from
treasury. The major 1998 acquisitions include: Auto Insurance Specialists
(AIS)--an insurance broker specializing in automobile insurance coverage; Le
Blanc de Nicolay (Le Blanc)--the largest reinsurance broker in France; and Gil y
Carvajal--the largest retail and reinsurance broker in Spain. AIS was accounted
for by the pooling of interests method and Le Blanc and Gil y Carvajal by the
purchase method.
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 business combinations were accounted for using the purchase method of
accounting. The resultant goodwill is being amortized principally over 40 years.
Because of these business combinations, 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. UFLIC and LOV results are classified in the consolidated statements of
income as discontinued operations in 1996.
- 14 -
<PAGE>
For purposes of the 1997 compared to 1996 consolidated results discussion,
comparisons against prior year results are based on continuing operations.
SPECIAL CHARGES
Special charges information located in note 1 on pages 36 and 37 is
incorporated herein by reference.
In first quarter 1999, Aon announced the consideration of potential
restructuring plans for its international operations, which would be designed to
create operating efficiencies to help position Aon for continued growth despite
the challenging trading environment. Major elements of the restructuring plans
include European workforce reductions related to organizational restructuring,
closure and consolidation of duplicate facilities, and other consolidation
costs. The plans also include a voluntary early retirement plan for employees of
Aon's U.S. and Canadian operating subsidiaries. Aon anticipates that these plans
will require a first quarter 1999 pretax special charge in the range of $100 to
$150 million.
REVENUE AND INCOME BEFORE INCOME TAX
CONSOLIDATED RESULTS FOR 1998 COMPARED TO 1997
For purposes of the following consolidated results discussions, certain prior
period information has been restated to conform to the 1998 presentation.
Total revenues amounted to $6.5 billion, an increase of 13% in 1998. This
increase was largely attributable to growth in brokerage commissions and fees
resulting from business combination activity. Brokerage commissions and fees
increased 16% to $4.2 billion.
CONSOLIDATED GEOGRAPHIC REVENUE
(millions) Years ended December 31 1998 1997 1996
=============================================================
United States $3,736 $3,413 $2,646
United Kingdom 1,244 1,158 535
Europe 790 439 394
Rest of World 723 741 313
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
Total revenue $6,493 $5,751 $3,888
=============================================================
U.S. revenues increased 9% in 1998 compared to 1997 primarily due to organic
growth. European revenue increased 27% in 1998 to $2 billion, and rest of world
revenue of $723 million declined 2%. Revenue increased in 1998 when compared to
1997 primarily due to 1998 and late 1997 acquisitions and to internal growth.
Approximately 43% of 1998 income before income tax is derived from operations
outside the U.S.
Premiums and other revenue is primarily related to insurance underwriting
operations and includes premiums earned and other income of $1.7 billion, an
increase of 4% in 1998. Extended warranty premiums earned increased $63 million
or 13% reflecting continued growth primarily in the appliance and electronics
lines and, to a lesser extent, the mechanical extended warranty line. Direct
sales premiums earned increased modestly, reflecting
- 15 -
<PAGE>
changes in the consumer insurance market. The run-off of North American auto
credit business partially offset this growth in premiums earned.
Investment income of $590 million, which includes related expenses and income on
disposals, increased 18% for the year primarily attributable to brokerage
acquisitions, income received on certain private equity and other investment
holdings, assets underlying capital accumulation products and higher levels of
income on disposals. The investment portfolio yield remained stable.
General expenses increased 7% for the year primarily due to growth in the
brokerage businesses. Benefits to policyholders increased 6% when compared to
1997, reflecting a higher volume of new extended warranty and capital
accumulation business. This increase was partially offset by the run-off of auto
credit business as planned. Interest expense increased 24% as a result of
acquisition financing. Amortization of intangibles increased slightly.
Total expenses increased 7% or $353 million over 1997. Total 1998 expenses
increased over prior year primarily due to investments in new business
initiatives, technology and product development. Restructuring liabilities for
recent acquisitions and 1997 special charges have been reduced by payments as
planned. Total expenses, excluding the 1997 special charges, increased 10% or
$525 million over 1997.
References to income before income tax are before minority interest related to
the issuance of 8.205% mandatorily redeemable preferred capital securities
(capital securities) (see note 8).
Income before income tax increased $389 million or 72% in 1998 primarily due to
the inclusion of special charges in 1997. Excluding special charges, income
before income tax increased 30% or $217 million largely due to brokerage
business combination activity, to the achievement of cost savings resulting from
the consolidation of brokerage operations during 1998 and 1997, and to internal
growth.
Fourth quarter revenue increased 12% to $1.7 billion when compared to 1997
primarily reflecting brokerage business combination activity. Total expenses
increased 11% to $1.5 billion for the quarter. Pretax income increased $41
million or 21% to $238 million. The increase in pretax earnings reflects growth
in the insurance brokerage and other services and consulting segments related to
business combination activity and to internal growth.
CONSOLIDATED RESULTS FOR 1997 COMPARED TO 1996
Total revenue amounted to $5.8 billion, an increase of 48% in 1997. Brokerage
commissions and fees increased 88% to $3.6 billion resulting from business
combination activity and internal growth. Premiums and other revenue of $1.6
billion increased 4% in 1997, primarily reflecting continued growth of new
business in the mechanical, appliance and electronics lines. The planned run-off
of North American auto credit business partially offset this growth in premiums
earned. Investment income of $500 million increased 28% for the year,
attributable primarily to brokerage acquisitions and to income received on
certain private equity investment holdings.
General expenses increased 65% 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. Interest
- 16 -
<PAGE>
expense increased 75% as a result of acquisition financing. Amortization of
intangibles increased $45 million or 59%, reflecting brokerage acquisitions.
Total 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 expenses, excluding the 1997 and 1996 special
charges, increased 50% over 1996, primarily reflecting brokerage acquisition
activity.
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.
PIE CHART DESCRIBED BELOW
1998 REVENUE
BUSINESS SEGMENTS
58% of 1998 Revenue was attributed to Insurance Brokerage and Other Services
Segment
10% of 1998 Revenue was attributed to Consulting Segment
30% of 1998 Revenue was attributed to Insurance Underwriting Segment
2% of 1998 Revenue was attributed to Corporate and Other Segment
BUSINESS SEGMENTS
In fourth quarter 1998, Aon adopted Financial Accounting Standards Board (FASB)
Statement No. 131 "Disclosures about Segments of an Enterprise and Related
Information." All prior period segment information presented has been restated
to conform to the current period presentation. For purposes of the business
segments, comparisons against 1997 results exclude discontinued operations and
special charges. A discussion of discontinued operations follows the Business
Segments section.
Aon's operating segments are identified as those for which separate financial
information is available and that are evaluated on a regular basis in deciding
how to allocate resources and in assessing performance. Total revenue for each
of the major operating segments is presented both by major line of business and
by geographic area. Since Aon's culture fosters interdependence among its
operating units, the segregation of expenses by line of business and on a
geographic basis is difficult to delineate. While revenue is tracked and
evaluated separately by management, total expenses are allocated to major lines
of business within each of the business segments. In addition to revenue, Aon
also measures a segment's financial performance based on business segment income
before income tax. The accounting policies of the business segments are the same
as those described in the summary of significant accounting principles and
practices (see note 1). Revenues are attributed to geographic areas based on the
location of the resources producing the revenues.
Aon classifies its businesses into three major operating segments: Insurance
Brokerage and Other Services, Consulting and Insurance Underwriting; and into
one non-operating segment, Corporate and Other.
All intercompany revenues and expenses are eliminated in computing consolidated
revenues and income before income tax. A description of operations and a review
of financial performance for each of the four business segments follow.
INSURANCE BROKERAGE AND OTHER SERVICES
The Insurance Brokerage and Other Services segment consists principally of Aon's
retail brokerage, reinsurance, specialty and wholesale operations. The four
major operating units are Aon Risk Services, Aon Re Worldwide, Aon Services
Group and Alternative Market Operations.
AON RISK SERVICES (ARS) is a leading insurance brokerage and risk management
services organization. Companies of all kinds look to ARS for comprehensive risk
management solutions, including exposure identification, insurance placement,
claims management, loss control and administrative services.
- 17 -
<PAGE>
PIE CHART DESCRIBED BELOW
1998 REVENUE
INSURANCE BROKERAGE AND OTHER SERVICES
50% of Total Insurance Brokerage and Other Services 1998 Revenue was derived
from United States
21% of Total Insurance Brokerage and Other Services 1998 Revenue was derived
from United Kingdom
17% of Total Insurance Brokerage and Other Services 1998 Revenue was derived
from Europe
12% of Total Insurance Brokerage and Other Services 1998 Revenue was derived
from Rest of World
In 1998, ARS grew through acquisitions principally in the United States, Europe
and Latin America. Significant investments also were made in professional
talent, technology and the development of specialized products and services to
meet the evolving needs of clients. Examples include Aon Enterprise, which
focuses on the needs of small commercial companies, and Impact Forecasting,
which provides computer-based catastrophe modeling.
The ARS strategy of industry specialization and product expertise, combined with
the strategic account management service concept, provide the platform to
deliver focused, cost-effective services on a global basis. Due to its great
depth of intellectual capital, proprietary services and strategic approach, Aon
Risk Services is the preferred choice in managing risk.
AON RE WORLDWIDE (AON RE) is the largest reinsurance broker in the world,
offering reinsurance brokerage, analytical services and alternative risk
financing vehicles. Through its product and industry specialization, Aon Group
Limited, headquartered in the United Kingdom, is a major contributor to Aon Re's
leadership position in every major reinsurance market. Aon Re placed
approximately $10 billion in premium volume in 1998.
Most importantly, Aon Re offers a seamless service network to its clients who
range from multinational insurance companies to single parent captives. This
network provides access to local experts with global solutions for the most
appropriate risk transfer and risk financing. Aon Re recruits the best people
from inside and outside the industry. We also have made the investments
necessary to support geographic technical expertise and consultative services
that are essential to long-term success in the highly competitive reinsurance
environment.
Sister-company Aon Capital Markets is a leader in developing capital markets
risk financing through insurance-linked securities and provides financial
advisory services to clients in need of risk financing beyond traditional
insurance and reinsurance programs.
AON SERVICES GROUP (ASG) develops specialized insurance products and provides
administrative support for associations and affinity groups, service businesses,
healthcare providers and commercial organizations. ASG's innovative products are
typically delivered through distribution systems that target specific market
segments. The major ASG operations include:
Affinity Insurance Services, with more than six million policyholders, provides
personal and professional insurance for such diverse groups as nurses,
accountants and lawyers.
The Healthcare Alliance, the largest provider of risk management and brokerage
services to the healthcare industry, is a practice that continues to grow in
response to the changing needs of healthcare providers.
Cambridge Integrated Services, a third party claims administrator, provides
greater efficiency and total loss cost management by offering a broad range of
niche claims specialties under one banner. Its expertise ranges from workers'
compensation to legal malpractice, from product liability to toxic tort claims.
Wholesale brokerage companies, including such well-respected companies as
Sherwood Insurance Services and Swett & Crawford, distribute specialty
insurance products.
ASG continues to grow by enhancing its existing distribution networks,
leveraging the distribution resources of other Aon companies and continually
developing exciting alternatives to traditional insurance services.
ALTERNATIVE MARKET OPERATIONS (AMO), established by Aon in 1997, is a leading
provider of custom-designed products and services. It features specialty
underwriting capabilities that produce an annual premium volume in excess of $1
billion.
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<PAGE>
Utilizing the disciplines of underwriting, risk financing, risk management and
risk syndication, AMO is devoted to creating specialty, non-commodity,
value-added products and services. Active in diverse industry segments, AMO's
specialties include entertainment, sports and leisure, public entities,
professional liability, workers' compensation, marine insurance, long-term care
facilities, media business and financial institutions.
AMO remains committed to anticipating industry trends while maintaining its
position as a leading provider of innovative solutions.
The Insurance Brokerage and Other Services segment includes service fee revenue
from Aon Warranty Group; Aon Capital Markets; and Aon Credit Services, which
provides financing services for insurance premiums and auto financing
receivables.
The following tables and commentary provide financial information on the
Insurance Brokerage and Other Services segment.
INSURANCE BROKERAGE AND OTHER SERVICES
(millions) Years ended December 31 1998 1997 1996
==============================================================================
Revenue:
Retail $2,761 $2,327 $1,287
Reinsurance and wholesale 1,021 894 441
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total revenue 3,782 3,221 1,728
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Operating expenses 3,086 2,749 1,455
Amortization of intangibles 33 36 37
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total expenses 3,119 2,785 1,492
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Income before income tax excluding special charges 663 436 236
Special charges -- 132 74
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Income before income tax $ 663 $ 304 $ 162
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Identifiable assets at December 31 $9,006 $8,382 $4,985
==============================================================================
Total 1998 Insurance Brokerage and Other Services revenue was $3.8 billion, up
17%. Acquisitions accounted for the majority of this revenue growth. Excluding
the impact of acquisitions, revenue related to brokerage core businesses grew
approximately 4% in a very competitive environment. Revenue includes investment
income allocated to this operating segment. See "Investment Operations."
INSURANCE BROKERAGE AND OTHER SERVICES
(millions) Years ended December 31 1998 1997 1996
==============================================================================
Revenue:
United States $1,884 $1,670 $1,121
United Kingdom 798 733 197
Europe 626 317 301
Rest of World 474 501 109
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total revenue $3,782 $3,221 $1,728
==============================================================================
U.S. revenue of $1.9 billion in 1998 was up 13% from 1997, while European
revenue of $1.4 billion increased 36% from 1997, primarily due to acquisition
activity. Rest of world revenue declined in 1998 primarily due to the impact of
foreign exchange rates.
- 19 -
<PAGE>
Insurance Brokerage and Other Services segment results were impacted positively
by acquisitions, in particular the inclusion of AIS, Le Blanc and Gil y Carvajal
in 1998 and Jauch & Hubener in late 1997. Retail brokerage results continued to
reflect competitive property and casualty pricing. Pretax income growth,
excluding 1997 special charges, was slowed primarily due to market pressures
experienced in the reinsurance brokerage business. Investments in new
initiatives, with little or no immediate revenue growth, also impacted revenue
and pretax income results. Pretax margins in this segment improved in 1998,
reflecting cost savings resulting from the consolidation of businesses acquired
in 1997.
PIE CHART DESCRIBED BELOW
1998 REVENUE
CONSULTING
63% of Total Consulting 1998 Revenue was derived from United States
22% of Total Consulting 1998 Revenue was derived from United Kingdom
6% of Total Consulting 1998 Revenue was derived from Europe
9% of Total Consulting 1998 Revenue was derived from Rest of World
CONSULTING
AON CONSULTING WORLDWIDE (ACW) is a consulting organization that helps clients
maximize performance and financial results by linking people strategies to
business goals. ACW's primary goal is to ensure our clients have access to a
wide range of integrated human resource services designed to meet their diverse
needs and to help them attract, develop and retain the best people.
ACW is organized into four consulting groups: Employee Benefits, Human
Resources, Compensation, and Change Management. Within these groups, ACW offers
organizational analysis and human resources strategic planning; job design and
competency modeling; recruitment and selection; compensation and reward systems;
benefits design and management; training and development; human resources
compliance and risk management; and individual and organizational change
management.
ACW provides some of Aon's fast-growing services, expanding through organic
growth and strategic acquisitions. During 1998, acquisitions focused on
outsourcing and compensation initiatives. Additionally, Employment Risk
Solutions, a joint initiative with Aon Risk Services, was developed to provide
comprehensive solutions for occupational and non-occupational disability and
healthcare benefits. ACW also developed a specialized mergers and acquisitions
team to work with its ARS colleagues in providing due diligence assistance and
advice on employee benefit plan design and funding. In the future, ACW plans to
expand its range of services to serve the changing needs of healthcare
providers.
The following tables and commentary provide financial information on the
Consulting segment.
CONSULTING
(millions) Years ended December 31 1998 1997 1996
==============================================================================
Total revenue $615 $553 $274
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Operating expenses 544 491 250
Amortization of intangibles 3 4 3
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total expenses 547 495 253
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Income before income tax excluding special charges 68 58 21
Special charges -- 13 1
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Income before income tax $ 68 $ 45 $ 20
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Identifiable assets at December 31 $150 $141 $ 40
==============================================================================
In the Consulting segment, 1998 revenue increased 11% to $615 million. Revenue
growth was influenced by acquisition activity and expansion of integrated human
resources consulting activities. Revenue includes investment income allocated to
this operating segment. See "Investment Operations."
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<PAGE>
CONSULTING
(millions) Years ended December 31 1998 1997 1996
==============================================================================
Revenue:
United States $387 $358 $170
United Kingdom 134 131 100
Europe 36 18 1
Rest of World 58 46 3
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total revenue $615 $553 $274
==============================================================================
U.S. revenue of $387 million in 1998 was up 8% from 1997. European revenue
of $170 million increased 14% from 1997 while rest of world revenue
increased to $58 million.
INSURANCE UNDERWRITING
Aon's Insurance Underwriting businesses provide a variety of insurance products
marketed directly to individuals. The principal business products are direct
sales life, health and accident insurance, underwritten by Combined Insurance
Company of America (Combined) and extended warranty products, underwritten by
Virginia Surety Company and London General Insurance Company.
PIE CHART DESCRIBED BELOW
1998 REVENUE
INSURANCE UNDERWRITING
70% of Total Insurance Underwriting 1998 Revenue was derived from United
States
15% of Total Insurance Underwriting 1998 Revenue was derived from United
Kingdom
6% of Total Insurance Underwriting 1998 Revenue was derived from Europe
9% of Total Insurance Underwriting 1998 Revenue was derived from Rest of
World
COMBINED INSURANCE COMPANY OF AMERICA is a market leader in the sale of
supplemental insurance products. Its tradition of unique product mix and
expanding global presence produces strong predictable cash flows with steady
premium growth rates.
Combined has more than 8,000 dedicated agents worldwide. They specialize in
supplemental health, accident and life insurance coverage for individuals in all
stages of life, from childhood to retirement. This specialization has translated
into a policyholder base of nearly five million insureds, a highly stable
management team and a flexible sales force ready to respond to a rapidly
changing marketplace.
Combined's growth strategy is to strengthen traditional businesses to sustain
organic growth while investing in new opportunities that leverage core
competencies. Combined is partnering with other Aon companies to distribute its
products to affinity groups and to develop new applications for supplemental
coverages. We also are introducing several new policies with enhanced benefits
and products designed specifically for senior citizens.
THE AON WARRANTY GROUP provides fee-based services such as premium
administration, claims processing, customer service, customer care management
and value-added, after-sale services. These services are provided in support of
warranty programs underwritten by Virginia Surety or as independent adjuncts to
clients' customer care programs.
VIRGINIA SURETY COMPANY and its UK-based sister company, London General
Insurance Company, are leading underwriters of consumer extended warranties,
with more than four million policies issued in 1998. These warranties cover the
entire range of consumer purchases including new and used automobiles, major
household appliances, consumer electronics and computers.
Virginia Surety's expertise and proprietary data base of extended warranty claim
experience is second to none. Coupled with its innovative approach to customer
care, Virginia Surety is the leading choice among manufacturers, retailers and
consumer brand marketers.
1998 was marked by expansion outside the United States, where there is great
demand for consumer protection plans. New products and new distribution
channels, such as credit card enhancement programs, have been developed to
further penetrate these markets.
- 21 -
<PAGE>
The following tables and commentary provide financial information on the
Insurance Underwriting segment.
INSURANCE UNDERWRITING
(millions) Years ended December 31 1998 1997 1996
==============================================================================
Revenue:
Direct sales $1,053 $1,035 $1,030
Extended warranty 643 574 464
Specialty and other 250 249 280
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total revenue 1,946 1,858 1,774
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Benefits to policyholders 896 842 790
Operating expenses 551 530 512
Amortization of deferred acquisition costs 216 208 208
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total benefits and expenses 1,663 1,580 1,510
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Income before income tax excluding special charges 283 278 264
Special charges -- -- 12
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Income before income tax $ 283 $ 278 $ 252
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Identifiable assets at December 31 $5,213 $4,936 $4,786
==============================================================================
Revenue was $1.9 billion in 1998, up 5% from 1997, primarily due to growth in
the worldwide mechanical extended warranty lines and in the U.S. electronics and
appliance lines. Direct sales business had modest 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. The run-off of certain specialty liability programs is now
substantially complete, while auto credit business continues to run off. Revenue
includes investment income allocated to this operating segment. See "Investment
Operations."
INSURANCE UNDERWRITING
(millions) Years ended December 31 1998 1997 1996
==============================================================================
Revenue:
United States $1,366 $1,308 $1,287
United Kingdom 290 274 223
Europe 117 102 84
Rest of World 173 174 180
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Total revenue $1,946 $1,858 $1,774
==============================================================================
U.S. revenue of $1.4 billion was up 4% in 1998 while European revenue of $407
million rose 8%, principally due to growth in revenues for capital accumulation
and extended warranty products. In addition, there was a higher volume of new
business in the appliance and electronics extended warranty lines, both
domestically and internationally. Rest of world revenue declined slightly.
- 22 -
<PAGE>
Pretax income was $283 million in 1998, up 2% from $278 million last year.
Extended warranty business improved its pretax margin in part due to good
general expense controls and to improved loss experience, particularly in the
U.S. appliance and electronics lines. Higher expense ratios associated with
start-up costs in the direct sales worksite marketing initiative and investments
in new product development in the extended warranty lines contributed to the
modest improvement in pretax income results in 1998.
CORPORATE AND OTHER
Revenue consists primarily of investment income (including income on disposals)
which is not otherwise allocated to operating segments. See "Investment
Operations." Corporate operating expenses include administrative and certain
information technology costs.
CORPORATE AND OTHER
(millions) Years ended December 31 1998 1997 1996
================================================================================
Total revenue $ 150 $ 119 $ 112
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Operating expenses 60 26 20
Interest expense 87 70 40
Amortization of intangibles 86 81 37
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total expenses 233 177 97
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Income (loss) before income tax excluding
special charges (83) (58) 15
Special charges -- 27 3
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Income (loss) before income tax $ (83) $ (85) $ 12
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Identifiable assets at December 31 $5,319 $5,232 $3,912
================================================================================
Revenue increased 26% or $31 million in 1998 primarily due to higher levels of
investment income from private equity and limited partnership holdings. Income
from these investments varies significantly between periods and can result from
disposal of investments at the time they become public as well as distributions
in the form of securities or cash. The loss before income tax and special
charges increased $25 million over 1997. Contributing to the loss in 1998 were
financing costs and goodwill amortization related to acquisitions and costs
related to investments in information technology.
DISCONTINUED OPERATIONS
Discontinued operations in 1998 and 1997 are composed of certain insurance
underwriting subsidiaries acquired with A&A that are currently in run-off and
the indemnification by A&A of certain liabilities relating to subsidiaries sold
by A&A prior to Aon's acquisition. Management believes that, based on current
estimates, these discontinued operations are adequately reserved. The liability
is included as a component of other liabilities on the consolidated statements
of financial position.
- 23 -
<PAGE>
Discontinued operations in 1996 were composed principally of U.S. based capital
accumulation products and direct response insurance products. The after-tax
income on these businesses has been segregated as "Income From Discontinued
Operations" in the consolidated statements of income. With the completion of the
sales of UFLIC and LOV on April 1, 1996, there were no operating results from
these discontinued operations going forward.
INCOME TAX AND NET INCOME
The following discussion is on a dilutive basis. Basic net income on a per share
basis was $3.16 and $1.71 in 1998 and 1997, respectively.
Net income for 1998 was $541 million or $3.11 per share compared to $299 million
or $1.68 per share in 1997. Net income for fourth quarter 1998 amounted to $139
million or $0.79 per share compared to $113 million or $0.65 per share for 1997.
The increase in the 1998 net income and related per share amount was influenced
primarily by the after-tax 1997 special charges of $108 million ($0.64 per
share) with no comparable amount in 1998. Dividends on the redeemable preferred
stock in 1998 and dividends on the 8% and redeemable preferred stocks in 1997
have been deducted from net income to compute earnings per share. Aon's
effective income tax rate was 37.5% in 1998 and 1997.
Dilutive average shares outstanding for 1998 increased 1% when compared to 1997
due primarily to the reissuance of common shares from treasury for employee
benefits and for business combinations.
LIQUIDITY
Consistent with financial statement presentation, the following cash flow and
financial position discussion primarily is influenced by 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 acquisitions within 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 1998 again exceeded the risk-based capital target set by the National
Association of Insurance Commissioners by a satisfactory level. At December 31,
1998, Aon had back-up lines of credit available of $1.1 billion to support Aon's
commercial paper borrowings which were $436 million at December 31, 1998.
The businesses of Aon's operating subsidiaries continue to provide substantial
positive cash flow. Brokerage cash flow has been used primarily for acquisition
related activities. Given Aon's fixed maturity portfolio's average life of 5.2
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.
- 24 -
<PAGE>
Cash flow from operations increased $80 million from 1997 to $864 million. This
increase primarily reflects 1998 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 1998, which was made available
from financing and operating activities. Investing activities used cash of $1.4
billion in 1997 primarily for brokerage acquisitions.
Cash totaling $132 million was provided by financing activities in 1998. The
decrease from $1.3 billion in 1997 is primarily a result of the proceeds from
the sale of the Capital Securities and short-term borrowings in 1997. The net
cash provided from capital accumulation product deposits and withdrawals was
$298 million in 1998. Cash was used to pay dividends of $192 million on common
stock and $2 million on redeemable preferred stock.
Total assets increased $997 million to $19.7 billion, primarily due to brokerage
acquisitions. Invested assets at December 31, 1998 increased $530 million from
year-end 1997 levels, primarily due to higher levels of short-term investments
relating to brokerage fiduciary funds.
YEAR 2000 READINESS DISCLOSURE
AON'S STATE OF READINESS
Aon is affected by both its own computer information systems and by third
parties with which it has business relationships, in the processing of data
relating to the Year 2000 and beyond. Aon began work on the computer Year 2000
issue in 1995 and expects to complete its efforts by mid-1999. In 1997, Aon
designated a full-time Year 2000 project coordinator who established Aon's Year
2000 project office to monitor the progress of and act as a central contact for
its major business units worldwide. Year 2000 efforts under the direction of the
Aon Executive Vice President of Business Systems Solutions are focused primarily
on two areas: internal systems readiness and readiness of carriers with whom Aon
places insurance business on behalf of its clients.
INFORMATION TECHNOLOGY (IT)
In a corporate-wide Year 2000 readiness analysis completed in early 1998,
individual business units were required to formally develop plans, where they
had not already done so, to achieve Year 2000 compliance, and to provide their
plans to the project office. Each plan consisted of an evaluation of the
compliance status of internal IT systems and an identification of specific
hardware and software compliance issues. As a result of this effort, the project
office is currently tracking over 200 worldwide business unit plans. Each
business unit is required to report its progress against its plan on a monthly
basis to the project office. It is each business unit's responsibility to ensure
that adequate testing of systems is performed to ensure Year 2000 functionality.
The original readiness target date to remediate or replace most mission critical
applications was December 31, 1998, with all business units expected to be fully
compliant by mid-1999. Testing on some of these systems will continue into the
first half of 1999. Business units have made good progress and are well along in
the process of replacing or modifying applications found to be non-compliant.
During January 1999, a business unit readiness review and risk assessment for
each business unit was performed. Dates were established for internal audit
reviews of test documentation for selected units. Business units were put on a
watch list if any mission critical application replacement, remediation or
testing appeared to extend into third quarter 1999. Contingency plans are
required for business units with
- 25 -
<PAGE>
mission critical systems on the watch list. An analysis of all newly acquired
business units is completed immediately after acquisition and appropriate plans
are put into action.
Progress and concerns are reported to Aon's senior and business unit management.
A written report is being prepared for management for any business unit with a
mission critical application on the watch list. These applications will be
tracked by the Year 2000 program office and reported to management monthly.
NON-IT
With respect to non-IT issues, a project coordinator is working with Aon's
facilities management and third party leasing management company to ensure
premises issues are addressed in Aon-owned and leased properties in the United
States. Outside of the U.S., local chief financial officers have been instructed
to make similar inquiries. The results of these efforts were reviewed for U.S.
and European locations as of December 31, 1998. Some relatively minor problems
were uncovered and are in the process of being fixed. The majority of the issues
were with personal computer-based facility management systems.
Aon has some risk on a location by location basis related to the possible
failure of government agencies, public utilities and providers of
telecommunication and transportation services. Due to Aon's dispersion of
facilities, the largest concentrated risks in this regard are in the Chicago,
New York and London locations.
THIRD PARTIES
Third parties having a material relationship with Aon have Year 2000 issues to
address and resolve. Such third parties primarily include issuers of investment
securities, financial institutions, governmental agencies, telecommunication
companies and insurance carriers. An aspect of the project is to identify these
third parties and contact them to seek written assurance as to the third party's
anticipation of being Year 2000 compliant. The nature of Aon's follow-up depends
upon its assessment of the response and of the materiality of the effect of
non-compliance by third parties on Aon. Significant third parties determined to
be at risk for Year 2000 failure will be reported to appropriate Aon management
for possible preemptive action to minimize adverse impact on Aon's operations.
As of December 31, 1998, Aon is not aware of any significant third party with a
Year 2000 issue that would materially impact Aon's results of operations,
liquidity or capital resources. However, Aon has no means of ensuring that such
third parties will be Year 2000 ready. The inability of third parties to
complete their Year 2000 resolution process in a timely fashion could materially
impact Aon. The effect of non-compliance by third parties is not determinable.
Aon is compiling information on and assessing the compliance status of insurance
carriers with whom it places business on behalf of its clients. Compliance
questionnaires have been sent to approximately 2,700 carriers worldwide. An
intensive follow-up effort, focusing on U.S. carriers who receive the bulk of
insurance placements by U.S. business units, has produced a response rate of
close to 100%. A similar follow-up effort for significant non-U.S. carriers
(being executed in London) continues and is expected to be completed by March
31, 1999. Further follow-up on remaining carriers only doing business in
specific countries is in process by the business units in those countries and is
expected to be completed by June 30, 1999.
- 26 -
<PAGE>
COSTS TO ADDRESS AON'S YEAR 2000 ISSUES
As of December 31, 1998, Aon's Year 2000 remediation costs for all business
units is projected to be approximately $70 million through December 31, 1999.
This projection includes an additional $5 million, from that previously reported
as of September 30, 1998, for fourth quarter 1998 acquisitions where Year 2000
analysis is underway but not completed as of January 31, 1999 and for any 1999
acquisitions. At year-end 1997, Aon estimated its Year 2000 costs to be
approximately $50 million. The revised estimate was established as a part of
Aon's comprehensive 1999 budget process which identified $70 million in total
Year 2000 costs. These costs are being funded through business unit operating
cash flows.
The increase from $50 million to $70 million for Aon's total Year 2000 costs is
attributable to the following: (1) acquisitions which increased Year 2000 costs;
(2) analysis and testing of Year 2000 issues which had not been anticipated at
year-end 1997; and (3) the necessity in several instances to invoke contingency
plans and remediate systems Aon originally planned to replace. Replacement was
not considered a Year 2000 cost.
As of December 31, 1998, Aon has incurred approximately $43 million related to
all phases of the Year 2000 project. Of the total remaining project costs,
approximately $27 million will be incurred and expensed in 1999.
RISKS OF AON'S YEAR 2000 ISSUES
Aon's management believes it has an effective program in place to resolve the
Year 2000 issue in a timely manner. As noted above, Aon has not yet completed
all necessary Year 2000 program activities for all mission critical applications
for all 200 business units being tested. In addition, disruption in the economy
generally resulting from Year 2000 issues could also materially adversely affect
Aon. The amount of potential liability and lost revenue related to that
disruption cannot be reasonably estimated at this time. With regard to
non-compliance resulting from Aon's IT systems, Aon will devote its financial
and personnel resources to remediate problems as soon as detected. With regard
to non-compliance resulting from third party failure, Aon is in the process of
determining, through responses and other appropriate action, where there is any
material likelihood of non-compliance having a potentially material impact;
however, the potential impact and related costs are not known at this time.
AON'S CONTINGENCY PLANS
Contingency planning at Aon has two distinct components. First, where Aon's
planned completion dates for IT system replacement or remediation could extend
into the third quarter 1999, contingency plans are required. These contingency
issues are being developed on a business unit basis. Contingency plans have been
successfully invoked for a number of business units to date. These include
changing compliance strategies from replacement to remediation (and vice versa)
and partial remediation to meet critical dates prior to January 1, 2000. The
latter will require completion of remediation in 1999. Second, preparations must
be made for IT software and hardware that have Year 2000 "bugs" and that are not
revealed until after December 31, 1999, despite testing. Aon anticipates
handling these situations with immediate program fixes, swapped backup hardware
or process work-around. Aon does not anticipate that problems of this nature
will be significant due to thorough testing and the distributed nature of Aon's
systems.
- 27 -
<PAGE>
INVESTMENT OPERATIONS
Aon invests in broad asset categories related to its diversified operations.
Investments are managed with the objective of maximizing earnings while
monitoring asset and liability durations, and considering regulatory
requirements.
Aon maintains well-capitalized operating companies. The financial strength of
these companies permits a diversified investment portfolio including invested
cash, fixed income obligations, and public and private equities.
Investment characteristics mirror liability characteristics of the respective
operating units. Aon's insurance brokerage and other services and consulting
businesses invest fiduciary funds in shorter term obligations and income derived
from these investments is allocated to the revenues of those operating segments.
Investments underlying interest-sensitive capital accumulation insurance
products are fixed or floating rate obligations to match the appropriate
liability characteristics. Indemnity and other types of non-interest sensitive
insurance liabilities are primarily supported by intermediate to long-term
duration instruments. Income from those fixed maturity investments is allocated
to revenues of the insurance underwriting segment.
Invested assets and related investment income not directly required to support
insurance brokerage, consulting and underwriting businesses are allocated to the
corporate segment. These assets, primarily publicly-traded equities, as well as
longer-term, less liquid private placements and limited partnerships, represent
a more aggressive investment strategy that provides an opportunity for greater
yields. Seeking these enhanced returns is designed, among other things, to
counter the additional expenses associated with recent acquisitions, namely
goodwill amortization and financing costs. The investment strategy employed in
the corporate segment leads to greater variability in investment income than is
the case of investments supporting the insurance brokerage, consulting and
underwriting businesses.
With a carrying value of $3.1 billion, Aon's total fixed maturity portfolio is
invested primarily in investment grade holdings (95%) and has a fair value which
is 104% of amortized cost.
INVESTED ASSETS
(millions) As of December 31 1998 1997
=======================================================================
Short-term investments $2,221 $1,698
Fixed maturities 3,103 3,144
Equity securities 768 806
Other 360 274
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------
Total invested assets $6,452 $5,922
=======================================================================
INVESTMENT INCOME
(millions) Years ended December 31 1998 1997 1996
============================================================================
Insurance brokerage and other services
(primarily short-term investments) $194 $163 $ 80
Consulting 6 6 3
Insurance underwriting (primarily fixed maturities) 240 214 197
Corporate and other 150 117 112
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------
Investment income $590 $500 $392
============================================================================
- 28 -
<PAGE>
MARKET RISK EXPOSURE
Aon is subject to market risk exposures of varying correlations and
volatilities, 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,
other European currencies, the Canadian Dollar and the Australian Dollar. Aon
uses forward contracts and over the counter options, as well as listed foreign
currency futures and options on futures to protect against adverse transaction
and translation effects due to exchange rate fluctuations. The potential
decrease to Aon's consolidated equity at December 31, 1998 resulting from a
hypothetical 10% adverse change in quoted year-end foreign currency exchange
rates amounts to $130 million and $120 million, respectively, at December 31,
1998 and 1997. The impact to 1998 and 1997 pretax income in the event of a
hypothetical 10% adverse change in the respective 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 1998 and 1997 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 for 1998 and 1997,
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 at December 31, 1998 and 1997, net of derivative positions, by
approximately $133 million and $155 million, respectively. Aon has long-term
notes payable and capital securities outstanding with a fair value of $1.5
billion at December 31, 1998 and 1997. Such fair value exceeded the carrying
value by $125 million and $106 million at December 31, 1998 and 1997,
respectively. A hypothetical 1% decrease in interest rates would increase the
fair value by approximately 10% at December 31, 1998 and 1997.
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 $77 million compared to $81
million at December 31, 1997. At December 31, 1998 and 1997, there were no
outstanding derivatives hedging the price risk on the equity portfolio.
Aon has made adequate plans to address the system modifications necessary for
full conversion to the euro. The euro conversion is not expected to have a
material impact on Aon's European operations.
- 29 -
<PAGE>
CAPITAL RESOURCES
In order to achieve tax efficient financing, Aon Corporation established, in
June 1998, a committed bank credit facility under which certain European
subsidiaries can borrow up to a maximum of $470 million on a revolving basis. A
total of $350 million is committed for five years and $120 million is committed
for 364 days. As of December 31, 1998, there were six loans totaling $408
million outstanding under the facility. Short-term borrowings increased $80
million in 1998 when compared to 1997, primarily attributable to outstanding
loans under the European bank credit facility. Short-term borrowings were
largely used for acquisition activity. Notes payable decreased in 1998 by $57
million when compared to year-end 1997. Aon's 6.875% debt securities, due
October 1, 1999, are anticipated to be redeemed at 100% of the principal amount
plus accrued interest.
Aon Corporation borrows funds from and lends funds to its various subsidiaries.
As of December 31, 1998, Aon Corporation held obligations to its subsidiaries of
approximately $600 million. Generally, these obligations have competitive
interest rates.
In 1998, common stockholders' equity per share increased to $17.74, up from
$16.80 in 1997. The increase consisted of net income partially offset by an
other comprehensive loss of $219 million and dividends to stockholders of $194
million.
- 30 -
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(millions except per share data) Years ended December 31 1998 1997 1996
===============================================================================
REVENUE
Brokerage commissions and fees $4,197 $3,605 $1,919
Premiums and other 1,706 1,646 1,577
Investment income (note 4) 590 500 392
----------------------
Total revenue 6,493 5,751 3,888
===============================================================================
EXPENSES
General expenses 4,457 4,176 2,536
Benefits to policyholders 896 842 790
Interest expense 87 70 40
Amortization of intangible assets 122 121 76
----------------------
Total expenses 5,562 5,209 3,442
===============================================================================
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAX AND
MINORITY INTEREST 931 542 446
Provision for income tax (note 6) 349 203 154
----------------------
INCOME FROM CONTINUING OPERATIONS BEFORE MINORITY INTEREST 582 339 292
Minority interest, net of tax--Company-obligated
mandatorily redeemable preferred capital securities
(note 8) (41) (40 --
----------------------
INCOME FROM CONTINUING OPERATIONS 541 299 292
DISCONTINUED OPERATIONS (NOTE 3)
Income from discontinued operations, net of tax -- -- 22
Gain on sale of discontinued operations, net of tax -- -- 21
----------------------
NET INCOME $ 541 $ 299 $ 335
===============================================================================
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 538 $ 287 $ 316
===============================================================================
DILUTIVE PER SHARE
Income from continuing operations $ 3.11 $ 1.68 $ 1.64
Discontinued operations -- -- 0.26
----------------------
Net income 3.11 1.68 1.90
----------------------
BASIC PER SHARE
Income from continuing operations 3.16 1.71 1.67
Discontinued operations -- -- 0.26
----------------------
Net income 3.16 1.71 1.93
----------------------
Cash Dividends Per Share Paid on Common Stock $ 1.10 $ 1.02 $ 0.95
===============================================================================
DILUTIVE AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 172.9 170.5 168.9
===============================================================================
See accompanying notes to consolidated financial statements.
- 31 -
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) As of December 31 1998 1997
===============================================================================
ASSETS
INVESTMENTS
Fixed maturities--at fair value $ 3,103 $ 3,144
Equity securities--at fair value 768 806
Short-term investments 2,221 1,698
Other investments 360 274
--------------
Total investments 6,452 5,922
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
CASH 723 1,085
RECEIVABLES
Insurance brokerage and consulting 5,423 5,320
Premiums and other 1,120 863
Accrued investment income 63 67
--------------
Total receivables (net of allowance for doubtful
accounts: 1998-$99; 1997-$86) 6,606 6,250
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
DEFERRED INCOME TAXES 214 137
DEFERRED POLICY ACQUISITION COSTS 573 549
INTANGIBLE ASSETS
(net of accumulated amortization: 1998-$1,101; 1997-$979) 3,500 3,094
OTHER ASSETS 1,620 1,654
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
TOTAL ASSETS $19,688 $18,691
===============================================================================
See accompanying notes to consolidated financial statements.
- 32 -
<PAGE>
(millions) As of December 31 1998 1997
===============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INSURANCE PREMIUMS PAYABLE $ 6,948 $ 6,380
POLICY LIABILITIES
Future policy benefits 986 943
Policy and contract claims 779 809
Unearned and advance premiums 1,797 1,870
Other policyholder funds 1,261 828
--------------
Total policy liabilities 4,823 4,450
GENERAL LIABILITIES
General expenses 1,259 1,489
Current income taxes 156 180
Short-term borrowings 844 764
Notes payable 580 637
Other liabilities 1,211 1,119
--------------
TOTAL LIABILITIES 15,821 15,019
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
COMMITMENTS AND CONTINGENT LIABILITIES
REDEEMABLE PREFERRED STOCK 50 50
COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL
SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY THE COMPANY'S
JUNIOR SUBORDINATED DEBENTURES 800 800
STOCKHOLDERS' EQUITY
Common stock--$1 par value
Authorized--300 shares; issued 172 172
Paid-in additional capital 450 377
Accumulated other comprehensive income (loss) (116) 103
Retained earnings 2,782 2,463
Treasury stock at cost (shares: 1998-1.5; 1997-3.5) (58) (93)
Deferred compensation (213) (200)
--------------
TOTAL STOCKHOLDERS' EQUITY 3,017 2,822
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $19,688 $18,691
===============================================================================
- 33 -
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(millions) Years ended December 31 1998 1997 1996
===============================================================================
PREFERRED STOCK Balance at January 1 $ -- $ 5 $ 8
Retirement and conversion of preferred stock -- (5) (3)
----------------------
-- -- 5
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
COMMON STOCK Balance at January 1 172 114 111
Effect of three-for-two stock split -- 57 --
Shares issued for business combinations -- 1 --
Conversion of preferred stock to common stock -- -- 3
----------------------
172 172 114
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
PAID-IN ADDITIONAL CAPITAL Balance at January 1 377 475 432
Effect of three-for-two stock split -- (57) --
Stock awards 73 79 55
Adjustment for business combinations -- 11 2
Retirement and conversion of preferred stock -- (131) (14)
----------------------
450 377 475
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at January 1 103 154 125
Net unrealized investment gains (losses) (111) 36 30
Net foreign exchange losses (12) (87) (1)
Net additional minimum pension liability adjustment (96) -- --
----------------------
Other comprehensive income (loss) (219) (51) 29
----------------------
(116) 103 154
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
RETAINED EARNINGS Balance at January 1 2,463 2,357 2,212
Net income 541 299 335
Dividends to stockholders (194) (180) (172)
Loss on treasury stock reissued (30) (7) (16)
Adjustment for business combinations 2 (6) (2)
----------------------
2,782 2,463 2,357
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
TREASURY STOCK Balance at January 1 (93) (121) (97)
Cost of shares acquired (44) (12) (66)
Shares reissued at average cost 79 40 42
----------------------
(58) (93) (121)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
DEFERRED COMPENSATION Balance at January 1 (200) (151) (117)
Issuance of stock awards (54) (81) (57)
Debt guarantee of employee stock ownership plan 16 13 11
Amortization of deferred compensation 25 19 12
----------------------
(213) (200) (151)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT DECEMBER 31 $3,017 $2,822 $2,833
===============================================================================
COMPREHENSIVE INCOME
NET INCOME $ 541 $ 299 $ 335
OTHER COMPREHENSIVE INCOME (LOSS) (219) (51) 29
----------------------
COMPREHENSIVE INCOME $ 322 $ 248 $ 364
======================
See accompanying notes to consolidated financial statements.
- 34 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31 1998 1997 1996
===============================================================================
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 541 $ 299 $ 335
Adjustments to reconcile net income to cash
provided by operating activities
Policy liabilities 28 (155) 767
Deferred policy acquisition costs (236) (164) (213)
Amortization of deferred policy acquisition costs 216 208 236
Amortization of intangible assets 122 121 79
Other amortization and depreciation 146 121 65
Other 47 354 (893)
Gain on sale of discontinued operations -- -- (21)
---------------------
CASH PROVIDED BY OPERATING ACTIVITIES 864 784 355
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments
Fixed maturities
Maturities 107 105 135
Calls and prepayments 108 156 204
Sales 2,062 2,175 980
Equity securities 2,176 1,827 636
Other investments 51 55 200
Purchase of investments
Short-term--net (534) (31) (65)
Fixed maturities (2,257) (2,767) (1,843)
Equity securities (2,253) (1,724) (661)
Other investments (141) (111) (302)
Acquisition of subsidiaries (374) (1,649) (342)
Disposition of subsidiaries -- -- 1,370
Acquired fiduciary funds from acquisitions -- 734 --
Property and equipment and other (300) (146) (75)
---------------------
CASH PROVIDED (USED) BY INVESTING ACTIVITIES (1,355) (1,376) 237
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock transactions--net (18) 21 (40)
Issuance (repayment) of short-term borrowings--net 80 542 (139)
Issuance of mandatorily redeemable preferred capital
securities -- 800 --
Repayment of long-term debt (34) (74) (6)
Interest sensitive life, annuity and investment contracts
Deposits 435 373 508
Withdrawals (137) (44) (437)
Retirement of preferred stock -- (136) (14)
Cash dividends to stockholders (194) (182) (173)
---------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES 132 1,300 (301)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (3) (33) 4
INCREASE (DECREASE) IN CASH (362) 675 295
CASH AT BEGINNING OF YEAR 1,085 410 115
---------------------
CASH AT END OF YEAR $723 $1,085 $ 410
===============================================================================
See accompanying notes to consolidated financial statements.
- 35 -
<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 classifies its business into three major segments based on the type of
service or product and a fourth nonoperating segment. The Insurance Brokerage
and Other Services segment is comprised of retail, reinsurance, specialty and
wholesale brokerage operations. The Consulting segment is comprised of Aon's
human resource consulting organization. The Insurance Underwriting segment is
comprised of direct sales life and accident and health, extended warranty,
specialty and other insurance products. The Corporate and Other segment revenues
consist primarily of investment income on capital. The segment information
located in the tables on pages 15 through 28 is incorporated herein by
reference.
Amounts reported in the tables for the four segments, when aggregated, total to
the amounts in the accompanying consolidated financial statements. Revenues are
attributed to geographic areas based on the location of the resources producing
the revenues. There are no material intersegment amounts to be eliminated.
Long-lived assets and related depreciation are not material.
The foregoing segment information is prepared in conformity with Financial
Accounting Standards Board (FASB) Statement No. 131 "Disclosures about Segments
of an Enterprise and Related Information" that Aon adopted as required for 1998.
Previously reported segment information was restated.
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.
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.
STOCK COMPENSATION PLANS
Aon applies Accounting Principles Board Opinion No. 25, "Accounting for Stock
Issued to Employees," and related interpretations in accounting for its
stock-based compensation plans. Accordingly, no compensation expense has been
recognized for its stock option plan as the exercise price of the options
equaled the market price of the stock at the date of grant. Compensation expense
has been recognized for the Aon Stock Award Plan based on the market price at
the date of the award.
SPECIAL CHARGES
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 Alexander and Alexander Services Inc. (A&A). The
restructuring charges included costs related to severance and other costs and
the consolidation of systems and real estate space. The restructuring charges
related to real estate space are being paid out over several years as planned.
Special charges for severance and related costs involved 600 positions.
In second quarter 1997, Aon recorded pretax special charges of $27 million ($17
million after-tax or $0.10 per share) to
- 36 -
<PAGE>
recognize investment losses incurred at A&A before Aon acquired A&A. 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 as a result of the Bain Hogg
Group plc (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 included $32 million relating to
consolidation activities, $12 million for workforce reductions involving 300
positions, and $11 million relating to the reconstruction of the Lloyd's of
London insurance market.
All of Aon's special charges are reflected in general expenses in the
consolidated statements of income. A summary of restructuring activities
included in the 1997 and 1996 special charges and the related amounts remaining
unpaid in the general expenses liability at December 31, 1996, 1997 and 1998 is
as follows:
Termination Consolidation
(millions) Benefits and Other Total
===============================================================================
1996
Expense accrued $ 42 $ 48 $ 90
Cash payments 30 -- 30
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Balance at December 31, 1996 12 48 60
1997
Expense accrued 40 132 172
Cash payments 48 37 85
Asset write-offs -- 37 37
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Balance at December 31, 1997 4 106 110
1998
Cash payments 4 26 30
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Balance at December 31, 1998 $ -- $ 80 $ 80
===============================================================================
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.
COMPREHENSIVE INCOME
In 1998, Aon adopted FASB Statement No. 130 "Reporting Comprehensive Income."
Statement No. 130 requires net unrealized investment gains or losses on Aon's
available-for-sale securities, net foreign exchange gains or losses on
translation and minimum pension liability adjustments, which previously were
reported directly in stockholders' equity, to be included in accumulated other
comprehensive income in the consolidated statements of financial position and in
the disclosure of comprehensive income. The totals of other comprehensive income
items and comprehensive income (which includes net income), are displayed
separately in the consolidated statements of stockholders' equity. The adoption
of this statement had no effect on net income or stockholders' equity. The
components of other comprehensive income (loss), and the related tax effects are
as follows:
Income
Amount Tax Amount
Year ended December 31, 1998 Before (Expense) Net
(millions) Taxes Benefit of Taxes
===============================================================================
Unrealized holding losses arising
during the year $ (130) $ 49 $ (81)
Less: reclassification adjustment 47 (17) 30
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net unrealized investment losses (177) 66 (111)
Net foreign exchange losses (18) 6 (12)
Net additional minimum pension
liability adjustment (155) 59 (96)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total other comprehensive loss $ (350) $ 131 $ (219)
===============================================================================
Income
Amount Tax Amount
Year ended December 31, 1997 Before (Expense) Net
(millions) Taxes Benefit of Taxes
===============================================================================
Unrealized holding gains arising
during the year $ 86 $ (32) $ 54
Less: reclassification adjustment 29 (11) 18
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net unrealized investment gains 57 (21) 36
Net foreign exchange losses (138) 51 (87)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total other comprehensive loss $ (81) $ 30 $ (51)
===============================================================================
Income
Amount Tax Amount
Year ended December 31, 1996 Before (Expense) Net
(millions) Taxes Benefit of Taxes
===============================================================================
Unrealized holding gains arising
during the year $ 58 $ (21) $ 37
Less: reclassification adjustment 11 (4) 7
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net unrealized investment gains 47 (17) 30
Net foreign exchange losses (2) 1 (1)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total other comprehensive income $ 45 $ (16) $ 29
===============================================================================
- 37 -
<PAGE>
The components of accumulated other comprehensive income (loss), net of related
tax, as of December 31, 1998, 1997 and 1996 are as follows:
(millions) 1998 1997 1996
===============================================================================
Net unrealized investment gains $ 78 $ 189 $ 153
Net foreign exchange gains (losses) (98) (86) 1
Net additional minimum pension liability (96) -- --
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) $ (116) $ 103 $ 154
===============================================================================
INCOME PER SHARE
Basic income per share is computed based on the weighted average number of
common shares outstanding, excluding any dilutive effect of options, awards and
convertible securities. Common shares outstanding include 3,970,000 shares,
4,230,000 shares and 4,520,000 shares held by the employee stock ownership plan
in 1998, 1997 and 1996, respectively. Net income available for common
stockholders is net of all preferred dividends. Dilutive income per share is
computed based on the weighted-average number of common shares outstanding plus
the dilutive effect 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. Income per share is calculated as
follows:
(millions except per share data) 1998 1997 1996
===============================================================================
Income from continuing operations $ 541 $ 299 $ 292
8% preferred stock dividends -- (9) (11)
Redeemable preferred stock dividends (3) (3) (2)
------------------------------------
Continuing income for dilutive 538 287 279
6.25% preferred stock dividends -- -- (5)
------------------------------------
Continuing income for basic $ 538 $ 287 $ 274
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Basic shares outstanding 170 168 164
Common stock equivalents 3 3 2
6.25% convertible preferred shares -- -- 3
------------------------------------
Dilutive potential common shares 173 171 169
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Dilutive net income per share $ 3.11 $ 1.68 $ 1.64
Basic net income per share $ 3.16 $ 1.71 $ 1.67
===============================================================================
INVESTMENTS
Fixed maturities are available for sale and are carried at fair value. The
amortized cost of fixed maturities is adjusted for amortization of premiums to
the first call date and the accretion of discounts to maturity that are included
in investment income. Equity securities are carried at fair value. Unrealized
gains and temporary unrealized losses on fixed maturities and equity securities
are excluded from income and are recorded directly to stockholders' equity in
accumulated other comprehensive income, net of related deferred income taxes.
Other investments are carried generally at cost. Income or loss on disposal is
computed using specific costs of securities sold and reported as investment
income.
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. Writedowns and
changes in reserves are included in investment income 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 and reported as assets. 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 40 years
using the straight-line method. The cost of other intangible assets is being
amortized over a range of 4 to 25 years.
PROPERTY AND EQUIPMENT
Property and equipment, reported in other assets, are generally depreciated
using the straight-line method over their estimated useful lives. Included in
this category is internal use software, which is software that is acquired,
internally developed or modified solely to meet internal needs, with no plan to
market externally. Costs related to directly obtaining, developing or upgrading
internal use software are capitalized. These costs are generally amortized using
the straight-line method over the life of the software.
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
- 38 -
<PAGE>
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%
to 4.5% at December 31, 1998. 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, in accumulated other comprehensive income, net of deferred
income tax.
OTHER ACCOUNTING AND DISCLOSURE CHANGES
In 1998, Aon adopted FASB Statement No. 132 "Disclosures About Pensions and
Other Postretirement Benefit Plans." For comparative purposes, prior year
financial statement disclosures have been restated.
In June 1998, the FASB issued Statement No. 133, "Accounting for Derivative
Instruments and Hedging Activities." This statement is required to be adopted in
2000 with early adoption permitted. Aon has not yet decided when it will adopt
the new statement. Statement No. 133 establishes accounting and reporting
standards for derivative instruments and for hedging activities and will require
Aon to recognize all derivatives on the statement of financial position at fair
value. Aon has not yet determined the effect this statement will have on Aon's
financial statements.
RECLASSIFICATION
Certain amounts in prior years consolidated financial statements have been
reclassified to conform to the 1998 presentation.
2. BUSINESS COMBINATIONS
PURCHASE METHOD
In 1998, Aon acquired Le Blanc de Nicolay (Le Blanc), Gil y Carvajal and certain
other operations for approximately $400 million in transactions accounted for on
a preliminary basis by the purchase method. The acquisitions were financed by
internal funds and short-term borrowings. Intangible assets of approximately
$400 million resulted from the 1998 acquisitions. As a result of 1998
acquisitions and the finalization of purchase accounting for the 1997
acquisition of Jauch & Hubener, Aon had established approximately $70 million of
purchase accounting liabilities primarily relating to severance and
consolidation of real estate. In connection with these items, Aon had
approximately $50 million remaining unpaid in the general expenses liability at
December 31, 1998.
In 1997, Aon acquired A&A, the Minet Group (Minet), and Jauch & Hubener for
approximately $1.6 billion in transactions accounted for by the purchase method.
The 1997
- 39 -
<PAGE>
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 the 1997 acquisitions. 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 pro forma consolidated 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 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 and severance liabilities for
approximately 2,000 positions. In addition, 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 and severance liabilities. In connection with these
items, Aon made payments and wrote off assets of $130 million and $80 million in
1997 and 1998, respectively. Approximately $75 million remained unpaid in the
general expenses liability at December 31, 1998, primarily relating to real
estate.
In accordance with a 1992 purchase agreement, securities with a value of $48
million are being held in escrow. The escrowed securities will be released on a
pre-determined schedule through 2007.
POOLING OF INTERESTS METHOD
In 1998, 1997 and 1996, Aon issued 1,543,000 shares, 274,000 shares and 819,000
shares of common stock, respectively, for mergers with insurance brokerage and
consulting organizations. In connection with several of the mergers, 273,000
shares issued to sellers are being held in escrow at December 31, 1998, 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, the discontinued operations had revenues of $293 million. The revenues
and corresponding expenses were reported on a net basis in the consolidated
statements of income, and were net of taxes of $12 million in 1996. Income from
discontinued operations that was earned subsequent to the commitment to the plan
to dispose was $22 million, net of taxes, in 1996. Included in discontinued
operations is pretax interest expense of $5 million in 1996. The allocation of
interest expense was based on the ratio of discontinued net assets to total
consolidated equity and debt.
A&A DISCONTINUED OPERATIONS
A&A discontinued its insurance underwriting operations in 1985, some of which
were then placed into run-off, with the remainder sold in 1987. In connection
with those sales, A&A provided indemnities to the purchaser for various
estimated and potential liabilities.
As of December 31, 1998, 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 amounted to $149 million. Such liabilities
are net of reinsurance recoverables and other assets of $182 million.
The insurance liabilities represent estimates of known and future claims
expected to be made under occurrence-based insurance policies and reinsurance
business. Those claims are expected to develop and be settled over the next 20
to 30 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 best estimate of the probable
liabilities, adverse developments may occur due to the nature of the information
available and the variables inherent in the estimation processes. Based on
current estimates, management believes that the established liabilities of
discontinued operations are sufficient.
- 40 -
<PAGE>
4. INVESTMENTS
The components of investment income are as follows:
(millions) Years ended December 31 1998 1997 1996
===============================================================================
Short-term investments $ 196 $ 178 $ 105
Fixed maturities
Interest income 219 210 197
Income on disposals 37 27 13
Losses on disposals (24) (14) (9)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Fixed maturities 232 223 201
Equity securities
Dividend income 80 95 61
Income on disposals 65 52 19
Losses on disposals (27) (32) (7)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Equity securities 118 115 73
Other
Interest and dividend income 59 23 31
Income (losses) on disposals 1 (27) (8)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Other 60 (4) 23
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Gross investment income 606 512 402
Less investment expenses 16 12 10
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Investment income $ 590 $ 500 $ 392
===============================================================================
The components of net unrealized gains are as follows:
(millions) Years ended December 31 1998 1997 1996
===============================================================================
Fixed maturities $ 108 $ 130 $ 112
Equity securities 12 167 128
Deferred tax charge (42) (108)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net unrealized investment gains $ 78 $ 189 $ 153
===============================================================================
The pretax changes in net unrealized investment gains (losses) are as follows:
(millions) Years ended December 31 1998 1997 1996
===============================================================================
Fixed maturities--available for sale $ (22) $ 18 $ (3)
Equity securities (155) 39 50
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total $(177) $ 57 $ 47
===============================================================================
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows:
<TABLE>
<CAPTION>
Gross Gross
(millions) Amortized Unrealized Unrealized Fair
As of December 31, 1998 Cost Gains Losses Value
===================================================================================
<S> <C> <C> <C> <C>
U.S. government
and agencies $ 96 $ 6 $ (1) $ 101
States and political
subdivisions 485 32 -- 517
Foreign governments 740 65 (4) 801
Corporate securities 1,596 54 (46) 1,604
Mortgage-backed securities 25 1 -- 26
Other fixed maturities 53 1 -- 54
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
Total fixed maturities 2,995 159 (51) 3,103
Total equity securities 756 49 (37) 768
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
Total $ 3,751 $ 208 $ (88) $ 3,871
===================================================================================
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Gross Gross
(millions) Amortized Unrealized Unrealized Fair
As of December 31, 1997 Cost Gains Losses Value
===================================================================================
<S> <C> <C> <C> <C>
U.S. government
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>
The amortized cost and fair value of fixed maturities, by contractual maturity
as of December 31, 1998 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 $ 151 $ 153
Due after one year through five years 821 856
Due after five years through ten years 957 1,009
Due after ten years 1,041 1,059
Mortgage-backed securities 25 26
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
Total $ 2,995 $ 3,103
==================================================================
Securities on deposit for regulatory authorities as required by law amounted to
$274 million at December 31, 1998 and $309 million at December 31, 1997. As
required by the by-laws of Lloyd's brokers, cash and short-term investments
subject to floating charges for the benefit of insurance creditors amounted to
$1.3 billion and $1.1 billion at December 31, 1998 and 1997, respectively. Aon
maintains premium trust bank accounts for premiums collected from insureds but
not yet remitted to insurance companies of $1.3 billion and $1.4 billion at
December 31, 1998 and 1997, respectively.
At December 31, 1998 and 1997, respectively, Aon had $56 million and $96 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 1998 1997
====================================================================
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) 17 33
Notes payable, due in varying installments,
with interest at 5% to 8% 113 154
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------
Total notes payable $ 580 $ 637
====================================================================
- 41 -
<PAGE>
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 $110 million, $3 million, $3 million, $101 million and $150 million in
1999, 2000, 2001, 2002 and 2003, respectively.
In 1998, Aon entered into a committed bank credit facility under which certain
European subsidiaries can borrow up to EUR 400 million ($470 million). At
December 31, 1998, Aon had borrowed EUR 348 million ($408 million) under this
facility. Aon has $1.1 billion of other unused committed bank credit facilities
at December 31, 1998 to support its commercial paper borrowings which were $436
million at December 31, 1998.
Information related to notes payable (excluding the debt guarantee of ESOP) and
short-term borrowings is as follows:
Years ended December 31 1998 1997 1996
===============================================================================
Interest paid (millions) $ 87 $ 70 $ 45
Weighted average interest rates--
short-term borrowings 5.5% 5.6% 5.3%
===============================================================================
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 $18 million,
$16 million and $15 million in 1998, 1997 and 1996, 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 mature in 1999. The ESOP allocated 709,000 shares in 1998. The
remaining unallocated shares at December 31, 1998 will be released for
allocation in 1999.
The following table details the shares held by the ESOP:
(thousands) As of December 31 1998 1997
==================================================================
Allocated 3,240 2,787
Committed to be released 734 709
Unallocated -- 734
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
Total 3,974 4,230
==================================================================
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, 1998 are:
(millions)
===========================================
1999 $ 231
2000 211
2001 172
2002 151
2003 123
Later years 541
- - - - - - - - - - - - - - - - - -------------------------------------------
Total minimum payments required $1,429
===========================================
Rental expenses for all operating leases for the years ended December 31, 1998,
1997 and 1996, amounted to $202 million, $177 million and $114 million,
respectively.
6. INCOME TAX
Aon and its principal domestic subsidiaries are included in a consolidated
life-nonlife federal income tax return. Aon's foreign subsidiaries file various
income tax returns in their foreign jurisdictions. A reconciliation of the
income tax provisions based on the U.S. statutory corporate tax rate to the
provisions reflected in the consolidated financial statements is as follows:
Years ended December 31 1998 1997 1996
===============================================================================
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income (1.8) (3.1) (3.7)
Amortization of intangible assets
relating to acquired businesses 1.9 3.3 0.4
State income taxes 1.6 2.8 3.5
Other--net 0.8 (0.5) (0.7)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Effective tax rate 37.5% 37.5% 34.5%
===============================================================================
The provision for income tax is made up of the following components:
(millions) Years ended December 31 1998 1997 1996
===============================================================================
Current:
Federal $ 184 $ 21 $ 115
Foreign 53 35 55
State 23 18 25
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total current $ 260 $ 74 $ 195
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Deferred (credit):
Federal $ 2 $ 100 $ (9)
Foreign 87 24 (31)
State -- 5 (1)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total deferred 89 129 (41)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Provision for income tax $ 349 $ 203 $ 154
===============================================================================
- 42 -
<PAGE>
During 1998 and 1997, Aon's consolidated statement of income reflects a tax
benefit of $25 million and $24 million, respectively, on the capital securities.
Significant components of Aon's deferred tax assets and liabilities are as
follows:
(millions) As of December 31 1998 1997
===============================================================================
Deferred tax assets:
Policy liability amounts $ 132 $ 129
Net operating loss and tax credit carry 82 86
Certain purchase accounting & restructuring liabilities 93 100
Other--net 79 83
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total deferred tax assets 386 398
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Deferred tax liabilities:
Policy acquisition costs (41) (54)
Unrealized investment gains (42) (108)
Other--net (38) (43)
Total deferred tax liabilities (121) (205)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Valuation allowance (51) (56)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net deferred tax assets (liabilities) $ 214 $ 137
===============================================================================
As of December 31, 1998, a U.S. subsidiary of Aon (A&A) had U.S. federal net
operating loss carryforwards of $76 million which expire in years 2008 through
2012, and federal foreign tax credit carryforwards of $13 million which expire
in years 1999 through 2000.
Internal Revenue Code imposes limitations on the utilization of federal net
operating loss and tax credit carryforwards 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. The valuation allowance changed to $51
million in 1998 corresponding to reductions in related deferred tax assets, with
no effect on income. 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, 1998, 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 1998, 1997 and 1996 was $249 million, $137
million and $387 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 remain liable to the
extent that the reinsuring companies are unable to meet their obligations.
A summary of reinsurance activity is as follows:
(millions) Years ended December 31 1998 1997 1996
==============================================================
Ceded premiums earned $580 $609 $508
Ceded premiums written 528 713 667
Assumed premiums earned 149 298 292
Assumed premiums written 133 284 276
Ceded benefits to policyholders 325 286 220
==============================================================
Activity in the liability for policy contract claims is summarized as follows:
(millions) Years ended December 31 1998 1997 1996
===========================================================================
Liabilities at beginning of year $ 520 $ 535 $ 715
Incurred losses:
Continuing operations--current year 807 814 774
Continuing operations--prior years (19) (50) (36)
Discontinued operations* -- -- 90
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------
Total 788 764 828
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------
Payment of claims:
Current year (539) (538) (552)
Prior years (286) (241) (283)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------
Total (825) (779) (835)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------
Liability for business sold -- -- (173)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------
Liabilities at end of year
(net of reinsurance recoverables:
1998-$296, 1997-$289, 1996-$306) $ 483 $ 520 $ 535
===========================================================================
*Excludes A&A discontinued operations.
8. REDEEMABLE PREFERRED STOCK, CAPITAL SECURITIES AND STOCKHOLDERS' EQUITY
REDEEMABLE PREFERRED STOCK
At December 31, 1998, 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 beginning one year after
the occurrence of certain future events.
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 an $824
million aggregate principal amount of Aon's 8.205% Junior
- 43 -
<PAGE>
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
in 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." The after-tax interest
incurred on the Capital Securities is reported as minority interest in the
consolidated statements 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
In November 1996, each outstanding share of 6.25% cumulative convertible
exchangeable preferred stock was converted by the holders into 1.83 shares of
common stock for a total of 3,909,000 common shares. Dividends were cumulative
at the annual rate of $3.125 per share.
COMMON STOCK
Aon repurchased 695,000, 202,000 and 1,931,000 shares in 1998, 1997 and 1996,
respectively, of its common stock, primarily to provide shares for stock
compensation plans and the conversion of preferred stock.
DIVIDENDS
A summary of dividends incurred is as follows:
(millions) Years ended December 31 1998 1997 1996
===============================================================================
Redeemable preferred stock $ 2 $ 2 $ 2
8% cumulative perpetual
preferred stock -- 9 11
6.25% cumulative convertible
exchangeable preferred stock -- -- 5
Common stock 192 169 154
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Total dividends incurred $ 194 $ 180 $ 172
===============================================================================
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 the statutory gain
on the sale of LOV and UFLIC in 1996), is summarized as follows:
(millions) Years ended December 31 1998 1997 1996
=================================================================
Life insurance $239 $265 $807
Property casualty 62 66 71
=================================================================
Statutory capital and surplus of the insurance subsidiaries is summarized as
follows:
(millions) As of December 31 1998 1997 1996
=================================================================
Life insurance $610 $724 $612
Property casualty 446 438 364
=================================================================
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. Provisions made for these plans were $22 million, $22
million and $14 million in 1998, 1997 and 1996, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
Certain of Aon's subsidiaries maintain a leveraged ESOP for the benefit of the
United States salaried and certain commissioned employees. Contributions to the
ESOP amounted to $16 million, $14 million and $12 million in 1998, 1997 and
1996, respectively.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Aon sponsors defined benefit pension and postretirement health and welfare plans
which provide retirement, medical and life insurance benefits. The
postretirement health care plans are contributory, with retiree contributions
adjusted annually; the life insurance and pension plans are noncontributory.
- 44 -
<PAGE>
U.S. PENSION AND OTHER BENEFIT PLANS
The following tables provide a reconciliation of the changes in obligations and
fair value of assets for the years ending December 31, 1998 and 1997 and a
statement of the funded status as of December 31, 1998 and 1997.
<TABLE>
<CAPTION>
Pension Benefits Other Benefits
(millions) 1998 1997 1998 1997
===================================================================================
<S> <C> <C> <C> <C>
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at January 1 $ 692 $ 305 $ 61 $ 40
Service cost 32 32 1 2
Interest cost 51 46 5 4
Participant contributions -- -- 4 4
Plan amendments (8) -- -- --
Actuarial (gain) loss (13) 12 7 3
Acquisitions 11 310 -- 17
Benefit payments (38) (36) (8) (9)
Change in interest rate 29 23 -- --
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
Obligation at December 31 $ 756 $ 692 $ 70 $ 61
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value at January 1 $ 853 $ 317 $ 7 $ --
Actual return on plan assets 60 159 1 1
Acquisitions 16 393 -- 6
Employer contributions 13 20 -- --
Benefit payments (38) (36) -- --
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
Fair value at December 31 $ 904 $ 853 $ 8 $ 7
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
FUNDED STATUS
Funded status at December 31 $ 148 $ 161 $ (62) $ (54)
Unrecognized prior-service (6) (1) (10) (16)
Unrecognized gain (99) (123) (16) (23)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------
Prepaid (accrued) benefit
cost $ 43 $ 37 $ (88) $ (93)
===================================================================================
</TABLE>
Pension plan assets include common stock issued by Aon with a fair value of $91
million (1,639,000 shares) and $50 million (1,083,000 shares) at December 31,
1998 and 1997, respectively, on which dividends of $1.1 million and $1 million
were received.
The following table provides the components of net periodic benefit cost
(credit) for the plans for the years ended December 31, 1998, 1997 and 1996:
(millions) Pension Benefits 1998 1997 1996
===============================================================================
Service cost $ 32 $ 32 $ 21
Interest cost 51 46 21
Expected return on plan assets (71) (62) (22)
Amortization of prior-service (1) -- --
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net periodic benefit cost $ 11 $ 16 $ 20
===============================================================================
(millions) Other Benefits 1998 1997 1996
===============================================================================
Service cost $ 1 $ 2 $ 1
Interest cost 5 4 3
Expected return on plan assets (1) (1) --
Amortization of prior-service (5) (5) (5)
Amortization of net gain (1) (1) (2)
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Net periodic benefit credit $ (1) $ (1) $ (3)
===============================================================================
In April 1996, Aon established a limited time early retirement incentive program
that provided benefits through the defined benefit pension plan. The additional
cost of termination benefits applicable for 1996 resulting from the program was
$19 million.
The weighted-average assumptions as of December 31 used in the measurement of
the U.S. benefit obligations are shown in the following table:
Pension Benefits Other Benefits
1998 1997 1998 1997
=======================================================================
Discount rate 7.2% 7.5% 7.2% 7.5%
Expected return on plan assets 9.0 9.0 -- --
Rate of compensation increase 5.0 5.0 5.0 5.0
=======================================================================
The employer's liability for future plan cost increase is limited in any year to
5% per annum. For measurement purposes in 1998, 1997 and 1996, a 7.5%, 8.5% and
9.5%, 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 2003 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.
Due to the employer funding cap, a 1% change in assumed healthcare cost trend
rates has no effect on the service and interest cost components of net periodic
postretirement healthcare benefit cost and on the accumulated postretirement
benefit obligation as of December 31, 1998.
INTERNATIONAL PENSION PLANS
The following tables provide a reconciliation of the changes in obligations and
fair value of assets for the years ending December 31, 1998 and 1997 and a
statement of the funded status as of December 31, 1998 and 1997 for material
international plans, which are located in the United Kingdom and The
Netherlands.
- 45 -
<PAGE>
International Pension
(millions) 1998 1997
==================================================================
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at January 1 $ 1,623 $ 753
Service cost 61 49
Interest cost 113 96
Participants contributions 7 7
Acquisitions -- 640
Benefit payments (73) (47)
Change in interest rate 375 202
Foreign exchange translation 41 (77)
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
Obligation at December 31 $ 2,147 $ 1,623
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value at January 1 $ 1,752 $ 845
Actual return on plan assets 215 211
Acquisitions -- 790
Employer contributions 33 33
Participants contributions 7 7
Benefit payments (73) (47)
Foreign exchange translation 42 (87)
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
Fair value at December 31 $ 1,976 $ 1,752
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
FUNDED STATUS
Funded status at December 31 $ (171) $ 129
Unrecognized prior-service 1 1
Unrecognized loss 430 89
Additional minimum pension liability (155) --
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------
Prepaid benefit cost $ 105 $ 219
==================================================================
As of December 31, 1998, plans with a projected benefit obligation (PBO) in
excess of the fair value of plan assets had a PBO of $1.9 billion and plan
assets with a fair value of $1.7 billion, and plans with an accumulated benefit
obligation (ABO) in excess of the fair value of plan assets had an ABO of $1
billion and plan assets with a fair value of $908 million. Also, at December 31,
1998, the prepaid benefit cost presented in the foregoing table is comprised of
plans with prepaid assets of $205 million and accrued liabilities of $100
million.
The following table provides the components of net periodic benefit cost for the
international plans for the years ended December 31, 1998, 1997 and 1996:
(millions) 1998 1997 1996
===========================================================
Service cost $ 61 $ 49 $ 15
Interest cost 113 96 26
Expected return on plan assets (172) (141) (33)
Amortization of net loss 2 -- --
- - - - - - - - - - - - - - - - - -----------------------------------------------------------
Net periodic benefit cost $ 4 $ 4 $ 8
===========================================================
The weighted-average assumptions as of December 31 used in the measurement of
the international pension benefit obligations are shown in the following table:
1998 1997 1996
==================================================================
Discount rate 6.0 - 7.0% 7.0% 7.0 - 8.0%
Expected return on plan assets 7.0 -10.0 7.0 -10.0 7.0 -10.0
Rate of compensation increase 4.0 - 4.5 4.0 - 5.5 4.0 - 5.5
==================================================================
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 shares of common stock that Aon could
award up to 12,900,000 shares. At December 31, 1998, approximately 4,000,000
shares remain available for award. Generally, the award plan requires 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:
(shares in thousands)
Years ended December 31 1998 1997 1996
===========================================================================
Shares outstanding at beginning of year 6,414 5,210 3,914
Granted 786 1,869 1,793
Vested and exercised (803) (570) (398)
Canceled (183) (95) (99)
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------
Shares outstanding at end of year 6,214 6,414 5,210
===========================================================================
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 shares 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.
- 46 -
<PAGE>
A summary of Aon's stock option activity and related information consists of the
following:
<TABLE>
<CAPTION>
Years ended December 31 1998 1997 1996
=======================================================================================
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
(shares in thousands) Shares Price Shares Price Shares Price
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Beginning
outstanding 6,052 $ 31 5,276 $ 26 5,212 $ 21
Granted 1,587 65 1,646 48 1,535 35
Exercised (658) 22 (579) 20 (732) 17
Canceled (116) 33 (291) 29 (739) 23
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------
Ending
outstanding 6,865 $ 39 6,052 $ 31 5,276 $ 26
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------
Exercisable at end
of year 841 $ 23 696 $ 21 465 $ 19
- - - - - - - - - - - - - - - - - ---------------------------------------------------------------------------------------
Options available
for grant 4,530 6,001 1,295
=======================================================================================
</TABLE>
A summary of options outstanding and options exercisable is as follows:
As of December 31, 1998
(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
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
$19.06-$22.29 381 1.9 $20.87 210 $20.19
22.64- 22.64 861 2.2 22.64 297 22.64
22.83- 23.83 890 3.1 23.78 198 23.71
23.89- 32.58 282 1.8 24.78 136 24.84
34.33- 34.33 1,232 4.2 34.33 -- --
35.33- 43.38 1,482 7.9 42.94 -- --
52.59- 71.81 1,737 9.1 62.98 -- --
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
$19.06-$71.81 6,865 5.6 $39.47 841 $22.63
===============================================================================
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
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
$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- 22.83 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
===============================================================================
PRO FORMA INFORMATION
Pro forma information regarding net income and net income per share is required
by FASB Statement No. 123, and has been determined as if Aon had accounted for
employee stock options and stock awards under the fair value method.
The pro forma net income and net income per share information is as follows:
Years ended December 31 1998 1997 1996
============================================================
NET INCOME (MILLIONS):
As reported $ 541 $ 299 $ 335
Pro forma 530 292 330
NET INCOME PER SHARE:
Dilutive
As reported 3.11 1.68 1.90
Pro forma 3.05 1.64 1.87
Basic
As reported 3.16 1.71 1.93
Pro forma 3.10 1.67 1.90
============================================================
The fair value per share of options and awards granted is estimated as $16.51
and $56.08 in 1998, $8.97 and $41.59 in 1997 and $8.19 and $30.87 in 1996,
respectively, on the grant date using the Black-Scholes option pricing model
with the following weighted average assumptions:
Dividend yield 2%
Expected volatility 20%
Risk-free interest rate 6%
Expected term life (in years):
Stock options 1.35
Stock awards 0
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 pro forma 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.
EMPLOYEE STOCK PURCHASE PLAN
Effective July 1, 1998, Aon adopted an employee stock purchase plan, which
provides for the purchase of a maximum of 5,000,000 shares of Aon's common stock
by eligible U.S. employees. Under the plan, shares of Aon's common stock may be
purchased at six-month intervals at 85% of the lower of the fair market value of
the common stock on the first or the last day of each six-month period.
Approximately 222,000 shares were first purchased under the plan in January
1999.
11. FINANCIAL INSTRUMENTS
FINANCIAL RISK MANAGEMENT
Aon is exposed to market risk from changes in foreign currency exchange rates,
interest rates and securities 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.
- 47 -
<PAGE>
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 credit-worthiness of and exposure to its
counterparties and considers its credit risk to be minimal. At December 31, 1998
and 1997, Aon placed securities in escrow amounting to $8 million and $6
million, respectively, relating to these derivative contracts.
FOREIGN EXCHANGE RISK MANAGEMENT
Aon manages a group of foreign exchange and interest rate risks that considers
the correlation among thirteen currency rates and two short-term interest rates.
Aon uses foreign currency listed futures and options on futures, as well as over
the counter 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, primarily in the United
Kingdom, 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 exchange forward contracts and options are
used having settlement dates that are primarily less than one year. Related
gains or losses on these contracts are reflected as an adjustment to 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 insurance underwriting and
insurance brokerage businesses. Interest rate derivatives are also utilized to
manage the company's funding and other corporate risks.
Interest rate swap agreements are being 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 underwriting
businesses. As of December 31, 1998 and 1997, 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 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. Aon also enters into interest rate swap agreements, sells exchange-traded
interest rate futures and purchases interest rate caps to limit its interest
rate exposure to financing short-term receivables. The net effect of swap
payments is 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 expires or is closed. The premium that Aon
pays for interest rate caps represents the cost basis of the position until it
expires or is closed.
SECURITY PRICE RISK MANAGEMENT
Exchange-traded treasury and equity futures and options are used primarily as a
hedge against the value of Aon's available for sale fixed maturity and equity
investments. Aon also uses exchange traded equity futures and options to protect
the value of its pension equity investments. Aon sells futures, purchases put
options, and 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.
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
- 48 -
<PAGE>
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.
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.
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 risk being
hedged. If the criteria for hedge accounting are not met, the resulting gain or
loss from the hedge would be realized through the statement of operations in the
current period.
NOTIONAL AND OTHER DATA
The following are the notional amounts of Aon's outstanding derivatives grouped
by the types of risks being managed reflecting various periods of exposure:
(millions) As of December 31 1998 1997
=======================================================================
Foreign currency management
Forwards $ 195 $ 208
Futures 69 102
Call options 35 --
Interest rate and asset/liability duration management
Eurodollar futures 1,730 639
Eurosterling futures 900 1,092
Treasury futures 15 --
Call options 30 4
Put options 10 60
Interest rate caps -- 120
Interest rate swaps--pay fixed 1,192 93
Interest rate swaps--receive fixed 172 502
Basis rate swaps--pay and receive variable 184 140
=======================================================================
Aon amortized $1 million in 1998 and $3 million in 1997 and 1996, respectively,
of net deferred gains relating to derivatives into income.
The interest rates on Aon's outstanding swaps at December 31 are presented
below:
Receive Pay Pay Receive
Fixed Variable Fixed Variable
====================================================================
1998 4.0-8.1% 3.2-8.8% 4.8-9.7% 4.3-5.7%
1997 4.0-8.4% 5.8% 6.0-9.7% 5.6-6.5%
====================================================================
As of December 31, 1998, swaps have maturities ranging from January 1999 to
August 2018. Aon receives variable rates based on the one-month commercial paper
and the three- and six-month U.S. London Interbank Offer Rate (LIBOR). Aon pays
variable rates based on the three- and six-month U.S. LIBOR rates, the six-month
Dutch Guilder LIBOR rate, and the three-month Australian Bank Bill rate. Basis
rate swaps have maturities ranging from December 2000 to January 2007 and
require payments based on the three-month LIBOR index, and the one-year constant
maturity treasury rate (CMT) and provide for receipts based on the two-year
treasury rate, the daily Federal Funds Rate and the one-year CMT 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, 1998 and 1997 totaled $283
million and $173 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
December 2002. As of December 31, 1998 and 1997, the maximum commitment
contained in these agreements was $2.8 billion and $2.0 billion, respectively.
Aon's maximum credit risk under recourse provisions of these agreements was
approximately $202 million and $93 million, at December 31, 1998 and 1997,
respectively.
An Aon subsidiary issues fixed rate Guaranteed Investment Contracts (GICS) and
floating rate funding agreements and invests the proceeds primarily in the U.S.
fixed income markets. The assets backing the GICS and funding agreements are
subject to varying elements of credit and market risk.
- 49 -
<PAGE>
FAIR VALUE OF FINANCIAL INSTRUMENTS
Accounting standards require the disclosure of fair values for certain financial
instruments. The fair value disclosures are not intended to encompass the
majority of policy liabilities, various other non-financial instruments or other
intangible assets related to Aon's business. Accordingly, care should be
exercised in deriving conclusions about Aon's business or financial condition
based on the fair value disclosures. The carrying value and fair value of
certain of Aon's financial instruments are as follows:
As of December 31 1998 1997
================================================================================
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Assets:
Fixed maturities and
equity securities $3,871 $3,871 $3,950 $3,950
Other investments 349 348 263 262
Cash, receivables and
short-term
investments 9,550 9,550 9,033 9,033
Derivatives* -- (2) -- 8
Liabilities:
Investment type
insurance contracts 1,261 1,310 828 831
Short-term borrowings,
premium payables
and general expenses 9,051 9,051 8,633 8,633
Notes payable 580 589 637 643
Capital securities 800 916 800 900
================================================================================
*Derivatives with a carrying value of $(2) million and $21 million and a fair
value of $(2) million and $21 million are included in other asset categories at
December 31, 1998 and 1997, respectively.
12. CONTINGENCIES
Aon and its subsidiaries are subject to numerous claims, tax assessments and
lawsuits that arise in the ordinary course of business. The damages that may be
claimed are substantial, including in many instances claims for punitive or
extraordinary damages. Accruals for these items have been provided to the extent
that losses are deemed probable and are estimable.
Certain U.K. subsidiaries of Aon are required by their regulatory body, the
Personal Investment Authority, to review transactions with, and advice to,
clients in relation to the sale of certain investments and insurance products.
The disclosure and advice in connection with such sales has been called into
question by clients or by the Personal Investment Authority on their behalf. In
certain cases, these reviews can result in a requirement to pay compensation to
clients. Subsidiaries of Aon are in the process of determining the extent of
liabilities and recoverability of related indemnities from third parties.
In the fourth quarter of 1998, Aon received an Internal Revenue Service (IRS)
revenue agent`s report (RAR) proposing adjustments to the tax of certain Aon
subsidiaries for the period 1990 through 1993. In the RAR, the IRS has contended
that retro-rated extended warranty contracts do not constitute insurance for tax
purposes. Accordingly, the IRS has proposed a deferral of deductions for
obligations under those contracts. The effect of such deferral would be to
increase the current tax obligations of certain Aon subsidiaries by
approximately $74 million, $3 million, $5 million and $12 million (plus
interest) in years 1990, 1991, 1992 and 1993, respectively. Aon believes that
the IRS's position in the RAR is without merit and inconsistent with numerous
previous IRS private letter rulings. Aon has commenced an administrative appeal
and intends to contest vigorously such treatment. Aon believes that if the
contracts are deemed not to be insurance for tax purposes, they would be
recharacterized in such a way that the increased taxes for the years in question
would be far less than the proposed assessments. In the same RAR, a number of
additional items were identified which would also increase the tax of other Aon
subsidiaries for 1990 through 1993. Aon believes that these additional items
should be resolved through factual substantiation of certain accounting matters.
Aon further believes that the settlement of these issues will not have a
material impact on its financial position.
Although the ultimate outcome of these issues 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 will not have a material
adverse effect on the consolidated financial position of Aon.
- 50 -
<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, 1998 and 1997, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1998. 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, 1998 and 1997, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 9, 1999
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, 1998, 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.
- 51 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(millions except common stock and per share data) 1998 1997 1996 1995 1994
================================================================================================================================
<S> <C> <C> <C> <C>
<C<C>INCOME STATEMENT DATA
Brokerage commissions and fees $ 4,197 $ 3,605 $ 1,919 $ 1,651 $ 1,389
Premiums and other 1,706 1,646 1,577 1,473 1,376
Investment income 590 500 392 342 276
-----------------------------------------------------------------------------
Total revenue 6,493 5,751 3,888 3,466 3,041
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
excluding special charges $ 541 $ 406 $ 351 $ 304 $ 269
Income from continuing operations 541 299 292 304 269
Discontinued operations -- -- 43 99 91
Net income 541 299 335 403 360
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA
Income from continuing operations
excluding special charges $ 3.11 $ 2.32 $ 2.00 $ 1.71 $ 1.51
Income from continuing operations 3.11 1.68 1.64 1.71 1.51
Discontinued operations -- -- 0.26 0.59 0.57
Net income 3.11 1.68 1.90 2.30 2.08
BASIC PER SHARE DATA
Income from continuing operations 3.16 1.71 1.67 1.72 1.53
Net income 3.16 1.71 1.93 2.33 2.12
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
ASSETS
Investments $ 6,452 $ 5,922 $ 5,213 $ 10,639 $ 9,783
Brokerage receivables 5,423 5,320 3,566 2,264 1,882
Intangible assets 3,500 3,094 1,598 1,598 1,548
Other 4,313 4,355 3,346 5,235 4,709
-----------------------------------------------------------------------------
Total assets $ 19,688 $ 18,691 $ 13,723 $ 19,736 $ 17,922
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance premiums payable $ 6,948 $ 6,380 $ 4,144 $ 2,723 $ 2,409
Policy liabilities 4,823 4,450 4,360 9,556 9,310
Notes payable 580 637 521 554 561
General liabilities 3,470 3,552 1,815 4,179 3,335
-----------------------------------------------------------------------------
Total liabilities 15,821 15,019 10,840 17,012 15,615
Redeemable preferred stock 50 50 50 50 50
Capital securities 800 800 -- -- --
Stockholders' equity 3,017 2,822 2,833 2,674 2,257
-----------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 19,688 $ 18,691 $ 13,723 $ 19,736 $ 17,922
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Dividends paid per share $ 1.10 $ 1.02 $ 0.95 $ 0.89 $ 0.84
Stockholders' equity per share 17.74 16.80 16.21 15.18 12.20
Price range 75 9/16-48 1/4 58 7/8-40 3/16 43 1/8-31 5/8 33 7/8-20 7/8 23 7/8-19 1/2
Market price at year-end 55.375 58.625 41.375 33.250 21.375
Common stockholders 12,294 12,698 13,030 13,520 14,163
Shares outstanding (in millions) 170.0 168.0 166.4 162.4 161.5
================================================================================================================================
</TABLE>
- 52 -
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1998
===================================================================================================================================
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Brokerage commissions and fees $ 996 $ 1,060 $ 1,023 $ 1,118 $ 4,197
Premiums and other 417 423 431 435 1,706
Investment income 148 140 153 149 590
------------------------------------------------------------------------------
Total revenue 1,561 1,623 1,607 1,702 6,493
------------------------------------------------------------------------------
Net income 138 140 124 139 541
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
DILUTIVE NET INCOME PER SHARE $ 0.80 $ 0.81 $ 0.71 $ 0.79 $ 3.11
BASIC NET INCOME PER SHARE 0.82 0.82 0.72 0.81 3.16
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Dividends paid per share $ 0.26 $ 0.28 $ 0.28 $ 0.28 $ 1.10
Stockholders' equity per share 17.10 17.91 17.62 17.74 17.74
Price range 67-54 1/8 72 1/4-61 1/2 75 9/16-58 7/8 64 1/8-48 1/4 75 9/16-48 1/4
Shares outstanding (in millions) 168.7 168.9 170.1 170.0 170.0
Average monthly trading volume (in millions) 4.4 5.1 5.7 8.0 5.8
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Brokerage commissions and fees $ 842 $ 885 $ 923 $ 955 $ 3,605
Premiums and other 394 422 406 424 1,646
Investment income 118 118 122 142 500
------------------------------------------------------------------------------
Total revenue 1,354 1,425 1,451 1,521 5,751
------------------------------------------------------------------------------
Net income excluding special charges 91 101 101 113 406
Net income 1 84 101 113 299
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA
Net income excluding special charges $ 0.52 $ 0.58 $ 0.57 $ 0.65 $ 2.32
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 44 7/8-40 5/8 53 3/8-40 3/16 56 1/8-50 1/16 58 7/8-50 1/4 58 7/8-40 3/16
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
===================================================================================================================================
</TABLE>
- 53 -
<PAGE>
INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS
This annual report contains forward-looking statements relating to such matters
as future financial performance, the business of Aon and Year 2000. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results or those anticipated, depending on a variety
of factors such as changes in worldwide and national economic conditions,
fluctuations in foreign currencies, changes in securities and fixed income
markets, unpredictability of timing and amounts of returns on private equity
holdings, downward commercial property and casualty premium pressures, and the
competitive environment. In addition, Aon notes that a variety of factors could
cause Aon's actual results and experience relating to compliance with Year 2000
to differ materially from the anticipated results or other expectations
expressed in Aon's forward-looking statements concerning Year 2000 issues. These
factors include (i) the unanticipated material impact of a system fault of Aon
relating to Year 2000, (ii) the failure to successfully remediate, in spite of
testing, material systems of Aon, (iii) the time it may take to successfully
remediate a failure once it occurs, as well as the resulting costs and loss of
revenues, and (iv) the failure of third parties to properly remediate material
Year 2000 problems.
- Inside Back Cover -
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
Aon CORPORATION AND ITS SUBSIDIARIES (AS OF DECEMBER 31, 1998)
<S> <C>
Aon Corporation Delaware
120524 Canada Inc. Canada
1e Katharinastrase 29 Vermogensverwaltungsges mbH Germany
2e Katharinastrase 29 Vermogensverwaltungsges mbH Germany
A Morel & Cie Sa France
A&A (UK) Limited United Kingdom
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
AARE Corporation New York
ABS Insurance Agency Ltd. United Kingdom
Acedale Co. Ltd. Hong Kong
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
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
AGR Disposition Company Inc. California
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 Argentina S.A. Argentina
Agricultural Risk Management Chile Chile
Agricultural Risk Management North America, Inc. Kansas
Agricultural Risk Management Pacific Limited New Zealand
Agricultural Risk Management Pty. Ltd. 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
- 1 -
<PAGE>
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
AIS Affinity Insurance Agency of New England, Inc. Massachusetts
AIS Affinity Insurance Agency, Inc. California
AIV Beteiligungsgesellschaft mbh Germany
Aldebaran S.R.L. Rome Italy
Alexander & Alexander (Asia) Holdings Pte. Ltd. Singapore
Alexander & Alexander (C.I.) Limited Guernsey
Alexander & Alexander (Hong Kong) Holdings Limited 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. Papua 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 Inc. Virginia
Alexander & Alexander Benefits Services of Louisiana Louisiana
Alexander & Alexander Colombia Ltda. Colombia
Alexander & Alexander Consultants S.A. France
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 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 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 Mexico
Alexander & Alexander Middle East Limited Bermuda
- 2 -
<PAGE>
Alexander & Alexander of Colombia Ltda. Colombia
Alexander & Alexander of Kansas, Inc. Kansas
Alexander & Alexander of Long Island Inc. Connecticut
Alexander & Alexander of Mississippi Inc. Mississippi
Alexander & Alexander of Missouri Inc. Missouri
Alexander & Alexander of Virginia, Inc. Virginia
Alexander & Alexander of Washington Inc. Washington
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 Services (India) Pvt. Ltd. India
Alexander & Alexander Services Canada Inc. Canada
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, Inc. Oklahoma
Alexander & Alexander, Inc. West Virginia
Alexander & Davidson de Colombia LTDA. Colombia
Alexander Administration Services Ltd. Isle of Man
Alexander Clay and Partners Consulting United Kingdom
Alexander Clay Communications Limited 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 Canada Limited Canada
Alexander Howden de Espana Spain
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 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
- 3 -
<PAGE>
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 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 Ltd. Bermuda
Alexander Insurance Managers N.V. Netherlands
Alexander Lippo (Hong Kong) Ltd. Hong Kong
Alexander of Texas Inc. Texas
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 Services, Inc. Illinois
Alexander Stenhouse & Partners Limited Scotland
Alexander Stenhouse Belgium International Belgium
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 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 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
- 4 -
<PAGE>
Anderson and Anderson/Benefits Insurance Brokers, Inc. California
Anderson and Anderson/D-K&S Insurance Brokers, Inc. California
Andrea Scagliarni Assicurazione Italy
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 Acquisition Corporation of Arkansas Arkansas
Aon Acquisition Corporation of New Jersey New Jersey
Aon Administrative Services Corp. California
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 Corretores de Seguros Ltda. Brazil
Aon Benefits Insurance Brokers (Singapore) Pte. Ltd. Singapore
Aon Boels & Begault S.A. Belgium
Aon Brazil Corretores de Seguros Ltda. Brazil
Aon Broker Services, Inc. Illinois
Aon Broking Services S.A. Argentina
Aon bv Netherlands
Aon Canada Inc. Canada
Aon Capital A Delaware
Aon Capital Management, 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 Claro Santa Cruz y Compania S.A., Corredores de Seguros Chile
Aon Colombia Limitada Corredores de Seguros Colombia
Aon Compensation and Benefits Limited United Kingdom
Aon Construction Services International Limited United Kingdom
Aon Consulting & Insurance Services California
Aon Consulting Acquisition Corporation of California California
Aon Consulting Agency, Inc. Texas
Aon Consulting Belgium S.A. Belgium
Aon Consulting Consultores de Seguros Ltda. Brazil
Aon Consulting Denmark A/S Denmark
Aon Consulting Financial Services Limited United Kingdom
- 5 -
<PAGE>
Aon Consulting GmbH Germany
Aon Consulting Hong Kong Ltd. Hong Kong
Aon Consulting Inc. Canada
Aon Consulting Limited United Kingdom
Aon Consulting Nederland cv Netherlands
Aon Consulting of Maryland, Inc. Maryland
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. New York
Aon Consulting, Inc. New Jersey
Aon Consulting, Inc. Ohio
Aon Consulting, Inc. Texas
Aon Consulting, Inc. Florida
Aon Consulting, Inc. of Arizona Arizona
Aon Consulting, Limited Quebec
Aon Consulting, S.A. de C.V. Mexico
Aon Credit Services Corporation Delaware
Aon CSC Corredores de Reaseguros Limitada Chile
Aon Denmark A/S Denmark
Aon Direct Group Inc. Canada
Aon Direct Group Small Company Life and Health Agents Illinois
Aon Direct Research & Analytics Group Inc. Canada
Aon Eesti AS Estland
Aon Employee Benefits of Ohio, Inc. Ohio
Aon Enterprise Insurance Services, Inc. Illinois
Aon Enterprise Insurance Services, Inc. Texas
Aon Entertainment Risk Services Limited United Kingdom
Aon European Investments Limited United Kingdom
Aon Financial Institutions Services, Inc. Illinois
Aon Financial Products, Inc. Delaware
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 General Agency, Inc. Texas
Aon General Consulting Ltda. Brazil
Aon GGI Acquisition Corporation, Inc. Texas
Aon Groep Nederland bv Netherlands
Aon Group Corretagem, Administracao e Consultoria de Seguros Ltda UK
Aon Group Limited United Kingdom
Aon Group Limited de Argentina S.A. Argentina
Aon Group Limited de Mexico, Intermediario de Reaseguro, S.A. de C.V. Mexico
Aon Group Ltd. Peru S.A. Peru
Aon Group Venezuela, Corretaje de Reaseguro, C.A. Venezuela
- 6 -
<PAGE>
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 bv Netherlands
Aon Holdings Asia Ltd. Hong Kong
Aon Holdings Australia Ltd. Australia
Aon Holdings bv Netherlands
Aon Holdings Deutschland GmbH Germany
Aon Holdings New Zealand Pty. Ltd. New Zealand
Aon Home Warranty Services, Inc. Delaware
Aon Hudig cv Netherlands
Aon Hudig Groningen bv Netherlands
Aon Hudig Hengelo bv Netherlands
Aon Hudig Nijmegen bv Netherlands
Aon Hudig Noordwijk bv Netherlands
Aon Hudig Tilburg bv Netherlands
Aon Hudig Venlo bv Netherlands
Aon Hudig-Schreinemacher V.O.F. Netherlands
Aon Iberia, Correduria de Seguros, S.A. Spain
Aon India Limited United Kingdom
Aon Innovative Solutions, Inc. Missouri
Aon Insurance Management of Texas, Inc. Texas
Aon Insurance Management Services - Virgin Islands, Inc. U.S. Virgin Islands
Aon Insurance Management Services, Inc. Delaware
Aon Insurance Managers (Singapore) Pte. Ltd. Singapore
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 Investor Strategies, Inc. Delaware
Aon ISI, Inc. Colorado
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 makelaars in assurantien bv Netherlands
Aon Managed Care Risk & Insurance Services, Inc. California
Aon Management Hong Kong Ltd. Hong Kong
Aon Management Institute, Inc. Connecticut
Aon Manzitti S.p.A. Italy
Aon Medical Consultants, Inc. Delaware
Aon Mibrag Versicherungsvermittlungs GmbH Germany
Aon Natural Resources Ltd. Labuan
- 7 -
<PAGE>
Aon Nominees Limited United Kingdom
Aon Norway A/S Norway
Aon Ossa Ltda, Corredores de Reaseguros UK
Aon Overseas Holdings Limited United Kingdom
Aon OWA Insurance Services GmbH & Co. Germany
Aon OWA Verwaltungs GmbH Germany
Aon Partnership Limited United Kingdom
Aon Paulista Corretores de Seguros Ltda. Brazil
Aon Pension Trustees Limited United Kingdom
Aon Pilar Corretora E Servicos de Seguros S/C Ltda. Brazil
Aon Polska sp.z.o.o. Poland
Aon Portugal, Corretores de Seguros, S.A. Portugal
Aon Previsonals y Personas Ltda, Corredores de Reaseguros y Consultor UK
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 Canada Inc. Canada
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 Real Estate Services, Inc. New York
Aon Reed Stenhouse Inc. Canada
Aon Resource, Inc. Delaware
Aon Risconcept 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 (Barbados) Ltd. Barbados
- 8 -
<PAGE>
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 Agente de Seguros y de Fianzas, S.A. de C.V. Mexico
Aon Risk Services Argentina SA Argentina
Aon Risk Services Australia Ltd. Australia
Aon Risk Services Companies, Inc. Maryland
Aon Risk Services Do Brazil Corretores de Seguros Ltda. Brazil
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. U.S. Maryland
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 of Texas, Inc. Texas
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, Inc. Delaware
Aon Risk Services, Inc. (Pacific) Hawaii
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 Hawaii Hawaii
Aon Risk Services, Inc. of Idaho Idaho
Aon Risk Services, Inc. of Indiana Indiana
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 Montana Montana
Aon Risk Services, Inc. of Nevada Nevada
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 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 the Carolinas North Carolina
- 9 -
<PAGE>
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 Wyoming Wyoming
Aon Risk Services, Inc. U.S.A. New York
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 Space SA France
Aon Special Risks, Inc. Illinois
Aon Specialty Denmark A/S Denmark
Aon Specialty Re, Inc. Illinois
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 Telecom, Inc. Illinois
Aon Trade Credit Insurance Services, Inc. California
Aon Trade Credit, Inc. New York
Aon Trade Credit, Inc. Illinois
Aon UK Holdings Limited United Kingdom
Aon UK Limited United Kingdom
Aon Vietnam Vietnam
Aon Wardon Corretora de Seguros Ltda. Brazil
Aon Warranty Group Limited (UK) United Kingdom
Aon Warranty Group, Inc. Illinois
Aon Warranty Services do Brazil Ltda. Brazil
Aon Warranty Services, Inc. Illinois
Aon Worldwide Resources, Inc. Illinois
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
Aon/Saiz Consulting S.A. Colombia
Aon/Saiz Limitada Barranquilla Corredores de Seguros Colombia
AOPA Insurance Agency, Inc. Maryland
AOPA Insurance Agency, Inc. Texas
APM Services Limited Hong Kong
Aporia Leasing Limited United Kingdom
APS International Limited United Kingdom
APS Life & Pensions Limited United Kingdom
APS Overseas Investments Limited United Kingdom
- 10 -
<PAGE>
ARM COVERAGE INC New York
ARS Holdings, Inc. Illinois
ARS Holdings, Inc. Louisiana
Artscope Insurance Services Limited United Kingdom
Artscope International Insurance Services Limited United Kingdom
Ascom Nijmegen B.V. Netherlands
ASCOMIN S.A. Belgium
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'Entrep France
Associated Brokers International Zimbabwe
Associated Fund Adminstrators Botswana (Pty) Limited Botswana
Associated Ins. Broker of Botswana Botswana
Assuco Holdings Ltd. Guernsey
Assurantie Groep Langeveldt c.v. Netherlands
ATJ Capital Forsakringsmakleri AB Sweden
Atkins Kroll Insurance Inc. Guam
Atlanta International Insurance Company New York
Atlanta International Insurance Company New York
Attorneys' Advantage Insurance Agency, Inc. Illinois
AUSCO, Inc. Illinois
Auto Conduit Corporation, The Delaware
Auto Insurance Specialists - Bay Area, Inc. California
Auto Insurance Specialists - Inland Empire, Inc. California
Auto Insurance Specialists - Long Beach, Inc. California
Auto Insurance Specialists - Los Angeles, Inc. California
Auto Insurance Specialists - Newport, Inc. California
Auto Insurance Specialists - San Gabriel Valley, Inc. California
Auto Insurance Specialists - Santa Monica, Inc. California
Auto Insurance Specialists - Valley, Inc. California
Auto Insurance Specialists, Incorporated California
Automotive Development Centers, Inc. Illinois
Automotive Warranty Services of Florida, Inc. Florida
Automotive Warranty Services, Inc. Delaware
AV Agrar Versicherungsdienst GmbH Germany
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
Bailiwick Consultancy & Management Co. Ltd. Guernsey
Bain Clarkson (HK) Ltd. Hong Kong
Bain Clarkson Forsakringskonsult AB, Stockholm Sweden
- 11 -
<PAGE>
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
BEC Insurance Services Limited United Kingdom
Beck Kudlich Pacific Associates, Inc. Hawaii
Bekouw Mendes C.V. Netherlands
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
Berkely Agency Ltd. New York
Berkely Coverage Corporation New York
Berkely-ARM, Inc. New York
BerkelyCare, LTD New York
- 12 -
<PAGE>
BH No. 1 Ltd. United Kingdom
BHR, Inc. Delaware
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
BRIC, Inc. North Carolina
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 Pennsylvania
Bryson Associates Incorporated Ohio
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. Papua New Guinea
C A Robinson & Partners Ltd. United Kingdom
C.I.C. Realty, Inc. Illinois
C.V. 'T Huys Ter Merwe Netherlands
California Group Services California
Cambridge Integrated Services Group, Inc. New Jersey
Cambridge Professional Liability Services, Inc. Illinois
Cambridge Professional Liability Services, Inc. Pennsylvania
Cambridge Professional Liability Services, Inc. Florida
Cambridge Settlement Services, Inc. Minnesota
Campbell & Co., Inc. Idaho
Camperdown 100 Limited United Kingdom
Camperdown 101 Limited United Kingdom
Cananwill Canada Limited Ontario
Cananwill Corporation Delaware
Cananwill Receivables Purchase Facility, L.L.C. Delaware
Cananwill UK Limited United Kingdom
Cananwill UK Limited United Kingdom
- 13 -
<PAGE>
Cananwill, Inc. California
Cananwill, Inc. Pennsylvania
Cananwill, Inc. U.S. Virgin Islands
CAP Managers Ltd. Bermuda
Captive Assurance Partners California
Carl D. Jacobs & Associates, Inc. California
Carstens & Schues GmbH & Co. Germany
Carstens & Schues Poland Ltd. Poland
Carstens & Schues Verwaltungs GmbH Germany
Catz & Lips B.V. Netherlands
CCC Agency, Inc. of Illinois Illinois
CCM McGrath Berrigan Ltd. Ireland
CD Benefit, Inc. Texas
CECAR - Compagnie Europeene de Courtage d'Assurances et de Reassu France
CECAR Deutschland GmbH Germany
CECAR Inchcape Asia Ltd. Hong Kong
CECAR Portugal Portugal
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
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 Superannuation Nominees Pty. Ltd. Australia
Cinema Completions International, Inc. Delaware
Citadel Insurance Company Texas
City and County Purchasing Group Unknown
Citytrust Insurance Brokers Association Philippines
CJP, Inc. Delaware
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
- 14 -
<PAGE>
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 de Argentina S.A. Compania de Seguros Argentina
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
Combined Seguros Mexico, S.A. de C.V. Mexico
Commercial and Political Risk Consultants Ltd. United Kingdom
Commercial and Political Risk Services Ltd. United Kingdom
Commercial Credit Corporation United Kingdom
Compagnie Franco-Belge d'Investissement et de Placement Belgium
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
Corporacion Gil y Carvajal, SA Spain
Corporation Long Island CA 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
CRiON nv Belgium
Crotty MacRedmond Insurance Limited Ireland
Custom Risk Solutions, Inc. Illinois
Customer Loyalty Institute, Inc. Michigan
D. Hudig & Co. b.v. Netherlands
DA&A Insurance Agency, Inc. Texas
Dale Intermediaries Ltd. / Les Intermediaires Dale Ltee 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
- 15 -
<PAGE>
Dormante Holdings Limited United Kingdom
Downes & Burke (Special Risks) Ltd. United Kingdom
Dreadnaught Insurance Company Limited Bermuda
Duggan Insurances Limited Ireland
Dunn-Parizeau (1995) Inc. Quebec
DUO A/S Norway
Duoband Enterprises Ltd. United Kingdom
DuPage Care Administrators, Inc. Illinois
Durin Financial Corporation Wisconsin
E. Lillie & Co. Limited United Kingdom
Eastaf Holdings Ltd. United Kingdom
Eastward Insurance Services Limited Unknown
EBRM Risk Management & Consulting, L.L.C. Delaware
ECCO Services, Inc. Texas
Edgar Ward Ltd. United Kingdom
Edmundo Claro y Compania S.A. Vida y Beneficios Chile
Edward Lumley & Sons (Underwriting Agencies) Ltd. United Kingdom
EIA Risk Management Center, Inc. California
Elektrorisk Beheer bv Netherlands
Elm Lane Limited United Kingdom
Employee Benefit Communications, Inc. Florida
Energy Insurance Brokers & Risk Management Consultants Ltd. United Kingdom
ENTAB Insurance Services Ltd. United Kingdom
Entertainment Managers Insurance Agency of New York, Inc. New York
Entertainment Managers Insurance Services, Inc. California
Entertainment Managers Insurance Services, Inc. Ontario
ERAS (International) Ltd. United Kingdom
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
EXKO Excess Versicherungsagentur GmbH Germany
Expatriate Consultancy Limited, The United Kingdom
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
Firma A.J. Driessen C.V. Netherlands
Forsakringsmaklarna Syd KB Sweden
France Cote D'Afrique France
France Fenwick Limited United Kingdom
Frank B. Hall & Co. (N.S.W.) Pty. Ltd. Australia
- 16 -
<PAGE>
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
FS Insurance Agency of California, Inc. California
FS Insurance Agency, Inc. Ohio
Futuro 3000 S.R.L Italy
G.E.F. Insurance Ltd. U.S. Virgin Islands
Galaher Settlements and Insurance Services Company, Inc. California
Galaher Settlements Company of New York, Inc. New York
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
Gil y Carvajal Chile Ltda. Corredores de Seguros Chile
Gil y Carvajal Reasseguros, SA Spain
Gil y Carvajal Seguros, SA Spain
Gilliland & McReynolds, Inc. Texas
Gilman Swire Willis Ltd. Hong Kong
Gilroy Broome & Scrini (Trustees) Ltd. United Kingdom
Global Entertainment & Media Insurance Agency, L.L.C. California
Global Entertainment & Media Insurance Agency, L.L.C. Illinois
Global Entertainment & Media Insurance Agency, L.L.C. New York
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
Gotuaco del Rosario & Associates, Inc. Philippines
Gras Savoye Rumania Romania
Greville Baylis Parry & Associates Ltd. United Kingdom
Greyfriars Marketing Services Pty Ltd. Australia
Group Le Blanc de Nicolay SA France
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
- 17 -
<PAGE>
H.L. Puckle (Underwriting) Ltd. United Kingdom
H.Z. Financial, L.P. Illinois
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
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
HHL (Taiwan) Ltd. Taiwan
HHL Reinsurance Brokers Inc. Philippines
HHL Reinsurance Brokers Pte. Ltd. Singapore
HHL Reinsurance Services Sdn. Bhd Malaysia
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
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
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
- 18 -
<PAGE>
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
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 Engineering Services Ltd. United Kingdom
Industrie Assekuranz Gmbh Germany
Inmobiliaria Ramos Rosada, S.A. de C.V. Mexico
Innovative Services International Limited United Kingdom
Innovative Services International, L.L.C. Delaware
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 Aviation Brokers SA France
International Industrial Insurances Limited Ireland
International Insurance Brokers Ltd. Jamaica
International Insurance Brokers Ltd. New Zealand
International Shipowners Mutual Insurance Association Limited Bermuda
International Space Brokers Inc. Virginia
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
IOC Reinsurance Brokers Ltd. Canada
IRBJ Disposition Company United Kingdom
IRISC Claims Management Limited United Kingdom
IRISC L.L.C. Delaware
IRISC Limited United Kingdom
- 19 -
<PAGE>
IRISC Specialty, Inc. Delaware
IRISC Technical Services (Hong Kong) Limited Hong Kong
IRM France S.A. France
ISPP Purchasing Group Missouri
ITA Insurance, Inc. Utah
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
James F. Caird, Inc. California
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 d.o.o. Slovak Republic
Jauch & Hubener do Brasil Ltda. Brazil
Jauch & Hubener Ges mbH & Co. KG Austria
Jauch & Hubener GmbH Austria
Jauch & Hubener Kft. Hungary
Jauch & Hubener KGaA Germany
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 spol sro Czech Republic
Jauch & Hubener Vergutungs-und Vorsorgemanagement GmbH Germany
Jauch & Hubener Verwaltungs- GmbH Germany
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
JFC Consulting, Inc. Delaware
JFS (Sudamerica) SA Uruguay
- 20 -
<PAGE>
JFS Fenchurch Limited United Kingdom
JFS Greig Fester Limited United Kingdom
JML-Minet A.G. Switzerland
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 of California Insurance Services, Inc. California
K & K of Nevada, Inc. Nevada
K & K Specialties, Inc. Indiana
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
La Societe de Courtage Meloche Alexander Inc. Canada
Langeveldt de Vos b.v. Netherlands
Langeveldt Groep B.V. Netherlands
Laurila, Kauriala & Grig Ltd. Russia
Laverack & Haines, Inc. New York
Le Blanc & de Nicolay U.S., Inc. Delaware
Le Blanc de Nicolay Asia Hong Kong
Le Blanc de Nicolay Assurance SA France
Le Blanc de Nicolay Brazil Brazil
Le Blanc de Nicolay Courtage SA France
Le Blanc de Nicolay Iberica Spain
Le Blanc de Nicolay Reassurances SA France
Le Blanc de Nicolay Riassicurazione Italy
Le Blanc de Nicolay Ruck Germany
Le Blanc de Nicolay Zurich Switzerland
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 Aviation Holdings Limited United Kingdom
Leslie & Godwin Aviation Limited United Kingdom
Leslie & Godwin Aviation Reinsurance Services Limited United Kingdom
- 21 -
<PAGE>
Leslie & Godwin AXL 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
LIB Financial Services Ltd. United Kingdom
LIB Ltd. 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) 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 Ltda Agentes De Medicina Prepagada 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
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
- 22 -
<PAGE>
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
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
MC Brokers Co. Ltd. Thailand
Media/Professional Insurance Agency Limited United Kingdom
Media/Professional Insurance Agency, Inc. Missouri
Mediterranean Insurance Brokers Ltd. Malta
Mediterranean Insurance Training Centre Malta
MIB UK (Holdings) Ltd. United Kingdom
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 a.s. Czech Republic
Minet AB Sweden
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 AS Norway
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
- 23 -
<PAGE>
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 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
Minken Properties Ltd. Kenya
MLH & A (Canada) Inc. Canada
MLH International Inc. Ontario
Montgomery General Agency of New Jersey, Inc. New Jersey
- 24 -
<PAGE>
Morency, Weible & Sapa, Inc. Illinois
Motorists Service Corporation Delaware
Motorplan Limited United Kingdom
Mt. Franklin General Agency Texas
MTF Insurance Agency, Inc. Texas
Muirfield Underwriters, Ltd. Delaware
N.V. Verzekering Maatschappij Van 1890 Netherlands
National Care Provider Insurance, Inc. California
National Product Care Company Illinois
National Sports Underwriters, Inc. Indiana
National Transportation Adjusters, Inc. Nebraska
NB Life Agents, Inc. New York
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
- 25 -
<PAGE>
NRC Reinsurance Company Ltd. Bermuda
NSU Benefit Corporation Indiana
nv Insurance Louis Delhaize (en abrege INSURDEL) Belgium
Oak Brook Holding, Inc. Delaware
Oak Brook Life Insurance Company Arizona
Ohio Cap Insurance Company, Inc. Unknown
OHM Insurance Agency, Inc. Ohio
OHM Services of Texas, Inc. Texas
Ohrinsoo Agency Korea
Olarescu & B. I. Davis Asesores y Corredores de Seguros S.A. Peru
Old ARS LRA Corp. Texas
Old-ARS-MGA Corp. Texas
Olympic Financial Holding Corporation Washington
Olympic Health Management Services, Inc. Washington
Olympic Health Management Systems, Inc. Washington
Orobio Mees Herman B.V. Netherlands
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
P I Insurance Brokers (Pty) Limited South Africa
P.I. Consultants Ltd. Hong Kong
P.T. Alexander Lippo Indonesia 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
PBA Inc. Minnesota
PBG Pensions Beratungs-Gesellschaft mbH (Partnership) Germany
Pecus Brazil
Pernas HHL Insurance Brokers Sdn Bhd Malaysia
Pernas HHL Reinsurance Brokers Sdn. Bhd Malaysia
PHH Insurance Associates Corporation Maryland
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
Premier Receivables Purchase Facility, LLC Delaware
- 26 -
<PAGE>
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
PROVIA Gesselschaft fur betriebliche Risicoanalyse mbH Germany
Provider Services, Ltd. Bermuda
PT RNJ Ratna Nusa Jaya Indonesia
R&M Reinsurance Intermediaries Ltd. Trinidad
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
Ralph S. Harris (Insurance) Pty. Ltd. Zimbabwe
RAMRO y Asociados, S.C. Mexico
Rath & Strong, Inc. Massachusetts
RBH Acquisition Co. Delaware
RBH General Agencies (Canada) Inc. Quebec
RDG Resource Dealer Group (Canada) Inc. Canada
Reed Stenhouse Asia Pacific Ltd. Scotland
Reed Stenhouse Europe Holdings B.V. Netherlands
Reed Stenhouse Gmbh Germany
Reed Stenhouse Netherlands B.V. Netherlands
Reed Stenhouse Underwriting Management Ltd. Scotland
REISA Insurance Brokers Pty. Ltd. Australia
REIV Insurance Brokers (Pty) Ltd. Australia
Resource Insurance Services, Inc. Indiana
Resource Life Insurance Company Nebraska
Revasa S.p.A. Italy
RHH Surety & Guarantee Limited United Kingdom
RIP Services Limited Guernsey
Risk Funding Services (Pty) Limited South Africa
Risk Management Consultants Ltd. United Kingdom
Risk Management Consultants of Canada Limited 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. Mexico
- 27 -
<PAGE>
Rollins Hudig Hall Middle East United Arab Emirates
Rollins Hudig Hall Netherlands b.v. Netherlands
Rollins Hudig Hall of Alaska, Inc. Alaska
Rollins Hudig Hall of the Americas, Inc. Chile Limitada Chile
Rollins Hudig Hall Services Limited United Kingdom
Rollins Hudig Hall Sweden AB Sweden
Rollins Hudig Hall Versicherungsmakler Gesellschaft m.b.H Austria
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
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
SASE France Societe Des Assures Du Sud Set France
Savoy Insurance Brokers Ltd. United Kingdom
Saxonbeech Ltd. United Kingdom
Scarborough & Company, Inc. Delaware
Sceptre Agency, Inc. Texas
Schinasi Athesina Italy
Schinasi Insurance Broker Italy
Schinasi Veneto Italy
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, Inc. Illinois
Servicios A.B.S., S.A. Mexico
- 28 -
<PAGE>
Servicios Inmoboliarios Guadalajara, S.C. Mexico
Servicios Y Garantias Ryan S.L. Spain
Sherwood Insurance Services California
Sherwood Insurance Services of Washington, Inc. Washington
SHL Pacific Regional Holdings Inc. California
Shoreline Insurance Agency, Inc. Rhode Island
Simco Insurance Brokers Pte Singapore
Singer Group, Inc., The Texas
Singer Plan, Inc. Delaware
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
Societe canadienne de gestion de reassurance, inc Quebec
Societe Generale de Courtage d'Assurances France
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
SRA, Inc. Texas
SRS General Insurance Services, Inc. California
SRS Insurance Services, Inc. California
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
Suys & Janssens Belgium
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
- 29 -
<PAGE>
Swett & Crawford Ins. Agency of Massachusetts, Inc. Massachusetts
Swett & Crawford of Arizona, Inc. Arizona
Swett & Crawford of Colorado, Inc. Colorado
Swett & Crawford of Connecticut, Inc. Connecticut
Swett & Crawford of Hawaii, Inc. Hawaii
Swett & Crawford of Idaho, Inc. Idaho
Swett & Crawford of Maine, Inc. Maine
Swett & Crawford of Nevada, Inc. Nevada
Swett & Crawford of Pennsylvania, Inc. Pennsylvania
Swett & Crawford of Texas, Inc. Texas
Swett Insurance Managers of California, Inc. California
Swett Insurance Managers of Pennsylvania, Inc. Pennsylvania
T M Insurance Brokers (Pty) Limited South Africa
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 Alliance Group, LLC Colorado
The Credit Insurance Association France SA France
The Credit Insurance Association Ltd. United Kingdom
The Entertainment Coalition Not Applicable
The National Senior Membership Group Association Washington
The Olympic Senior Membership Group, Inc. Washington
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
TREV Properties Corporation Delaware
TTF Insurance Services Ltd. United Kingdom
U.S. Rating Bureau, Inc. Delaware
Underwriters Marine Services Limited United Kingdom
Underwriters Marine Services of Texas, Inc. Texas
Underwriters Marine Services, Inc. Louisiana
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 Tehran Iran
Uzbeksugurta Howden Lihou Republic of Uzbekistan
Valex Insurance Agency, Inc. Texas
Varity Risk Management Services Ltd. United Kingdom
Vassal Properties (Pty) Ltd. Botswana
VECCI Insurance Services Ltd. Australia
Verband der Jauch & Hubener Unterstutzungskassen Germany
Vesselforward Ltd. United Kingdom
- 30 -
<PAGE>
Virginia Surety Company, Inc. Illinois
Virginia Surety Company, Inc. New Zealand
VOL Mortgage Corporation Delaware
VOL Properties Corporation Delaware
Wackerbarth H. Limited United Kingdom
Wackerbarth Hardman (Holdings) Limited United Kingdom
Wackerbarth International Holdings Bv Netherlands
WACUS Kreditversicherungsmakler GmbH Austria
WACUS Magyarorszag Hitelbitzositasi Tanacsado es Kozvetito Kft. Hungary
WAS Betriebsfuhrungs-GmbH Germany
WAVECA CA Venezuela
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
WMD Underwriting Agencies Ltd. United Kingdom
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
</TABLE>
- 31 -
<PAGE>
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 9, 1999, included in the 1998
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 9, 1999 (except for Note
5 to Schedule I, as to which the date is March 19, 1999), 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 savings, stock option, stock award, and employee
stock purchase plans (Form S-8 Nos. 33-27984, 33-42575, 33-59037 and 333-55773),
the offer to exchange Capital Securities (Form S-4 No. 333-21237) of Aon Capital
A, and the registration of 369,000 shares of common stock (Form S-3 No.
333-50607) of our report dated February 9, 1999, 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.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
March 24, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Statements of Financial Position and Consolidated Statements
of Income and is qualified in its entirety by reference to such financial
statements.
</LEGEND>
<MULTIPLIER> 1,000,000
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1.0
<CASH> 2,944 <F1>
<SECURITIES> 3,871 <F2>
<RECEIVABLES> 6,705
<ALLOWANCES> 99
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F3>
<PP&E> 1,406
<DEPRECIATION> 732
<TOTAL-ASSETS> 19,688
<CURRENT-LIABILITIES> 0 <F3>
<BONDS> 580 <F4>
850 <F5>
0
<COMMON> 172
<OTHER-SE> 2,845
<TOTAL-LIABILITY-AND-EQUITY> 19,688
<SALES> 0
<TOTAL-REVENUES> 6,493
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 5,562 <F6>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 87
<INCOME-PRETAX> 931
<INCOME-TAX> 349
<INCOME-CONTINUING> 582
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 541
<EPS-PRIMARY> 3.16
<EPS-DILUTED> 3.11
<FN>
<F1> Includes short-term investments.
<F2> Includes fixed maturities and equity securities at fair value.
<F3> Not applicable based on current reporting format.
<F4> Represents notes payable.
<F5> Redeemable preferred stock. Includes Company-obligated Mandatorily
Redeemable Preferred Capital Securities of Subsidiary Trust Holding
Solely the Company's Junior Subordinated Debentures.
<F6> Represents total expenses.
</FN>
</TABLE>
