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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, 1999
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
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Common Stock, $1 par value New York Stock Exchange*
7.40% Notes Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
*The Common Stock of the Registrant is also listed for trading on the Chicago
Stock Exchange and the International Stock Exchange London.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 23, 2000 was $5,042,411,250.
Number of shares of $1.00 par value Common Stock outstanding as of February 23,
2000 was 256,453,450.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE:
Annual Report to Stockholders of the Registrant for the Year 1999
(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 18, 2000
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.
The Insurance Brokerage and Other Services segment consists principally of
Aon's retail and reinsurance brokerage operations, which includes specialty and
wholesale activity. These services are provided by 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
Services Group, Inc.; Aon Re Worldwide, Inc.; Aon Group Limited; and Alternative
Market Operations ("AMO").
The Consulting segment provides a range of consulting services including
employee benefits, human resources, compensation and change management. These
services are provided by Aon Consulting Worldwide, Inc. which is also a
subsidiary of Aon Group.
Aon Group revenues grew significantly in 1997, 1998 and 1999 when the
Registrant acquired, among other companies, Alexander & Alexander Services
Inc. ("A&A"), The Minet Group, and Jauch & Hubener in 1997; Le Blanc de
Nicolay, Gil y Carvajal and Auto Insurance Specialists, Inc. in 1998; and the
Nikols Group, Presidium Holdings, Inc. and Societe Generale d' Assurance et de
Prevoganie in 1999.
Aon's Insurance Underwriting segment is comprised of direct sales life
and accident and health insurance, extended warranty, specialty and other
insurance products. 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.
The Registrant hereby incorporates by reference pages 8 through 17, 19
through 21, and pages 49 and 50 of the Annual Report to Stockholders of the
Registrant for the Year 1999 ("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 subsidiaries which conduct the
Registrant's commercial brokerage and consulting operations. Aon Group companies
have 550 offices around the world in 120 countries. In 1999, Aon Group employed
over 39,000 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 1999,
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 acquisition of A&A significantly augmented the
Registrant's presence in Latin America, Asia, Africa and Australia, and the
acquisitions of Jauch &
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Hubener, Le Blanc de Nicolay, Gil y Carvajal and The Nikols Group strengthened
the Registrant's presence throughout Europe.
Aon Services Group addresses the highly specialized product development,
consulting and administrative risk management needs of professional groups,
service businesses, governments, healthcare providers and commercial
organizations. It also provides underwriting management skills, claims and risk
management expertise, and third-party administration services to insurance
companies. Aon Services Group operating subsidiaries market and broker both the
primary and reinsurance risks of these programs. For individuals and businesses,
Aon Services Group provides affinity products for professional liability, life,
disability income 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 leader in specialty
underwriting solutions and custom-designed products and services. 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.
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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 and 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 policy-
holders, Combined Insurance has more individual accident policies in force
than any other United States company. Combined Insurance, the Registrant's
principal life and 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 and 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 policy-
holders 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.
The Registrant's extended warranty and specialty insurance business,
conducted by VSC subsidiaries in North America, South America and 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 Registrant hereby incorporates by reference note 4 of the Notes to
Consolidated Financial Statements on page 35 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 and
their conduct in the market place. 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.
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.
Recent federal and state 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
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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 has passed the
Financial Services Modernization Act commonly known as S 900 or the Gramm,
Leach, Bliley Act. While S 900 makes substantial changes in allowing financial
organizations to diversify, the Registrant does not believe the enactment of
S 900 will have a material effect 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 50,000 employees at the
end of 1999 of whom approximately 42,000 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 six
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 13 of the Notes to
Consolidated Financial Statements on pages 47 and 48 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 16, 1999 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 18, 2000. Ages shown are as of December 31, 1999.
For information concerning certain directors and executive officers of the
Registrant, see item 10 below. As of March 24, 2000, 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
--------------------- ----- ------------
Harvey N. Medvin, 63 1972 Mr. Medvin became Vice President
Executive Vice President and 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, 53 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 under-
writing 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, 52 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.
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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 52 of the Annual Report.
The Registrant had approximately 13,300 holders of record of its Common
Shares as of February 23, 2000.
The Registrant hereby incorporates by reference note 9 of the Notes to
Consolidated Financial Statements on page 40 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 18 through 24 and
"Information Concerning Forward-Looking Statements" on page 54 of the Annual
Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant hereby incorporates by reference "Market Risk Exposure" on
pages 23 and 24 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant hereby incorporates by reference the following statements,
notes and data from the Annual Report.
Page(s)
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Consolidated Financial Statements ..................... 25 - 29
Notes to Consolidated Financial Statements ............ 30 - 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, 6 and 7 of the Proxy Statement For The Annual Meeting of the Stockholders on
April 18, 2000, 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, Michael D.
O'Halleran 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 1999 Fiscal Year" and
"Pension Plan Table" on pages 14 through 17 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant hereby incorporates by reference the share ownership data
contained on pages 2, 9 and 10 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant hereby incorporates by reference the information under the
heading "Transactions With Management" on page 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:
<TABLE>
<CAPTION>
Annual
Report
Page(s)
-------
<S> <C>
Consolidated Statements of Income - Years Ended December 31, 1999, 1998 and 1997 25
Consolidated Statements of Financial Position - As of December 31, 1999 and 1998 26-27
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999,
1998 and 1997 28
Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and
1997 29
Notes to Consolidated Financial Statements 30-50
Report of Ernst & Young LLP, Independent Auditors 51
</TABLE>
Financial statement schedules of the Registrant and consolidated subsidiaries
not included in the Annual Report but filed herewith:
Consolidated Financial Statement Schedules -
Schedule
--------
Condensed Financial Information of Registrant I
Valuation and Qualifying Accounts II
All other schedules for Aon Corporation and Subsidiaries have been omitted
because 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
Supplementary Insurance Information II.3
(A)(3). EXHIBITS
(a) Second Restated Certificate of Incorporation of the Registrant -
incorporated by reference to Exhibit 3(a) to the Registrant's Annual
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1991 (the "1991 Form 10-K").
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation - incorporated by reference to Exhibit
3 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1994 (the "First Quarter 1994 Form 10Q").
(c) Bylaws of the Registrant - incorporated by reference to Exhibit (d)
to the Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1982 (the
"1982 Form 10-K").
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(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) Resolutions establishing the terms of the 6.90 % Notes Due 2004.
(h) 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").
(i) 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.
(j) Certificate of Trust of Aon Capital A - incorporated by reference to
Exhibit 4.3 of the Capital Securities Registration.
(k) 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.
(l) 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.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
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(r) 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.
(s) Aon Corporation Outside Director Deferred Compensation Agreement by
and among the Registrant and Registrant's directors who are not
salaried employees of Registrant or Registrant's affiliates.
(t) 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.
(u) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(v) Statement regarding Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
(w) 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.
(x) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1999 (for information, and not to be deemed filed,
except for those portions specifically incorporated by reference
herein).
(y) List of Subsidiaries of the Registrant.
(z) 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 1999
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-59037, 333-21237, 333-50607, 333-55773
and 333-78723.
(aa) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1999 - to
be filed by amendment as provided in Rule 15d- 21(b).
(ab) 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) First Amendment to the 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, 1999 (the "First Quarter 1999 Form 10-Q").
(C) 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.
(D) First Amendment to the Aon Stock Award Plan as Amended and
Restated Through 1997- incorporated by reference to Exhibit
10(b) to the First Quarter 1999 Form 10-Q.
- 12 -
<PAGE>
(E) 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").
(F) 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.
(G) 1999 Aon Deferred Compensation Plan.
(H) Employment Agreement dated June 1, 1993 by and among the
Registrant, Aon Risk Services, Inc. and Michael D. O'Halleran,
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, 1998.
(I) 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.
(ac) 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.
(ad) 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.
(ae) 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.
(af) 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").
(ag) 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, 1999.
- 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 17th day of
March, 2000.
Aon Corporation
By: /s/ PATRICK G. RYAN
-------------------
Patrick G. Ryan, Chairman
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, Chief Executive March 17, 2000
- - - - - - - - - - - - - - - - - ---------------------------- Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/DANIEL T. CARROLL Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Edgar D. Jannotta
/s/LESTER B. KNIGHT Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Lester B. Knight
/s/PERRY J. LEWIS Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Perry J. Lewis
/s/ANDREW J. McKENNA Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Andrew J. McKenna
/s/NEWTON N. MINOW Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Newton N. Minow
- 14 -
<PAGE>
SIGNATURE TITLE DATE
--------- ----- ----
/s/RICHARD C. NOTEBAERT Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Richard C. Notebaert
/s/MICHAEL D. O'HALLERAN Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Michael D. O'Halleran
/s/DONALD S. PERKINS Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Arnold R. Weber
/s/CAROLYN Y. WOO Director March 17, 2000
- - - - - - - - - - - - - - - - - ----------------------------
Carolyn Y. Woo
/s/HARVEY N. MEDVIN Executive Vice President March 17, 2000
- - - - - - - - - - - - - - - - - ---------------------------- and Chief Financial
Harvey N. Medvin Officer
(Principal Financial and
Accounting Officer)
- 15 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31
------------------------
(millions) 1999 1998
----------- -----------
ASSETS
<S> <C> <C>
Investments in subsidiaries ........................ $ 5,585 $ 5,305
Notes receivable - subsidiaries .................... 447 239
Cash and cash equivalents .......................... 17 6
Other assets ....................................... 123 84
----------- -----------
Total Assets ................................... $ 6,172 $ 5,634
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings .............................. $ 823 $ 436
6.3% long-term debt securities ..................... 100 100
7.4% long-term debt securities ..................... 100 100
6.875% long-term debt securities.................... - 100
6.9% long-term debt securities ..................... 250 -
6.7% long-term debt securities ..................... 150 150
Subordinated debt .................................. 800 800
Notes payable - subsidiaries ....................... 622 588
Notes payable - other .............................. 70 70
Debt guarantee of employee stock ownership plan .... - 17
Accrued expenses and other liabilities ............. 156 206
----------- -----------
TOTAL LIABILITIES .............................. 3,071 2,567
----------- -----------
Redeemable Preferred Stock ........................ 50 50
STOCKHOLDERS' EQUITY
Common stock ....................................... 259 172
Paid-in additional capital ......................... 525 450
Accumulated other comprehensive loss ............... (309) (116)
Retained earnings .................................. 2,905 2,782
Less treasury stock at cost ........................ (90) (58)
Less deferred compensation ......................... (239) (213)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ..................... 3,051 3,017
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 6,172 $ 5,634
=========== ===========
See notes to condensed financial statements.
</TABLE>
- 16 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years Ended December 31
----------------------------
(millions) 1999 1998 1997
-------- -------- --------
REVENUE
<S> <C> <C> <C>
Dividends from subsidiaries ........................ $ 467 $ 351 $ 180
Other investment income ............................ 20 69 51
-------- -------- --------
TOTAL REVENUE ................................. 487 420 231
-------- -------- --------
EXPENSES
Operating and administrative ....................... 13 20 6
Interest - subsidiaries ............................ 96 94 85
Interest - other ................................... 85 76 62
-------- -------- --------
TOTAL EXPENSES ................................ 194 190 153
-------- -------- --------
INCOME BEFORE INCOME TAXES AND EQUITY (DEFICIT) IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES ................ 293 230 78
Income tax benefit ................................. 70 54 43
-------- -------- --------
363 284 121
EQUITY (DEFICIT) IN UNDISTRIBUTED INCOME OF SUBSIDIARIES.. (11) 257 178
-------- -------- --------
NET INCOME ......................................... $ 352 $ 541 $ 299
======== ======== ========
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------------------
See notes to condensed financial statements.
</TABLE>
- 17 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31
------------------------------
(millions) 1999 1998 1997
-------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ............................ $ 287 $ 445 $ 124
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries ............................... (363) (93) (1,355)
Notes receivables from subsidiaries ....................... (208) (16) (135)
-------- --------- ---------
CASH USED BY INVESTING ACTIVITIES .................... (571) (109) (1,490)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions - net ......................... (66) (18) 21
Issuance (repayment) of short-term borrowings - net ....... 387 (328) 542
Issuance of company-obligated mandatorily redeemable
preferred capital securities of subsidiary trust .. - - 800
Issuance of notes payable and long-term debt .............. 284 200 114
Repayment of long-term debt ............................... (100) - -
Retirement of preferred stock ............................. - - (136)
Cash dividends to stockholders ............................ (210) (194) (182)
-------- --------- ---------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES ......... 295 (340) 1,159
-------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 11 (4) (207)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 6 10 217
-------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 17 $ 6 $ 10
======== ========= =========
See notes to condensed financial statements.
</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.
(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 $170 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. At
December 31, 1999, loans of EUR 347 million ($351 million) were
outstanding under this facility.
An indirect wholly-owned subsidiary of Aon Corporation manages various
investment portfolios, totaling $297 million at December 31, 1999, held
in a collateral trust for the benefit of certain unaffiliated entities and
is obligated to produce specified investment returns for those portfolios.
Aon Corporation has unconditionally guaranteed the obligations of this
subsidiary.
(4) During 1998, Aon Corporation (Parent Company) reclassified $523 million of
notes receivables-subsidiaries to investments in subsidiaries related to
its brokerage operations.
- 19 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Aon CORPORATION and SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1999, 1998 and 1997
(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, 1999
----------------------------
Reserve for losses (2)
(deducted from other long-term investments) $ 9 $ - $ (9) $ - $ -
Allowance for doubtful accounts (3)
(deducted from insurance brokerage
and consulting receivables) 93 12 (3) (14) 88
Allowance for doubtful accounts
(deducted from premiums and other) 6 1 - (1) 6
YEAR ENDED DECEMBER 31, 1998
----------------------------
Reserve for losses (2)
(deducted from other long-term investments) $ 9 $ - $ - $ - $ 9
Allowance for doubtful accounts (3)
(deducted from insurance brokerage
and consulting receivables) 81 20 (5) (3) 93
Allowance for doubtful accounts
(deducted from premiums and other) 5 1 - - 6
YEAR ENDED DECEMBER 31, 1997
----------------------------
Reserve for losses (2)
(deducted from other long-term investments) $ 5 $ - $ 4 $ - $ 9
Allowance for doubtful accounts (3)
(deducted from insurance brokerage
and consulting receivables) 60 9 27 (15) 81
Allowance for doubtful accounts
(deducted from premiums and other) 3 2 - - 5
<FN>
(1) Amounts deemed to be uncollectible.
(2) Amounts shown in additions charged/(credited) to other accounts represent
(income) losses on disposals.
(3) Amounts shown in additions charged/(credited) to other accounts represent
reserves related to acquired business and foreign exchange.
</FN>
</TABLE>
- 20 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II.1
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1999
Amount Shown
in Statement
Amortized Fair of Financial
(millions) Cost or Cost Value Position
------------ ------------ ------------
<S> <C> <C> <C>
FIXED MATURITIES - AVAILABLE FOR SALE:
US government and agencies ................... $ 170 $ 160 $ 160
States and political subdivisions ............ 8 7 7
Debt securities of foreign governments
not classified as loans ................. 755 750 750
Corporate securities ......................... 1,530 1,450 1,450
Public utilities ............................. 47 45 45
Mortgage-backed securities ................... 44 43 43
Other fixed maturities ....................... 43 42 42
------------ ------------ ------------
TOTAL FIXED MATURITIES .................. 2,597 2,497 2,497
------------ ------------ ------------
EQUITY SECURITIES - AVAILABLE FOR SALE:
Common stocks:
Public utilities ......................... 2 1 1
Banks, trusts and insurance companies .... 151 149 149
Industrial, miscellaneous and all other .. 125 103 103
Non-redeemable preferred stocks .............. 384 321 321
------------ ------------ ------------
TOTAL EQUITY SECURITIES ................. 662 574 574
------------ ------------ ------------
Mortgage loans on real estate .................... 4 * 4 *
Real estate - net of depreciation ................ 10 * 10 *
Policy loans ..................................... 65 * 65 *
Other long-term investments ...................... 672 * 672 *
Short-term investments ........................... 2,362 2,362
------------ ------------
TOTAL INVESTMENTS ....................... $ 6,372 $ 6,184
------------ ------------
<FN>
* These investment categories are combined and are shown as other
investments in the Statement of Financial Position.
</FN>
</TABLE>
- 21 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II.2
Aon Corporation and Subsidiaries
REINSURANCE
Y e a r E n d e d D e c e m b e r 3 1 , 1 9 9 9
--------------------------------------------------------------------------------------
Ceded to Assumed Percentage of
(millions) Gross other from other amount
amount companies companies Net amount assumed to net
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIFE INSURANCE IN FORCE ............ $ 14,444 $ 15,902 $ 7,567 $ 6,109 124%
=============== ================ ================ =============== ================
PREMIUMS
Life Insurance ................. $ 227 $ 93 $ 2 $ 136 2%
A&H Insurance .................. 1,167 257 91 1,001 9%
Specialty Property & Casualty .. 860 274 85 671 13%
--------------- ---------------- ---------------- --------------- ----------------
TOTAL PREMIUMS ............... $ 2,254 $ 624 $ 178 $ 1,808 10%
=============== ================ ================ =============== ================
Y e a r E n d e d D e c e m b e r 3 1 , 1 9 9 8
--------------------------------------------------------------------------------------
Ceded to Assumed Percentage of
Gross other from other amount
amount companies companies Net amount assumed to net
--------------------------------------------------------------------------------------
LIFE INSURANCE IN FORCE ............ $ 10,653 $ 9,813 $ 5,510 $ 6,350 87%
=============== ================ ================ =============== ================
PREMIUMS
Life Insurance ................. $ 235 $ 103 $ 7 $ 139 5%
A&H Insurance .................. 1,134 235 46 945 5%
Specialty Property & Casualty .. 734 241 96 589 16%
--------------- ---------------- ---------------- --------------- ----------------
TOTAL PREMIUMS ............... $ 2,103 $ 579 $ 149 $ 1,673 9%
=============== ================ ================ =============== ================
Y e a r E n d e d D e c e m b e r 3 1 , 1 9 9 7
--------------------------------------------------------------------------------------
Ceded to Assumed Percentage of
Gross other from other amount
amount companies companies Net amount assumed to net
--------------------------------------------------------------------------------------
LIFE INSURANCE IN FORCE ............ $ 10,438 $ 12,515 $ 8,823 $ 6,746 131%
=============== ================ ================ =============== ================
PREMIUMS
Life Insurance ................. $ 214 $ 154 $ 86 $ 146 59%
A&H Insurance .................. 1,073 278 140 935 15%
Specialty Property & Casualty .. 634 178 72 528 14%
--------------- ---------------- ---------------- --------------- ----------------
TOTAL PREMIUMS ............... $ 1,921 $ 610 $ 298 $ 1,609 19%
=============== ================ ================ =============== ================
</TABLE>
- 22 -
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II.3
Aon Corporation and Subsidiaries
SUPPLEMENTARY INSURANCE INFORMATION
Future
policy
benefits Unearned
Deferred losses, premiums
policy claims and other Net
acquistion and loss policyholders' Premium investment
(millions) costs expenses funds revenue income(1)
----------- ------------ ----------- ------------ -----------
YEAR ENDED DECEMBER 31, 1999
- - - - - - - - - - - - - - - - - ----------------------------
<S> <C> <C> <C> <C> <C>
Insurance brokerage and other services $ - $ - $ - $ - $ 159
Consulting - - - - 3
Insurance underwriting 636 1,769 3,219 1,808 251
Corporate and other - - - - 164
----------- ------------ ----------- ------------ -----------
TOTAL $ 636 $ 1,769 $ 3,219 $ 1,808 $ 577
=========== ============ =========== ============ ===========
YEAR ENDED DECEMBER 31, 1998
- - - - - - - - - - - - - - - - - ----------------------------
Insurance brokerage and other services $ - $ - $ - $ - $ 194
Consulting - - - - 6
Insurance underwriting 573 1,765 3,058 1,673 240
Corporate and other - - - - 150
----------- ------------ ----------- ------------ -----------
TOTAL $ 573 $ 1,765 $ 3,058 $ 1,673 $ 590
=========== ============ =========== ============ ===========
YEAR ENDED DECEMBER 31, 1997
- - - - - - - - - - - - - - - - - ----------------------------
Insurance brokerage and other services $ - $ - $ - $ - $ 163
Consulting - - - - 6
Insurance underwriting 549 1,752 2,698 1,609 214
Corporate and other - - - - 117
----------- ------------ ----------- ------------ -----------
TOTAL $ 549 $ 1,752 $ 2,698 $ 1,609 $ 500
=========== ============ =========== ============ ===========
Benefits Amortization
claims, of deferred
Commissions, losses and policy Other
fees settlement acquisition operating Premiums
(millions) and other expenses costs expenses written(2)
----------- ------------ ----------- ------------ -----------
YEAR ENDED DECEMBER 31, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Insurance brokerage and other services $ 3,985 $ - $ - $ 3,651 $ -
Consulting 653 - - 698 -
Insurance underwriting 47 973 247 596 1,787
Corporate and other - - - 270 -
----------- ------------ ----------- ------------ -----------
TOTAL $ 4,685 $ 973 $ 247 $ 5,215 $ 1,787
=========== ============ =========== ============ ===========
YEAR ENDED DECEMBER 31, 1998
- - - - - - - - - - - - - - - - - ----------------------------
Insurance brokerage and other services $ 3,588 $ - $ - $ 3,119 $ -
Consulting 609 - - 547 -
Insurance underwriting 33 896 216 551 1,668
Corporate and other - - - 233 -
----------- ------------ ----------- ------------ -----------
TOTAL $ 4,230 $ 896 $ 216 $ 4,450 $ 1,668
=========== ============ =========== ============ ===========
YEAR ENDED DECEMBER 31, 1997
- - - - - - - - - - - - - - - - - ----------------------------
Insurance brokerage and other services $ 3,058 $ - $ - $ 2,917 $ -
Consulting 547 - - 508 -
Insurance underwriting 35 842 208 530 1,596
Corporate and other 2 - - 204 -
----------- ------------ ----------- ------------ -----------
TOTAL $ 3,642 $ 842 $ 208 $ 4,159 $ 1,596
=========== ============ =========== ============ ===========
<FN>
(1) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances. Results
include income (loss) on disposals of investments.
(2) Net of reinsurance ceded.
</FN>
</TABLE>
- 23 -
<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 1999
("Annual Report") pages 8 through
17, 19 through 21, and pages 35,
49 and 50.
Item 3. Legal Proceedings Annual Report pages 47 and 48 (note
13 of Notes to Consolidated
Financial Statements).
PART II
- - - - - - - - - - - - - - - - - -------
Item 5. Market for the Registrant's Annual Report page 40 (note 9 of
Common Stock and Related Notes to Consolidated Financial
Security Holder Matters Statements) and page 52 ("Dividends
paid per share" and "Price range").
Item 6. Selected Financial Data Annual Report page 52.
Item 7. Management's Discussion Annual Report pages 18 through
and Analysis of Financial 24 and page 54 ( "Information
Condition and Results of Concerning Forward-Looking
Operations Statements").
Item 7A. Quantitative and Qualitative Annual Report pages 23 and 24
Disclosures about Market Risk ("Market Risk Exposure").
Item 8. Financial Statements and Annual Report pages 25 through 50
Supplementary Data and 53.
PART III
- - - - - - - - - - - - - - - - - --------
Item 10. Directors and Executive Proxy Statement For Annual Meeting
Officers of the Registrant of Stockholders on April 18, 2000
of the Registrant ("Proxy
Statement") pages 3, 6, 7, and 10
through 12.
Item 11. Executive Compensation Proxy Statement pages 14 through
17.
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 25 through 50.
Schedules, And Reports on
Form 8-K
- 24 -
<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) Resolutions establishing the terms of 6.90% Notes due 2004.
(f) 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").
(g) 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.
(h) Certificate of Trust of Aon Capital A - incorporated by reference to
Exhibit 4.3 of the Capital Securities Registration.
- 25 -
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER PAGE NUMBER OF
REGULATION SEQUENTIALLY
S-K, ITEM 601 NUMBERED COPY
- - - - - - - - - - - - - - - - - ------------- -------------
(i) 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.
(j) 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.
(k) 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.
(l) 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.
(m) 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) First Amendment to the 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, 1999 (the
"First Quarter 1999 Form 10-Q").
(c) 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.
(d) Aon Corporation Outside Director Deferred Compensation Agreement by
and among Registrant and Registrant's directors who are not salaried
employees of Registrant or Registrant's affiliates.
- 26 -
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER PAGE NUMBER OF
REGULATION SEQUENTIALLY
S-K, ITEM 601 NUMBERED COPY
- - - - - - - - - - - - - - - - - ------------- -------------
(e) 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.
(f) First Amendment to the Aon Stock Award Plan as Amended and Restated
Through 1997 - incorporated by reference to exhibit 10(b) to the
First Quarter 1999 Form 10-Q.
(g) 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.
(h) 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.
(i) 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.
(j) Aon Corporation 1995 Senior Officer Incentive Compensation Plan -
incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
(k) 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.
(l) 1999 Aon Deferred Compensation Plan.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
- 27 -
<PAGE>
EXHIBIT INDEX
EXHIBIT NUMBER PAGE NUMBER OF
REGULATION SEQUENTIALLY
S-K, ITEM 601 NUMBERED COPY
- - - - - - - - - - - - - - - - - ------------- -------------
(q) 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.
(r) 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.
(s) Employment Agreement dated June 1, 1993 by and among the Registrant,
Aon Risk Services, Inc. and Michael D. O'Halleran, 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, 1998.
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(b) Statement regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(13) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1999.
(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 1999 Annual
Report to Stockholders and into Aon's Registration Statement Nos.
33-27984, 33-42575, 33-59037, 333-21237, 333-50607, 333-55773 and
333-78723.
(99) Annual Report to the Securities and Exchange Commission on Form 11-K for
the Aon Savings Plan for the year ended December 31, 1999 - to be filed by
amendment as provided in Rule 15d-21(b).
- 28 -
<PAGE>
EXHIBIT 4(e)
Resolutions Establishing the terms of 6.9% Notes due 2004.
WHEREAS, the Board of Directors of the Company previously authorized and
approved, pursuant to resolutions duly adopted on April 16, 1999 (the
"Resolutions"), the issuance of debt securities and capital stock of the
Company (the "Securities") in such amounts, with such terms, in such
manner and at such price in one or more series as the special committee
(the "Special Committee") established in the Resolutions may from time to
time determine, provided that the aggregate amount of the Securities to be
so issued does not exceed $500,000,000;
WHEREAS, the Board of Directors empowered the Special Committee pursuant
to the Resolutions with all the powers and authority of the full Board of
Directors to take all actions relating to the creation, issuance and sale
of the Securities including in the case of debt securities, but not
limited to, determining or approving (1) the type of security or
securities; (2) the title or titles thereof; (3) the aggregate principal
amount and denominations thereof; (4) the maturity or maturities thereof;
(5) the interest rate or rates (which may be fixed or variable) to be
borne thereby; (6) the form of subordination, if any; (7) any conversion
rate; (8) any optional or mandatory redemption provisions in respect
thereof, including sinking fund provisions; (9) any affirmative and
negative covenants to be imposed on the Company in respect thereof; (10)
any events of default in respect thereof; (11) any rights of defeasance in
respect thereof; and (12) any and all other terms, conditions and
provisions in respect thereof; and
WHEREAS, this Special Committee believes it is in the best interest of the
Company to create debt securities as set forth in the following
resolutions under an Indenture dated as of September 15, 1992 (the
"Indenture"), between the Company and The Bank of New York, as successor
trustee to Continental Bank National Association (the "Trustee").
RESOLVED, that the Company hereby establishes a series of the Company's
debt securities to be issued under the Indenture, such debt securities to
have the following title and terms (all capitalized terms used herein
which are defined in the Indenture are used as defined therein):
1. The title of the issue of the debt securities shall be
"6.90% Notes Due 2004" (the "Notes");
2. The aggregate principal amount of the Notes which may be
authenticated and delivered under the Indenture (except for
Notes authenticated and delivered upon registration or
transfer of, or in exchange for, or in lieu of, other 6.90%
Notes pursuant to Sections 2.05, 2.06, 2.07 and 3.03 of the
Indenture) shall be, and is hereby limited to, $250,000,000;
<PAGE>
3. The date on which the principal of the Notes shall be
payable shall be July 1, 2004;
4. The Notes shall bear interest at the rate of 6.90% per
annum. Interest on the Notes shall accrue from June 29,
1999, or from the most recent Interest Payment Date to which
interest has been paid or provided for. Accrued interest on
the Notes shall be payable on January 1 and July 1 in each
year, to the persons in whose names the Notes are registered
at the close of business on the preceding December 15 and
June 15, respectively;
5. The Place of Payment for the Notes shall be the office or
agency of the Trustee maintained for that purpose in the
City of Chicago and in the Borough of Manhattan, the City of
New York; and
6. The Notes shall not be subject to redemption prior to
maturity and will not be entitled to any sinking fund.
FURTHER RESOLVED, that the Notes shall be issued only in registered form
without coupons;
FURTHER RESOLVED, the purchase price to be paid to the Company for the
sale of the Notes to the "Underwriters" (as defined below) shall be 99.27%
of the principal amount of the Notes, and the initial offering price to
the public of the Notes shall be 99.87% of the principal amount of the
Notes, with no accrued interest payable on the date of delivery;
FURTHER RESOLVED, that the form of the Notes shall be substantially in the
form attached to this consent action;
FURTHER RESOLVED, that the Notes shall be sold, under a firm commitment
underwriting, to the Underwriters (the "Underwriters") identified in the
Underwriting Agreement (the "Underwriting Agreement") to be executed
between the Company and Morgan Stanley & Co. Incorporated and Aon Capital
Markets as the Underwriters named therein;
FURTHER RESOLVED, that the Chairman and Chief Executive Officer, the
President and Chief Operating Officer, and any Executive Vice President of
the Company (either one acting alone) be, and each hereby is, authorized,
in the name and on behalf of the Company, to execute and deliver the
Underwriting Agreement providing for the sale of the Notes therein to the
Underwriters substantially in the form distributed to each of the
undersigned prior hereto, with full power and authority to make such
changes or additions thereto as any of them may approve, such approval to
be conclusively evidenced by the execution thereof; and
- 2 -
<PAGE>
FURTHER RESOLVED, that there be issued under the Indenture, and delivered
and sold under the Underwriting Agreement as executed (against receipt by
the Company of payment as therein provided), the Notes, and the Chairman
and Chief Executive Officer, the President and Chief Operating Officer and
any Executive Vice President (either one acting alone) be, and each hereby
is, authorized, on behalf of the Company, to execute the Notes (by manual
or facsimile signatures), under its corporate seal reproduced thereon
attested (by manual or facsimile signatures) by the Corporate Secretary or
any Assistant Secretary and to deliver the Notes to the Trustee; and the
Trustee be, and hereby is, authorized and directed thereupon to
authenticate and deliver the Notes in accordance with the provisions of
Section 2.03 of the Indenture, the Notes when authenticated to be
delivered by the Trustee upon the order of the Chairman and Chief
Executive Officer, the President and Chief Operating Officer or any
Executive Vice President as and when the conditions with respect to the
authentication and delivery thereof under the Indenture have been complied
with.
- 3 -
<PAGE>
EXHIBIT 10(d)
AON CORPORATION
OUTSIDE DIRECTORS DEFERRED COMPENSATION'
AGREEMENT
This Deferred Compensation Agreement is entered into by and between Aon
Corporation, a Delaware corporation (the "Company"), and the "Director" named on
the Election Form, which is hereby incorporated as part of this agreement.
WITNESSETH
WHEREAS, the Director is expected to be nominated for election as a
Director of the Company at the next annual meeting of stockholders of the
Company (the "Annual Meeting") and desires, beginning with the date of the
Annual Meeting and for as long as the Director serves in that capacity or until
the Director desires to terminate or amend this agreement, to defer in the
manner hereinafter set forth all or a portion of the fees to which he or she may
become entitled for serving as a Director of the Company, including fees to
which he or she may become entitled for serving as a member of any committee of
the Board of Directors (collectively, "Director's Fees"); and
WHEREAS, the Company is agreeable to such deferrals, subject to the terms
and conditions set forth herein.
NOW THEREFORE, in consideration of the Director's services for the Company
and other good and valuable consideration, the parties hereto agree as follows:
1. DIRECTOR'S FEE DEFERRAL
-----------------------
The Director hereby irrevocably elects, beginning with the Annual Meeting,
to defer the percent of the Director's Fees to which he or she may become
entitled with respect to his or her services as a Director (or committee
member) as the Director has specified on the Election Form.
1. With respect to a Director's election to defer any portion of
Director's Fees, an account (the "Aon Common Stock Account") will be
credited with such additions as the Director has elected to defer to
such account. For purposes of crediting Director's Fees deferred
amounts shall be assumed to have been invested in Aon Common Stock.
The amount of shares so credited will be determined by dividing the
deferred amount by the fair market value of Aon Common Stock on the
New York Stock Exchange for the day such Director's Fees would have
been payable to the Director had it not been deferred. The "Fair
Market Value" on any day is the average of the highest and lowest
price at which the stock was sold on the New York Stock Exchange
that day. As of the date any dividend is paid to holders of shares
of Aon Common Stock, the Aon Common Stock Account shall be credited
with a number of
<PAGE>
additional shares, including fractions thereof, of Aon Common Stock
that could have been purchased, with the amount which would have
been payable as dividends, on such date with regard to the number of
shares, and fractions thereof, credited to the Aon Common Stock
Account, assuming the purchase price per share is equal to the Fair
Market Value as of the payment date.
2. With respect to a Director's election to defer any portion of
Director's Fees, and account (the "Aon General Account") will be
credited with such additions as the Director has elected to defer to
such account. For purposes of computing such addition, deferred
amounts shall be credited as of the day such Director's Fees would
have been payable to the Director had it not been deferred, and such
deferrals shall be credited with interest, compounded semiannually,
at the annual rate determined as of January 1 and July 1 of each
year by averaging the one-year Treasury Bill yield as published
monthly by the Federal Reserve Bank of St. Louis on a bank discount
basis through the secondary market for the last six months
immediately prior thereto.
2. PAYMENT OF DEFERRED AMOUNTS
---------------------------
Amounts in cash equal to the value(s) of the Director's Aon General
Account, as determined above, shall be payable to the Director as
specified on the Election Form. Distributions from the Aon Common Stock
Account may be made in cash, in Aon Common Stock, or in a combination of
cash and Aon Common Stock.
3. BENEFICIARY OF DEFERRED AMOUNTS
-------------------------------
Any amounts payable upon death of the Director pursuant to Section 2 shall
be paid to the beneficiary designated in writing by the Director provided
such writing has been delivered to the Company prior to the Director's
death. If no beneficiary is so designated, payment will be made to the
Director's estate. The Director may change the designated beneficiary by
filing with the Company a new beneficiary designation.
4. MISCELLANEOUS
-------------
1. Nothing contained in this Agreement shall be construed as conferring
upon the Director the right to continue to be associated with the
Company in any capacity.
2. The Company's obligation to make payments of deferred compensation
shall be the general obligation of the Company and such payments
shall be made from the general assets of the Company. The Director's
interests hereunder shall not be assignable and any purported
assignment or transfer shall be void.
3. During the month prior to any annual meeting the Director may change
the percent of fees deferred, the amount in the Aon Common Stock
Account or the amount in the Aon General Account by filing with the
Company a new Election Form.
- 2 -
<PAGE>
4. In the event of recapitalization, stock split, stock dividend,
combination or exchange of shares merger, consolidation, rights
offering, separation, reorganization or liquidation, or any other
change in the corporate structure or shares of the Company, the
Board of Directors of the Company may make such equitable
adjustments to prevent dilution or enlargement of rights, as it may
deem appropriate, in the number and class of shares so credited.
5. This agreement shall be construed in accordance with and governed by
the laws of the State of Illinois.
- 3 -
<PAGE>
Exhibit 10(l)
THE 1999 Aon DEFERRED COMPENSATION PLAN
1. PURPOSE
The name of this plan is the 1999 Aon Deferred Compensation Plan (the "Plan").
Its purpose is to provide certain select management or highly compensated
employees of Aon Corporation and its subsidiaries (the "Company") with the
opportunity to defer amounts earned as an employee. The Plan shall be effective
as of January 1, 1999.
2. ADMINISTRATION
The Plan shall be administered by the Organization and Compensation Committee
(the "Committee") of Aon Corporation's Board of Directors (the "Board"). The
Committee shall have the authority to adopt rules and regulations for carrying
out the Plan, to delegate its administrative responsibilities, as it shall, from
time to time, deem advisable, and to interpret, construe, and implement the
provisions thereof. Any decision or interpretation of any provision of the Plan
adopted by the Committee shall be final and conclusive. Furthermore, the
Committee may obtain such advice or assistance, as it deems appropriate from
persons not serving on the Committee.
3. ELIGIBILITY
Any staff employee of the Company who received wages or compensation as reported
on Box 1 of IRS Form W-2 of $125,000 or more in the prior calendar year or whose
rate of annual base pay in the current calendar year is $125,000 or more shall
be eligible to participate in the Plan subject to the requirements of Section 3
hereof. In addition, other select management of highly compensated employees may
be eligible to participate at the option of the Committee.
Every eligible employee shall become a participant after making an election to
participate (the "Participant") on such forms as required by the Committee and
in accordance with Section 4.
4. ELECTIONS
On or before December 31 of any year, each employee eligible to participate in
the Plan shall be entitled to make an election to defer receipt of : (a) any
whole percentage of bi-weekly earnings paid to an employee for his service as an
employee ("Compensation"); and (b) any whole percentage of any extraordinary
amount paid by the Company pursuant to but not limited to a periodic individual
performance appraisal or a contractual agreement ("Bonus").
Each Participant shall also make an election as to the period of deferral and
distribution in accordance with Section 6.
Elections made pursuant to this Section 4 shall remain in effect until such time
as they are amended by the Participant. Any amendment will take place effective
with the next January 1 or earlier if permitted by the Committee.
5. DEFERRED AMOUNTS
Each Participant shall have established for his or her benefit an account to
which any amounts deferred shall be assumed to have been invested in Aon Common
Stock and credited to the Participant's Account (the "Account"). The amount of
shares so credited to the Account will be determined by dividing the deferred
amount by the fair market value of Aon Common Stock on the New York Stock
Exchange for the day such Compensation or Bonus would have been payable to the
Participant had it not been deferred. Fair Market Value on any day is the
average of the highest and lowest prices as quoted on the New York Stock
Exchange, as published in The Wall Street Journal, or, if The Wall Street
Journal is no longer published , such other periodical as chosen by the
Committee.
<PAGE>
As of each dividend payment date, each Participant's Account shall be credited
with dividends that would be paid with respect to Aon Common Stock on the
dividend payment date as if the Participant owned the stock credited to his or
her Account as of the record date. Dividends will be credited as if reinvested
in whole or fractional shares on the dividend payment date.
In the event of a recapitalization, stock split, stock dividend, combination or
exchange of shares, merger, consolidation, rights offering, separation,
reorganization or liquidation, or any other change in the corporate structure or
shares of the Company, the Committee may make such equitable adjustments, to
prevent dilution or enlargement of rights, as it may deem appropriate in the
number and class of shares so credited.
6. METHOD OF DISTRIBUTION
At the time the Participant elects to defer Compensation of Bonus pursuant to
Section 4, the Participant shall also make an election as to the beginning date
of distribution ("Elected Distribution Date") with respect to the amount of
shares credited to the Accounts of the Participant and the number of annual
installments, not in excess of fifteen, over which such distribution will be
made. Distributions shall commence with 30 days following the date of
distribution specified by the Participant.
Distributions will be made in the form of Aon Common Stock with fractional
shares payable in the form of cash.
If the Participant terminates employment for any reason prior to the Elected
Distribution Date, distributions shall commence within the 30-day period
following the first business day of the first calendar year following the year
in which employment terminated, and said distributions shall be made in the same
number of annual installments as had been elected by the Participant.
If any Participant dies before receiving all amounts credited to such
Participant's Accounts, the undistributed amounts shall be distributed to the
Participant's beneficiary or beneficiaries in accordance with the last effective
beneficiary designation form filed by the Participant with the Company. Such
undistributed amounts will be distributed in the same manner and at the same
time as had been elected by the Participant prior to such Participant's death.
If a Participant has failed to designate a beneficiary any shares distributable
hereunder shall be distributed to the estate.
The Committee may in its sole discretion determine that a distribution shall be
made over a shorter or longer period or in more frequent installments, or
commence on an earlier or later date, or any or all of the above.
7. TAXES
The Committee may, in its discretion and subject to such rules as it may adopt,
permit a Participant to pay all or a portion of such taxes arising in connection
with a distribution pursuant to Section 6 by electing to have the Company
withhold shares of Common Stock otherwise distributable having a Fair Market
Value equal to all or any portion of such tax to be satisfied in this manner.
8. IMPACT ON OTHER BENEFITS
The amount of each Participant's Compensation or Bonus which the Participant
elects to defer under the Plan shall be deemed compensation for the purpose of
calculating the amount of a Participant's benefits or contributions under all
retirement and welfare benefit plans sponsored by the Company, except to the
extent not permitted under such retirement or welfare benefit plan and except to
the extent not permitted under the Internal Revenue Code.
9. PARTICIPANT'S RIGHTS
Nothing in the Plan shall confer on a Participant any right to continue in the
employ of the Company or in any way affect the Company's right to terminate the
Participant's employment at any time without prior notice or for any or no
reason.
All amounts deferred or otherwise held for the account of a Participant under
the Plan shall remain the sole property of the Company. With respect to such
amounts, the Participant is merely a general creditor, and any obligation of the
Company hereunder is purely contractual and shall not be funded or secured in
any way.
<PAGE>
10. NONALIENABILITY AND NONTRANSFERABILITY
No amounts, whether deferred or distributable, shall be subject in any manner to
anticipation, alienation, sale, transfer, assignment, pledge, encumbrance,
charge, garnishment, execution, or levy of any kind, whether voluntary or
involuntary, including any liability which is for alimony or other payments for
the support of a spouse or former spouse.
11. AMENDMENT AND TERMINATION
The Board reserves the right to amend, modify or terminate the Plan at any time,
subject to any applicable rule or regulation.
12. NOTICES
All notices to the Company hereunder shall be delivered to the attention of:
Robert D. Sloan
Aon Corporation
123 North Wacker Drive, 9th Floor
Chicago, IL 60606
Such notice shall be deemed given as of the date of delivery or, if delivery is
made by mail, as of the date shown on the postmark or the receipt for
registration or certification.
13. CONTROLLING LAW
Except to the extent superseded by federal law, the laws of Illinois shall be
controlling in all matters relating to the Plan.
14. SEVERABILITY
Whenever possible, each provision of the Plan shall be interpreted in such
manner as to be effective and valid under applicable law, but if any provision
of the Plan shall be held to be prohibited by or invalid under applicable law,
then (a) such provision shall be deemed amended, and to have contained from the
outset such language as shall be necessary to, accomplish the objectives of the
provision as originally written to the fullest extent permitted by law and (b)
all other provisions of the Plan shall remain in full force and effect.
15. LIABILITY
No member of the Board and no employee of the Company shall be liable for any
act or action hereunder whether by omission or commission, by any other member
or employee or by any agent to whom duties in connection with the administration
of the Plan have been delegated or, except in circumstances involving his or her
bad faith, gross negligence or fraud, of anything done or admitted to be done by
him or herself.
16. SUCCESSORS
The provisions of the Plan shall bind and inure to the benefit of the Company
and its successors and assigns. The term "successors" as used herein shall
include any corporation or other business entity which shall by merger,
consolidation, purchase, or otherwise, acquire all or substantially all of the
business and assets of the Company and successors of any such corporation or
other business entity.
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12(a)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Fixed Charges
Years Ended December 31,
-----------------------------------------------------
(millions except ratios) 1999 1998 1997 1996 1995
-------- -------- -------- ------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes (1) $ 635 $ 931 $ 542 $ 446 $ 458
ADD BACK FIXED CHARGES:
Interest on indebtedness 105 87 70 45 56
Interest on ESOP 1 2 3 4 5
Portion of rents representative of
interest factor 49 51 44 29 21
-------- -------- -------- ------- --------
INCOME AS ADJUSTED $ 790 $ 1,071 $ 659 $ 524 $ 540
======== ======== ======== ======= ========
FIXED CHARGES:
Interest on indebtedness $ 105 $ 87 $ 70 $ 45 $ 56
Interest on ESOP 1 2 3 4 5
Portion of rents representative of
interest factor 49 51 44 29 21
-------- -------- -------- ------- --------
TOTAL FIXED CHARGES $ 155 $ 140 $ 117 $ 78 $ 82
======== ======== ======== ======= ========
RATIO OF EARNINGS TO FIXED CHARGES 5.1 7.6 5.6 6.7 6.6
======== ======== ======== ======= ========
<FN>
(1) Income from continuing operations before provision for income taxes and
minority interest includes special charges of $313 million, $172 million
and $90 million for the years ended December 31, 1999, 1997 and 1996,
respectively.
</FN>
</TABLE>
<TABLE>
<CAPTION>
Exhibit 12(b)
Aon Corporation and Consolidated Subsidiaries
Combined With Unconsolidated Subsidiaries
Computation of Ratio of Earnings to Combined Fixed Charges
and Preferred Stock Dividends
Years Ended December 31,
--------------------------------------------------
(millions except ratios) 1999 1998 1997 1996 1995
------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes (1) $ 635 $ 931 $ 542 $ 446 $ 458
ADD BACK FIXED CHARGES:
Interest on indebtedness 105 87 70 45 56
Interest on ESOP 1 2 3 4 5
Portion of rents representative of
interest factor 49 51 44 29 21
------- -------- ------- -------- --------
INCOME AS ADJUSTED $ 790 $1,071 $ 659 $ 524 $ 540
======= ======== ======= ======== ========
Fixed charges and preferred stock dividends:
Interest on indebtedness $ 105 $ 87 $ 70 $ 45 $ 56
Preferred stock dividends 70 70 82 29 38
------- -------- ------- -------- --------
INTEREST AND DIVIDENDS 175 157 152 74 94
Interest on ESOP 1 2 3 4 5
Portion of rents representative of
interest factor 49 51 44 29 21
------- -------- ------- -------- --------
TOTAL FIXED CHARGES AND PREFERRED
STOCK DIVIDENDS $ 225 $ 210 $ 199 $ 107 $ 120
======= ======== ======= ======== ========
RATIO OF EARNINGS TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS (2) 3.5 5.1 3.3 4.9 4.5
======= ======== ======= ======== ========
<FN>
(1) Income from continuing operations before provision for income taxes and
minority interest includes special charges of $313 million, $172 million
and $90 million for the years ended December 31, 1999, 1997 and 1996,
respectively.
(2) Included in total fixed charges and preferred stock dividends are $66
million for the years ended December 31, 1999 and 1998 and $64 million for
the year ended December 31, 1997, of pretax distributions on the 8.205%
mandatorily redeemable preferred capital securities which are classified
as "minority interest" on the consolidated statements of income.
</FN>
</TABLE>
*** PICTURE OMITTED ***
WELCOME TO THE NEW WORLD OF RISK
The old world of risk was a fairly orderly place. Things caught fire, people
were injured, products failed. Customers understood those kinds of risk and how
to manage them. That was the old world of risk.
Traditional property risk has been joined by the risks of a global marketplace
where barriers are falling, the rules are changing and your toughest competitor
might be the one that did not exist yesterday. The Internet makes any business
vulnerable to the next big idea. Reinvention is an everyday event. Catastrophe
can include the theft of ideas. Priceless intellectual capital can simply walk
out the door.
The value chain is only as strong as the weakest global interconnection.
Alliances create uneasy marriages that blur the lines between partner and
predator.
Welcome to the new world of risk-financial, human, technological, organizational
and physical. Merely handling insurance transactions is not enough in this new
world. It takes an advocate.
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Aon has been building an organization that can help clients deal with the new
world of risk. We are a leader in risk management advice, brokerage services,
human resource consulting and consumer insurance. That work started with a
vision.
Key parts of the vision are worldwide distribution, dedicated client focus
and the highest quality professional services. We also have redefined and
expanded the role of an intermediary - from a provider of products, to our
current position as an advocate for our clients in risk management and
protection.
No organization is better positioned to deliver the kind of services that
clients in virtually every type of business need. Our advantage centers on a
strong presence in all the key channels of distribution. Our ability to reach
diverse kinds of clients means we can focus our marketing, making certain that
both our services and products align with identified needs. Because we know the
clients, we know the issues - which means that we can offer higher quality
service and a selection of the best and most relevant products. It also allows
us to form stronger client relationships.
For Aon, our broad distribution channels mean opportunity. It is said that the
best way to have a good idea is to have a lot of ideas. That is what unique
perspectives on risk allow us to do. From the physical risk of a building, to
the financial risk of a new venture, to the risk of losing key talent -- and
beyond -- we try to see risk from all angles. The solutions we provide can apply
to many clients. A one-size-fits-all approach? No, just the opposite. Our
diverse lines of business and wide experience allow us to custom-fit the
solution to the risk - even if it is so new that it takes an experienced
specialist to see it.
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*** PICTURE OMITTED ***
DEVELOPING UNIQUE SOLUTIONS
The ocean is never constant -- one minute tranquil, the next threatening.
Business conditions can change as quickly and dramatically as the sea. Aon has
the solutions to help companies navigate the risks and opportunities.
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UNIQUE SOLUTIONS AROUND THE WORLD
New risks demand new solutions. We provide them through a global network of 550
offices in 120 countries. We have hundreds of insurance and risk management
products, deep expertise in a range of industries and the dedication to provide
the best available advice and execution.
*** PICTURE OMITTED ***
It is a formidable line-up. But it is not enough.
We are realigning our operations around the need -- and the opportunity -- to
focus all of our people, facilities, products and experience on client solutions
around the world.
By combining strengths and creating a more integrated platform for global
services, we are developing a total solution that is stronger, more flexible and
more creative than anything our individual companies could provide alone. We can
draw the best thinking and the most relevant experience from any point in our
organization, and quickly put them to work as an advocate for our clients.
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ONE Aon
The expertise of our employees and our global presence provide our clients with
the broadest and most efficient access to capital and risk management solutions,
so they can focus on the things that will drive their businesses forward. No
matter what or where the client's needs are, through our expertise in insurance
brokerage and related services, consulting and insurance underwriting, Aon is
able to harness the best thinking in the industry to build risk management
solutions in every corner of the world. From traditional insurance coverage, to
uncovering risks in mergers, to ensuring that companies retain their best
employees, Aon is able to help clients stay focused on their core operations.
Among the businesses that comprise the "One Aon" that we bring to clients are:
Aon Risk Services, one of the world's fastest growing insurance brokers, helps
clients finance and transfer risk in ways that actually free up capital and
remove liabilities from the balance sheet. These services span from develoing
traditional property and casualty coverages, to creating new forms of
intellectual property protection, to building directors and officers solutions
for Internet companies preparing their initial public offering.
Aon Re Worldwide, the largest reinsurance intermediary, risk transfer and
financing solutions to risk-bearing entities worldwide (insurance companies,
risk retention groups, etc.). Services range from traditional reinsurance
placement, to the design of creative, holistic products which utilize our
sophisticated analytical and catastrophe modeling expertise. Throuqh 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 Capital Markets is among the world leaders in
securitizing catastrophic risk. It provides our clients access to capital beyond
traditional insurance and reinsurance markets. This group is at the forefront of
developing risk transfer securities (CatBonds), contingent financing securities
(CatEPuts) and risk transfer swaps.
Aon Services Group is comprised of market-leading wholesalers and specialty
brokerage that enable Aon to service independent insurance agents, professional
and affinity groups, individual consumers and insurance carriers.
Alternative Market Operations is a leader in specialty underwriting solutions
and custom-designed products and services.
Aon Consulting Worldwide is a leading human resource consulting and benefits
provider that helps maximize human resource productivity. Services range from
creating compensation and benefits programs for multi-national firms, to
developing hiring and retention strategies to attract and keep a company's best
employees, to building change management programs for clients undergoing
mergers.
Combined Insurance Company of America is a leader in offering supplemental life,
health and accident coverage. It also has opened a significant new channel of
distribution by offering benefits through employer programs. This helps
employers provide more cost efficient benefits for employees, and in turn,
increase retention.
Virginia Surety Company and London General Insurance Company offer comprehensive
extended warranty and consumer service programs.
FOCUSED ON CLIENT NEEDS
To always ensure that we are acting in the best interest of our clients, we
continue to make changes to our organization. First, we revamped our
compensation system in order to foster greater knowledge sharing. Second, we
created global account teams to bring together the right capabilities for each
engagement. Third, we continue to invest heavily in technology. This is already
enabling our organization to act more efficiently, and it provides our clients
greater access to their data in ways that help them make smarter business
decisions. By continuing to enhance our interdependent culture, we are better
able to help our clients anticipate their risks and uncover new opportunities.
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*** PICTURE OMITTED ***
UNCOVERING OPPORTUNITIES
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*** PICTURE OMITTED ***
There is a universe of opportunity waiting for companies fast enough and agile
enough to explore it. But the opportunities aren't always obvious, and making
the most of them means confronting new risks in different ways. Aon combines
deep experience, global resources and creative solutions to enable clients to
take maximum advantage of opportunities.
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A UNIVERSE WAITING FOR EXPLORATION
An airline industry customer needed a new source of capital. We found a way to
collateralize used jet engines to leverage existing assets. A Middle-Eastern
country wanted to build a toll road, but their sources of financing worried
about disruption by terrorists. We assessed the risk, put a value on it, and
placed it in insurance markets. The contruction went forward.
Different examples, but one clear point. Understanding risk does more than
provide protection. It creates opportunity. It removes barriers that often
stand in the way of growth.
Aon understands the relationship between risk and opportunity. We have the
experience, products, expertise -- and creativity -- to handle the risk, which
means our clients can focus on the business of growth and profits.
*** PICTURE OMITTED ***
At Aon, there is no unit called the Opportunity Division. There is no Senior
Vice President of Opportunity. Rather, we all help companies see and exploit
opportunites. We combine organizations, protections and deep lines of business
experience to become an advisor, consultant and advocate for our clients.
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With the coordination and focus of global account management every Aon unit
can -- and will -- be a part of that process.
For example, one of the barriers to opportunity in e-commerce is protection of
intellectual property. Patent licensing revenues are expected to exceed $500
billion by 2005 - up from $100 billion in 1998. When your asset is an idea or a
body of knowledge, opportunity demands a new kind of protection. A new risk
transfer product developed by Aon will, for the first time, allow companies to
secure blanket protection to recover damages or enforce rights for patents,
trademarks, copyrights and other intellectual property assets.
Often, opportunity demands thinking outside the boundaries of insurance. Aon
Capital Markets is a leader in creating opportunity through insurance-linked
securities. We also provide advisory services to clients who need risk financing
that goes beyond the protection of typical insurance or reinsurance services.
Opportunity often lies in the ability to change - quickly. Aon Consulting is a
comprehensive human resource consulting firm. In addition to benefits,
retirement and other human resource services, Aon Consulting can help companies
deal with accelerated, potentially disruptive, changes.
A few examples, but they illustrate new and important dimensions in the work we
do for clients. We have the organization the information technology, the
distribution channels and the focus to create unique opportunities.
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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 PAGE 54 OF THIS ANNUAL REPORT.
CONSOLIDATED RESULTS
GENERAL
On March 19, 1999, the Board of Directors authorized a three-for-two stock
split, payable in the form of a stock dividend, of Aon's $1.00 par value common
stock. All references to share data in the accompanying management's discussion
and analysis and financial statements reflect the three-for-two stock split. In
the following discussion, the references to per share data are on a dilutive
basis.
SPECIAL CHARGES
In first quarter 1999, Aon recorded special charges of $163 million ($102
million after-tax or $0.39 per share). These charges included provisions for
restructuring in the brokerage and other services and consulting segments of
$120 million (see note 3). Also, in the consulting segment, charges of $43
million were recorded in first quarter 1999 to reflect amounts required to
compensate customers who switched out of company pension plans in the U.K. based
upon advice offered by financial advisors of current Aon subsidiaries. This
advice was given prior to Aon's purchase of these companies (see note 13).
In fourth quarter 1999, Aon recorded special charges of $150 million ($93
million after-tax or $0.35 per share). These charges reflect an additional $78
million related to the pension payments described above mainly due to changes in
U.K. government requirements and $72 million for Unicover and other litigation
matters (see note 13).
In first quarter 1997, Aon recorded special charges of $145 million ($91 million
after-tax or $0.36 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) (see note 3).
In second quarter 1997, Aon recorded special charges of $27 million ($17 million
after-tax or $0.07 per share) to recognize investment losses incurred at A&A
before Aon acquired A&A.
REVENUE AND INCOME BEFORE INCOME TAX
CONSOLIDATED RESULTS FOR 1999 COMPARED TO 1998
For purposes of the following consolidated results discussions, certain prior
period information has been reclassified to conform to the current year
presentation.
Total revenues amounted to $7.1 billion, an increase of 9% in 1999. This
increase was largely attributable to the following: growth in brokerage
commissions and fees resulting from business combination activity, slower
premium rate declines, growth in insurance premiums resulting from new business
and internal growth in the operating segments. Overall, foreign exchange and
interest rate reductions, the absence of Unicover revenues in fourth quarter
1999 and lower corporate investment income on equity securities negatively
impacted revenue growth.
U.S. revenues increased 11% in 1999 compared to 1998 primarily due to increased
new business, acquisitions and slower premium rate declines that benefit
insurance brokerage commissions. Insurance brokerage commission revenue is a
percentage of total premiums placed. If the rate of pricing decline slows on
underlying premiums, commission revenue is benefited. European revenue increased
8% to $2.2 billion and Rest of World revenue of $746 million increased 3% in
1999 primarily due to acquisitions and new business. Approximately 30% of 1999
income before income tax is derived from operations outside the U.S.
Brokerage commissions and fees increased 11% to $4.6 billion reflecting growth
from business combination activity, internal growth, increased new business and
slower premium rate declines.
Premiums and other revenue is primarily related to insurance underwriting
operations and includes premiums earned and other income of $1.9 billion, an
increase of 9% in 1999. Extended warranty premiums earned increased $83 million
or 15%, primarily reflecting continued growth related to appliance and
electronics warranty products. Direct sales premiums earned increased $44
million or 4%, reflecting continued growth from historic levels of accident and
health revenues. Specialty and other revenue increased $28 million or 11%,
primarily due to the acquisition of an auto credit book of business in 1999.
Investment income of $577 million, which includes income on disposals and
related expenses decreased 2% for the year. The primary factors contributing to
this decrease are a reduction in short-term interest rates mostly outside of the
U.S. and lower levels of income from equity securities. Partially offsetting the
investment income decline was income on disposal of tax-exempt bonds (with
proceeds reinvested in foreign source income bonds for tax planning purposes)
and higher levels of income on disposals of certain private equity investments.
During 1999, investments in limited partnerships and private equities increased.
Limited partnerships and private equity investments do not have fixed returns
and consequently exhibit
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greater variability in investment income. See "Investment Operations."
General expenses increased 17% for the year. The increase reflects the inclusion
of 1999 pretax special charges of $313 million. General expenses, excluding the
1999 special charges, increased over prior year primarily due to the inclusion
of expenses associated with the integration of new businesses in 1999, as well
as expenses related to new initiatives, increased levels of technology spending
in 1999 and a branding campaign. In addition, due to the early retirement
program in 1999 and significant changes in interest rates, Aon revalued its
domestic and U.K. pension plans in 1999 (see note 10). The revaluation resulted
in a reduction of pension expense. Restructuring liabilities for recent
acquisitions and 1999 special charges have been reduced by payments as planned.
A 9% increase in benefits to policyholders when compared to 1998 was consistent
with growth in related premiums earned and reflected no unusual claims activity.
The run-off of certain specialty liability programs is now substantially
complete. Interest expense and amortization of intangibles increased 21% and
17%, respectively, largely as a result of acquisitions.
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 9).
Income before income tax decreased $296 million or 32% in 1999 primarily due to
the inclusion of special charges in 1999. Excluding special charges, pretax
income grew only 2% or $17 million primarily reflecting costs to integrate Aon's
global network, increased technology expenses and the launching of a branding
campaign.
Fourth quarter revenue increased 10% to $1.9 billion compared to 1998 primarily
reflecting brokerage business combination activity, slower premium rate declines
and additional new business. Total expenses, excluding 1999 special charges,
increased 15% to $1.7 billion for the quarter as a result of acquisitions and
related costs, increased technology expenses and a branding campaign. Pretax
income, excluding fourth quarter 1999 special charges, decreased $49 million or
21% to $190 million. The decrease in pretax earnings before special charges
reflects a decline in short-term investment income, less income on equity
investments, the absence of Unicover revenues, higher levels of technology
spending, lower income from certain insurance brokerage and other services
businesses and higher loss ratios on home warranty claims.
CONSOLIDATED RESULTS FOR 1998 COMPARED TO 1997
Total revenues amounted to $6.5 billion, an increase of 13% in 1998. Brokerage
commissions and fees increased 16% to $4.2 billion, largely resulting from
business combination activity. Premiums and other revenue of $1.7 billion
increased 4% in 1998, reflecting continued growth primarily related to appliance
and electronics warranty products and, to a lesser extent, the mechanical
extended warranty line. Direct sales premiums earned increased modestly,
reflecting 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 increased 18% for the year, attributable
primarily to brokerage acquisitions, income from certain equity and other
investment holdings, assets underlying capital accumulation products and higher
levels of income on disposals.
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. Total expenses, excluding the
1997 special charges, increased 10% or $525 million over 1997.
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.
BUSINESS SEGMENTS
For purposes of the following business segments discussions, comparisons of 1999
against 1998 results exclude special charges. Also, 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 product and
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by geographic area in note 14. Since Aon's culture fosters interdependence among
its operating units, the allocation of expenses by product and on a geographic
basis is difficult to delineate. While revenue is tracked and evaluated
separately by management, expenses are allocated to products 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.
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 nonoperating segment, Corporate and Other (see note 14).
All material 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 and reinsurance brokerage operations, which include specialty and
wholesale activity.
Total 1999 Insurance Brokerage and Other Services revenue was $4.1 billion, up
10%. Acquisitions, new business and diminishing premium rate declines accounted
for the majority of this revenue growth. Overall, global insurance pricing in
retail had a slightly negative impact in 1999 with selected improvement in
reinsurance pricing. Excluding the impact of acquisitions and Unicover related
revenue, commissions and fee revenue for brokerage core businesses grew
approximately 6% in a very competitive environment. This growth was primarily
due to increased new business, specialty and reinsurance operations and
diminishing premium rate declines. Revenue includes investment income allocated
to this operating segment. Investment income in this segment decreased $35
million in 1999 compared to prior year primarily due to reductions in short-term
interest rates. See "Investment Operations."
U.S. revenue of $2.1 billion in 1999 was up 14% from 1998 due to increased new
business, acquisitions, diminishing premium rate declines and U.S. specialty
operations. U.K. and other European revenue of $1.5 billion increased 6% from
1998, primarily due to acquisition activity, particularly in Italy, France and
the U.K. and to internal growth in the U.K., Spain, The Netherlands, Finland,
Ireland, Norway and Belgium. Rest of World revenue increased modestly in 1999
primarily due to new initiatives.
Insurance Brokerage and Other Services segment results were impacted positively
by acquisitions, in particular the Nikols Group acquisition in 1999 and the
inclusion of Auto Insurance Specialists, Le Blanc de Nicolay and Gil y Carvajal
in 1998. Retail brokerage results continued to reflect competitive property and
casualty pricing although slower premium rate declines were evident. Pretax
income growth, excluding 1999 special charges, was impacted by lower investment
income on short-term funds, acquisition-related integration costs and increased
technology costs. Pretax margins in this segment declined in 1999 reflecting the
above revenue and pretax income growth discussion.
CONSULTING
The Consulting segment provides a range of consulting services including
employee benefits, human resources, compensation and change management.
In the Consulting segment, 1999 revenue increased 7% to $656 million.
Acquisition activity and internal growth, both domestically and internationally,
influenced revenue growth. Revenue includes investment income allocated to this
operating segment. Excluding the impact of acquisitions and foreign exchange,
revenue for consulting core businesses grew approximately 9% in 1999.
U.S. revenue of $405 million in 1999 was up 5% from 1998 primarily from employee
benefits and compensation services. U.K. and European revenue of $191 million
increased 12% from 1998 primarily reflecting growth in the U.K. and The
Netherlands. Rest of World revenue increased 3% primarily attributable to
Canada. Total consulting pretax income increased $12 million or 18% from prior
year, reflecting internal revenue growth mentioned above and pretax income
margin improvements.
INSURANCE UNDERWRITING
Aon's Insurance Underwriting segment is comprised of direct sales life, accident
and health insurance, extended warranty, specialty and other insurance products.
Revenue was $2.1 billion in 1999, up 8% from 1998. There was a higher volume of
new business related to appliance and electronics extended warranty products,
both in the U.S. and internationally, as well as in the U.S. mechanical extended
warranty products line. Direct sales continued to expand its product
distribution through work-site marketing programs and the recent introduction of
new product initiatives on a global basis. However, the above revenue growth is
predominantly from core operations as these new initiatives continue to build
momentum. Revenue includes investment income allocated to this operating
segment. See "Investment Operations."
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U.S. revenue of $1.5 billion was up 7% in 1999, mainly due to growth in revenues
for direct sales and the mechanical extended warranty products. United Kingdom
and European revenue of $464 million rose 14%, principally due to a higher
volume of new business in the appliance and electronic extended warranty
products. Rest of World revenue rose 7% reflecting continuing geographic
expansion.
Pretax income was $290 million in 1999, up 2% from $283 million last year. The
completion of the profitable run-off of specialty liability business prior to
1999 negatively influenced pretax income growth this year. Pretax income growth
was also negatively impacted by worksite marketing and the recent introduction
of several new direct sales products. Additionally, there was a modest increase
in the extended warranty loss ratio primarily due to the home warranty appliance
product. Start-up costs related to new direct sales product initiatives and the
modest increase in the extended warranty loss ratio partially offset the direct
sales and extended warranty expense ratio improvements. Overall, benefit and
expense margins in 1999 did not suggest any significant shift in operating
trends.
CORPORATE AND OTHER
Revenue consists primarily of investment income (including income on disposals)
which is not otherwise allocated to the operating segments. See "Investment
Operations." Corporate operating expenses include administrative and certain
information technology costs.
Revenue increased 9% or $14 million in 1999 compared to prior year. Revenue
growth was primarily influenced by approximately $30 million of gains on
disposals of tax-exempt bonds in 1999 and higher levels of income on disposals
of certain private equity investments. Private equities are principally carried
at cost and usually earn little income until a disposal occurs. Lower levels of
income from equity investments partially offset revenue growth in the segment.
The timing of revenues from limited partnerships and private equity investments
varies significantly between periods. In particular, the reported income from
limited partnership investments varies with the market values of underlying
publicly-traded equity investments. See "Investment Operations." The investment
strategy for the corporate segment is to seek long-term total returns from
public and private equities, including limited partnerships which exceed
long-term security market rates. Income from these equity investments is
expected to be lower in the year 2000 than it was in 1999. The loss before
income tax increased $23 million over 1998. Contributing to the loss in 1999
were financing costs and goodwill amortization related to acquisitions and
costs related to investments in information technology. Corporate and other
expenses also included costs related to a branding campaign launched in 1999.
DISCONTINUED OPERATIONS
Discontinued operations 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.
INCOME TAX AND NET INCOME
Net income for 1999 was $352 million or $1.33 per share compared to $541 million
or $2.07 per share in 1998. Net income for fourth quarter 1999 amounted to $13
million or $0.05 per share compared to $139 million or $0.53 per share for 1998.
The decrease in 1999 net income and related per share amount is influenced
primarily by 1999 after-tax special charges of $195 million ($0.74 per share)
with no comparable amount in 1998. Basic net income on a per share basis was
$1.35 and $2.11 in 1999 and 1998, respectively. Dividends on the redeemable
preferred stock in 1999 and 1998 have been deducted from net income to compute
income per share.
Net income excluding special charges was $547 million or $2.07 per share in 1999
compared to $541 million or $2.07 per share in 1998. The effective income tax
rate increased to 38.3% in 1999 from 37.5% in 1998 due principally to a program
designed to enable Aon to fully utilize foreign tax credits by switching from
tax-exempt to taxable bonds. Dilutive average shares outstanding for 1999
increased 1% when compared to 1998 primarily due to the issuance of common
shares for acquisition financing and, to a lesser extent, for employee stock
compensation plans.
LIQUIDITY
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 9. Insurance subsidiaries' statutory capital
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and surplus at year-end 1999 again exceeded the risk-based capital target set by
the National Association of Insurance Commissioners by a satisfactory level.
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 average life of 6.2
years, access to lines of credit and Aon's positive cash flow, Aon expects
sufficient cash flow to meet both short-term and long-term cash needs.
Cash flow from operations decreased $402 million from 1998 to $462 million. This
decrease primarily represents the timing of the settlement of brokerage
receivables and payables, income taxes and a branding campaign. Excluding
changes in net brokerage insurance premiums payable and taxes, operating cash
increased in 1999 over 1998.
Investing activities used cash of $493 million in 1999, which was made available
from financing and operating activities. Cash used for brokerage acquisition
activity during 1999 was $395 million. Aon also acquired insurance underwriting
blocks of business for $50 million in 1999.
Financing activities in 1999 provided cash totaling $152 million. This was
primarily due to the issuance of $250 million 6.9% debt securities in 1999 and
offset in part by the redemption of Aon's $100 million 6.875% debt securities.
Net short-term borrowing issuances of $408 million in 1999 principally reflect
funds provided for general corporate purposes. The net cash withdrawn from
capital accumulation product deposits and withdrawals was $130 million in 1999,
primarily due to a reduction in funding agreements. Cash was used to pay
dividends of $207 million on common stock and $3 million on redeemable preferred
stock.
Total assets increased $1.4 billion to $21.1 billion. Invested assets at
December 31, 1999 decreased $268 million from year-end 1998 levels, principally
reflecting declines in the market value of fixed maturities and equity
securities. Insurance brokerage and consulting receivables increased $807
million in 1999 with a comparable increase in insurance premiums payable.
Aon's consolidated statement of financial position contains a general expense
liability of $146 million related to purchase related restructuring liabilities
(see note 3). Aon anticipates that all outstanding termination benefits will be
settled in 2000. The remaining items primarily reflect lease obligations and
will run-off over a period up to 15 years. Aon does not anticipate that the
payment for termination benefits and lease obligations will have a material
impact on cash flows in subsequent periods.
In addition, at December 31, 1999, Aon has general expense liabilities (see note
13) for the settlement of various contingencies regarding U.K. pension selling,
Unicover related settlements and other litigation matters totaling $179 million.
Aon anticipates the settlement of the liabilities relating to the U.K. pension
selling to be disbursed over the next few years. A portion of the Unicover
matter has been settled in January 2000 for $27 million. The remaining Unicover
issues are complex and, therefore, the timing of resolution cannot be determined
at this time.
IMPACT OF YEAR 2000
In prior years, Aon discussed the nature and progress of its plans to become
Year 2000 ready. In late 1999, Aon completed its remediation and testing of
systems. As a result of those planning and implementation efforts, Aon
experienced no significant disruptions in mission critical information
technology and non-information technology systems and believes those systems
successfully responded to the Year 2000 date change. As projected, Aon's total
Year 2000 remediation costs for all business units was approximately $70
million, of which approximately $27 million was expended during 1999. These
costs were funded through business unit operating cash flows. Aon is not aware
of any material problems resulting from Year 2000 issues, either with its
products, its internal systems or the products and services of third parties.
Aon will continue to monitor its mission critical computer applications and
those of its suppliers and vendors throughout the year 2000 to ensure that any
latent Year 2000 matters that may arise are addressed promptly.
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 and operating funds in shorter-term
obligations, and income derived from these investments is allocated to the
revenues of those businesses. Investments underlying interest-sensitive
- 22 -
<PAGE>
capital accumulation insurance products are fixed- or floating-rate
fixed-maturity 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 fixed-maturity instruments.
Income from fixed-maturity investments underlying these insurance products and
liabilities 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 diversified assets, which are publicly-traded equities,
as well as less liquid private equities and limited partnerships, represent a
more aggressive investment strategy that provides an opportunity for greater
returns with a longer-term investment horizon. Many of the limited partnerships
in which Aon invests have significant holdings in publicly-traded equities.
Changes in market value of these equities flow through the income of the limited
partnerships. Aon's ownership share of this partnership income is included in
Aon's reported corporate investment income. By comparison, changes in market
value of directly-held, publicly-traded equities are recorded directly in
stockholders' equity. 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 $2.5 billion at December 31, 1999, Aon's total
fixed-maturity portfolio is invested primarily in investment grade holdings
(95%) and has a fair value which is 96% of amortized cost.
INVESTED ASSETS
(millions) As of December 31 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------
Short-term investments $ 2,362 $ 2,221
Fixed maturities 2,497 3,103
Equity securities 574 768
Other* 751 360
- - - - - - - - - - - - - - - - - --------------------------------------------------------
Total invested assets $ 6,184 $ 6,452
- - - - - - - - - - - - - - - - - --------------------------------------------------------
* Limited partnerships were $465 million and $255 million
as of December 31, 1999 and 1998, respectively.
INVESTMENT INCOME
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Insurance brokerage and other
services (primarily short-term
investments) $ 159 $ 194 $ 163
Consulting 3 6 6
Insurance underwriting
(primarily fixed maturities) 251 240 214
Corporate and other 164 150 117
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Total investment income $ 577 $ 590 $ 500
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
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 stockholders' equity at December 31, 1999
resulting from a hypothetical 10% adverse change in quoted year-end foreign
currency exchange rates amounts to $136 million and $130 million, respectively,
at December 31, 1999 and 1998. The impact to 1999 and 1998 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 its
net exposure in short-term interest rates on short-term investments and
short-term borrowings with Eurodollar, Eurosterling, EURIBOR futures contracts,
interest rate swaps and interest rate caps. A hypothetical 1% decrease in
interest rates would cause a decrease, net of derivative positions, of $8
million and $16 million to 1999 and 1998 pretax income, respectively.
- 23 -
<PAGE>
The valuation of Aon's fixed-maturity portfolio is subject to 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, 1999 and 1998, net of derivative positions, by approximately $121
million and $133 million, respectively. Aon has long-term notes payable and
capital securities outstanding with a fair value of $1.8 billion at December 31,
1999 and 1998. Such fair value was greater than (less than) the carrying value
by ($18 million) and $125 million at December 31, 1999 and 1998, respectively. A
hypothetical 1% decrease in interest rates would increase the fair value by
approximately 10% at December 31, 1999 and 1998.
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, net of derivative positions, of
$57 million at December 31, 1999 compared to $77 million at December 31, 1998.
At December 31, 1999 and 1998, there were no outstanding derivatives hedging the
price risk on the equity portfolio.
The selection of the ranges of values chosen to represent changes in foreign
currency exchange rates, equity market prices and interest rates should not be
construed as Aon's prediction of future market events, but rather an
illustration of the impact of such events. The range of changes chosen reflects
Aon's view of changes, which are reasonably possible over a one-year period.
In 1999, Aon addressed and implemented the system modifications necessary for
full conversion to the Euro. The Euro conversion did not have a material impact
on Aon's European operations.
CAPITAL RESOURCES
At December 31, 1999, Aon had back-up lines of credit available of $1.1 billion
to support Aon's commercial paper that was $844 million at December 31, 1999. 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 $405 million on a revolving basis. As of December
31, 1999, there were loans totaling $351 million outstanding under the facility.
A total of $292 million is committed for five years and $59 million is committed
for 364 days. Short-term borrowings increased $402 million in 1999 when compared
to 1998 attributable to additional commercial paper issued for general corporate
purposes. Notes payable increased in 1999 by $88 million when compared to
year-end 1998. The principal factor influencing this increase was the issuance
of $250 million 6.9% debt securities due July 2004 (see note 6). Partially
offsetting the increase was the redemption of Aon's $100 million 6.875% debt
securities, due October 1, 1999, which were redeemed at 100% of the principal
amount plus accrued interest and the impact of foreign exchange on outstanding
loans under the European bank credit facility.
Aon Corporation borrows funds from and lends funds to its various subsidiaries.
As of December 31, 1999, Aon Corporation held obligations to its subsidiaries of
approximately $600 million. These obligations have competitive interest rates.
In 1999, common stockholders' equity per share increased to $11.91, up from
$11.83 in 1998. The principal factors influencing this increase were net income
(which includes $195 million of after-tax special charges) and a $60 million
decrease in the additional minimum pension liability related to U.K. pension
plans. Offsetting this increase were net unrealized investment losses of $199
million, net foreign exchange losses of $54 million and dividends to
stockholders of $210 million. Fluctuations in unrealized investment gains and
losses and foreign exchange gains and losses from period to period are largely
based on market conditions.
- 24 -
<PAGE>
CONSOLIDATED STATEMENTS OF INCOME
(millions except per share data) Years ended December 31 1999 1998 1997
================================================================================
REVENUE
Brokerage commissions and fees $ 4,639 $ 4,197 $ 3,605
Premiums and other 1,854 1,706 1,646
Investment income (note 5) 577 590 500
------------------------
Total revenue 7,070 6,493 5,751
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
EXPENSES
General expenses (notes 3 and 13) 5,214 4,457 4,176
Benefits to policyholders 973 896 842
Interest expense 105 87 70
Amortization of intangible assets 143 122 121
------------------------
Total expenses 6,435 5,562 5,209
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX AND MINORITY INTEREST 635 931 542
Provision for income tax (note 7) 243 349 203
------------------------
INCOME BEFORE MINORITY INTEREST 392 582 339
Minority interest, net of tax--Company-obligated
mandatorily redeemable preferred capital
securities (note 9) (40) (41) (40)
------------------------
NET INCOME $ 352 $ 541 $ 299
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 349 $ 538 $ 287
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
BASIC NET INCOME PER SHARE $ 1.35 $ 2.11 $ 1.14
DILUTIVE NET INCOME PER SHARE 1.33 2.07 1.12
CASH DIVIDENDS PER SHARE PAID ON COMMON STOCK $ 0.82 $ 0.73 $ 0.68
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
DILUTIVE AVERAGE COMMON AND COMMON EQUIVALENT
SHARES OUTSTANDING 262.7 259.4 255.8
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 25 -
<PAGE>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) As of December 31 1999 1998
================================================================================
ASSETS
INVESTMENTS
Fixed maturities--at fair value $ 2,497 $ 3,103
Equity securities--at fair value 574 768
Short-term investments 2,362 2,221
Other investments 751 360
------------------------
Total investments 6,184 6,452
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
CASH 837 723
RECEIVABLES
Insurance brokerage and consulting 6,230 5,423
Premiums and other 1,116 1,183
------------------------
Total receivables (net of allowance for doubtful
accounts: 1999--$94; 1998--$99) 7,346 6,606
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
CURRENT INCOME TAXES 73 --
DEFERRED INCOME TAXES 270 214
DEFERRED POLICY ACQUISITION COSTS 636 573
EXCESS OF COST OVER NET ASSETS PURCHASED
(net of accumulated amortization:
1999--$466; 1998--$364) 3,359 3,006
OTHER INTANGIBLE ASSETS
(net of accumulated amortization:
1999--$779; 1998--$738) 503 494
OTHER ASSETS 1,924 1,620
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
TOTAL ASSETS $ 21,132 $ 19,688
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 26 -
<PAGE>
(millions) As of December 31 1999 1998
================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
INSURANCE PREMIUMS PAYABLE $ 7,643 $ 6,948
POLICY LIABILITIES
Future policy benefits 1,005 986
Policy and contract claims 764 779
Unearned and advance premiums 2,012 1,797
Other policyholder funds 1,207 1,261
------------------------
Total policy liabilities 4,988 4,823
GENERAL LIABILITIES
General expenses 1,731 1,448
Current income taxes -- 156
Short-term borrowings 903 501
Notes payable 1,011 923
Other liabilities 955 1,022
------------------------
TOTAL LIABILITIES 17,231 15,821
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
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 259 172
Paid-in additional capital 525 450
Accumulated other comprehensive loss (309) (116)
Retained earnings 2,905 2,782
Treasury stock at cost (shares: 1999--2.7; 1998--2.3) (90) (58)
Deferred compensation (239) (213)
------------------------
TOTAL STOCKHOLDERS' EQUITY 3,051 3,017
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,132 $ 19,688
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
- 27 -
<PAGE>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(millions) Years Ended December 31 1999 1998 1997
================================================================================
COMMON STOCK Balance at January 1 $ 172 $ 172 $ 114
Effect of three-for-two stock split 86 -- 57
Shares issued for business combinations 1 -- 1
-----------------------
259 172 172
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
PAID-IN ADDITIONAL CAPITAL Balance at January 1 450 377 475
Effect of three-for-two stock split (86) -- (57)
Employee benefit plans 114 73 79
Business combinations 47 -- 11
Retirement and conversion of preferred stock -- -- (131)
-----------------------
525 450 377
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)
Balance at January 1 (116) 103 154
Net unrealized investment gains (losses) (199) (111) 36
Net foreign exchange losses (54) (12) (87)
Net additional minimum pension liability adjustment 60 (96) --
-----------------------
Other comprehensive loss (193) (219) (51)
-----------------------
(309) (116) 103
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
RETAINED EARNINGS Balance at January 1 2,782 2,463 2,357
Net income 352 541 299
Dividends to stockholders (210) (194) (180)
Loss on treasury stock reissued (19) (30) (7)
Adjustment for business combinations -- 2 (6)
-----------------------
2,905 2,782 2,463
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
TREASURY STOCK Balance at January 1 (58) (93) (121)
Cost of shares acquired (105) (44) (12)
Shares reissued at average cost 73 79 40
-----------------------
(90) (58) (93)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
DEFERRED COMPENSATION Balance at January 1 (213) (200) (151)
Issuance of stock awards (73) (54) (81)
Debt guarantee of employee stock ownership plan 17 16 13
Amortization of deferred compensation 30 25 19
-----------------------
(239) (213) (200)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
PREFERRED STOCK Balance at January 1 -- -- 5
Retirement and conversion of preferred stock -- -- (5)
-----------------------
-- -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT DECEMBER 31 $ 3,051 $ 3,017 $ 2,822
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME $ 352 $ 541 $ 299
OTHER COMPREHENSIVE LOSS (NOTE 2) (193) (219) (51)
------------------------
COMPREHENSIVE INCOME $ 159 $ 322 $ 248
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 28 -
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years Ended December 31 1999 1998 1997
================================================================================
Cash Flows from Operating Activities
Net income $ 352 $ 541 $ 299
Adjustments to reconcile net income to cash
provided by operating activities
Policy liabilities 222 28 (155)
Deferred policy acquisition costs (239) (236) (164)
Amortization of deferred policy acquisition costs 247 216 208
Amortization of intangible assets 143 122 121
Other amortization 25 15 14
Depreciation of property and equipment 187 131 107
Income taxes (106) 75 42
Brokerage insurance premiums payable--net (40) 220 380
Other (329) (248) (68)
-----------------------
CASH PROVIDED BY OPERATING ACTIVITIES 462 864 784
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments
Fixed maturities
Maturities 80 107 105
Calls and prepayments 160 108 156
Sales 1,152 2,062 2,175
Equity securities 461 2,176 1,827
Other investments 114 51 55
Purchase of investments
Fixed maturities (959) (2,257) (2,767)
Equity securities (385) (2,253) (1,724)
Other investments (357) (141) (111)
Purchase of short-term investments--net (93) (534) (31)
Acquisition of subsidiaries (395) (374) (1,649)
Acquired fiduciary funds from acquisitions -- -- 734
Property and equipment and other (271) (300) (146)
-----------------------
CASH USED BY INVESTING ACTIVITIES (493) (1,355) (1,376)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Cash Flows from Financing Activities
Treasury stock transactions--net (66) (18) 21
Issuance of short-term borrowings--net 408 80 542
Issuance of mandatorily redeemable preferred
capital securities -- -- 800
Issuance of long-term debt 250 -- --
Repayment of long-term debt (100) (34) (74)
Interest sensitive, annuity and investment-type contracts
Deposits 444 435 373
Withdrawals (574) (137) (44)
Retirement of preferred stock -- -- (136)
Cash dividends to stockholders (210) (194) (182)
-----------------------
CASH PROVIDED BY FINANCING ACTIVITIES 152 132 1,300
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (7) (3) (33)
INCREASE (DECREASE) IN CASH 114 (362) 675
CASH AT BEGINNING OF YEAR 723 1,085 410
-----------------------
CASH AT END OF YEAR $ 837 $ 723 $ 1,085
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES
================================================================================
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements have been prepared in
conformity with accounting principles generally accepted in the United States
and include the accounts of Aon Corporation and its operating subsidiaries
(Aon). These statements include informed estimates and assumptions that affect
the amounts reported. Actual results could differ from the amounts reported. All
material intercompany accounts and transactions have been eliminated.
BROKERAGE COMMISSIONS AND FEES
In general, commission income is recognized at the later of the billing or
effective date of the related insurance policies. Contingent commissions,
certain life insurance commissions and commissions on premiums billed directly
by insurance companies are generally recognized as income when received.
Commissions on premium adjustments, including policy cancellations, are
recognized as they occur. Fees for claim administration services, benefit
consulting, reinsurance services and other services are recognized when the
services are rendered.
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.
For universal life-type and investment products, generally there is no
requirement for payment of premium other than to maintain account values at a
level sufficient to pay mortality and expense charges. Consequently, premiums
for universal life-type policies and investment products are not reported as
revenue, but as deposits. Policy fee revenue for universal life-type policies
and investment products consists of charges for the cost of insurance, policy
administration and surrenders assessed during the period. Expenses include
interest credited to policy account balances and benefit claims incurred in
excess of policy account balances.
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.
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.
INCOME PER SHARE
Basic income per share is computed based on the weighted-average number of
common shares outstanding, excluding any dilutive effects of options, awards and
convertible securities. 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) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net income $ 352 $ 541 $ 299
8% preferred stock dividends -- -- (9)
Redeemable preferred stock dividends (3) (3) (3)
-------------------------------
Net income for dilutive and basic $ 349 $ 538 $ 287
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Basic shares outstanding 259 255 252
Common stock equivalents 4 4 4
-------------------------------
Dilutive potential common shares 263 259 256
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Dilutive net income per share $ 1.33 $ 2.07 $ 1.12
Basic net income per share $ 1.35 $ 2.11 $ 1.14
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
- 30 -
<PAGE>
A three-for-two stock split of Aon's $1.00 par value common stock was effected
on May 17, 1999 with 86 million shares issued to common stockholders of record
as of May 4, 1999. All references in the accompanying consolidated financial
statements and notes to the number of common shares and per share amounts have
been retroactively restated to reflect the stock split.
INVESTMENTS
Fixed-maturity securities 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. Marketable equity securities, that are held
directly, 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
loss, net of related deferred income taxes. Mortgage loans, policy loans and
private equity investments are generally carried at cost or unpaid principal
balance.
Limited partnership investments are carried under the equity method. Many of the
limited partnerships in which Aon invests have significant holdings in
publicly-traded equities. Changes in market value of these equities flow through
the income of the limited partnerships. Aon's ownership share of this
partnership income is included in Aon's reported corporate investment income.
Income or loss on disposal of any securities held in the portfolio is computed
using specific costs of securities sold and reported as investment income in the
consolidated financial statements.
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 12.
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.
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, with a weighted-average life of 37 years. The
cost of other intangible assets is being amortized over a range of 4 to 25
years, with a weighted-average life of 18 years.
In the unexpected event of a significant deterioration in profitability that is
expected to be recurring, Aon would assess the recoverability of its intangible
assets using the undiscounted cash flow method.
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 a range of 2 to 8 years. The weighted-average life
of Aon's software at December 31, 1999 is 5.4 years.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The following methods and assumptions were used to estimate fair values for
financial instruments. The carrying amounts in the consolidated statements of
financial position for cash and cash equivalents, including short-term
investments, approximate their fair value. Fair value for fixed-maturity and
equity securities is based on quoted market prices or, if they are not actively
traded, on estimated values obtained from independent pricing services. Fair
value of derivatives is based on quoted prices for exchange-traded instruments
or the cost to terminate or offset with other contracts.
- 31 -
<PAGE>
Other investments are comprised of mortgage loans, policy loans, private equity
investments 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 is not practical to estimate the fair value of private equity
investments and limited partnerships without incurring excessive costs.
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 nonpublicly-traded portion.
FUTURE POLICY BENEFITS, POLICY AND CONTRACT CLAIMS AND UNEARNED PREMIUMS
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 4.5%
to 7.0% at December 31, 1999. 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. Interest credit rates for these products range
from 5.2% to 8.4%.
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.
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.
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 loss, net of
deferred income tax.
ACCOUNTING AND DISCLOSURE CHANGES
In June 1998, the Financial Accounting Standards Board (FASB) issued Statement
No. 133, "Accounting for Derivative Instruments and Hedging Activities."
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 the consolidated financial
statements.
In June 1999, the FASB issued Statement No. 137 that amends the required
adoption date of Statement No. 133 to all fiscal quarters of all fiscal years
beginning after June 15, 2000. Early adoption is permitted as of the beginning
of any quarter subsequent to the issuance of Statement No. 137. Aon has not yet
decided when it will adopt Statement No. 133.
In December 1999, the Securities and Exchange Commission (SEC) issued Staff
Accounting Bulletin (SAB) No. 101 which provides guidance for applying generally
accepted accounting principles relating to the timing of revenue recognition in
financial statements filed with the SEC. Any change required by the SAB must be
made in the first quarter 2000 with a cumulative effect accounting change. Aon
has not yet determined the effect, if any, this SAB will have on the
consolidated financial statements.
RECLASSIFICATION
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the 1999 presentation.
- 32 -
<PAGE>
2 COMPREHENSIVE INCOME
================================================================================
The components of other comprehensive loss and the related tax effects are as
follows:
Amount Income Tax Amount
Year ended December 31, 1999 Before (Expense) Net of
(millions) Taxes Benefit Taxes
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Unrealized holding losses arising
during the year $ (263) $ 92 $ (171)
Less: reclassification adjustment 45 (17) 28
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net unrealized investment losses (308) 109 (199)
Net foreign exchange losses (89) 35 (54)
Net additional minimum pension
liability adjustment 95 (35) 60
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total other comprehensive loss $ (302) $ 109 $ (193)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Amount Income Tax Amount
Year ended December 31, 1998 Before (Expense) Net of
(millions) Taxes Benefit 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)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Amount Income Tax Amount
Year ended December 31, 1997 Before (Expense) Net of
(millions) Taxes Benefit 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)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The components of accumulated other comprehensive income (loss), net of related
tax, as of December 31, 1999, 1998 and 1997 are as follows:
(millions) 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ (121) $ 78 $ 189
Net foreign exchange losses (152) (98) (86)
Net additional minimum pension liability (36) (96) --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Accumulated other comprehensive
income (loss) $ (309) $ (116) $ 103
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
3 BUSINESS COMBINATIONS
================================================================================
PURCHASE METHOD
In 1999, Aon acquired The Nikols Group (the leading Italian insurance and
reinsurance broker), Presidium Holdings, Inc. (a third-party insurance claims
administration firm that specializes in managing all aspects of workers'
compensation claims), Societe Generale d'Assurance et de Prevoganie (a leading
French broker) and certain other insurance brokerage and consulting operations
for approximately $395 million in cash transactions and $45 million in stock
transactions accounted for on a preliminary basis by the purchase method. Aon
also acquired insurance underwriting blocks of business for $50 million. The
acquisitions were financed by internal funds, short-term borrowings and stock.
Excess of cost over net assets purchased of approximately $500 million resulted
from the 1999 acquisitions and is primarily being amortized over 40 years.
In 1999, Aon consummated a plan of restructuring its operations as a result of
recent business combination activity. A charge was recorded in the amount of
$120 million. Total termination benefits were $67 million and related pension
expense was $32 million, involving 900 positions, of which 860 terminations
occurred in 1999 and 40 are planned for 2000. Benefits related to pension plans
are included in Aon's total pension liability. Workforce reductions were
related to a voluntary early retirement plan for employees of Aon's U.S. and
Canadian operating subsidiaries, as well as the consolidation of Aon's European
insurance brokerage and other services operations, primarily in the United
Kingdom. The remaining charges of $21 million primarily reflect lease
abandonments of $11 million relating to the consolidation of worldwide brokerage
operations and asset impairments of $10 million.
- 33 -
<PAGE>
The following table demonstrates the activity related to the liability for
termination benefits and abandoned leases:
Termination Lease
(millions) Benefits Abandonments Total
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------
Expense charged in 1999 $ 67 $ 11 $ 78
Cash payments in 1999 (51) (6) (57)
---------------------------------
Balance at December 31, 1999 $ 16 $ 5 $ 21
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------
In 1998, Aon acquired Le Blanc de Nicolay, Gil y Carvajal and certain other
operations for approximately $400 million in transactions accounted for by the
purchase method. The purchase accounting for these acquisitions was finalized in
1999. The acquisitions were financed by internal funds and short-term
borrowings. Excess cost over net assets purchased of approximately $400 million
resulted from the 1998 acquisitions and is being amortized over 40 years. As a
result of 1998 acquisitions and the finalization of purchase accounting for the
1997 acquisition of Jauch and Hubener, Aon had established approximately $70
million of purchase accounting liabilities primarily relating to termination
benefits and lease abandonments. Terminations involved 160 positions which
occurred in 1998 and 1999 as planned.
The following table demonstrates the activity related to the liabilities:
Termination Lease
(millions) Benefits Abandonments Total
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------
Initial liability $ 40 $ 30 $ 70
Cash payments in 1998 (16) (4) (20)
----------------------------------
Balance at December 31, 1998 24 26 50
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------
Cash payments in 1999 (24) (6) (30)
----------------------------------
Balance at December 31, 1999 $ -- $ 20 $ 20
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------
In 1997, Aon acquired Alexander and Alexander Services, Inc. (A&A) for $1.3
billion and the Minet Group (Minet) and Jauch & Hubener for approximately $300
million. These transactions were accounted for by the purchase method. The 1997
acquisitions were financed primarily by the issuance of capital securities (see
note 9), issuance of commercial paper and internal funds. Excess of cost over
net assets purchased of approximately $1.5 billion was created by the 1997
acquisitions, of which $1.2 billion was for A&A. The excess of cost over net
assets purchased is primarily being amortized over 40 years.
In second quarter 1997, Aon recorded pretax special charges of $27 million to
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 first quarter 1997, Aon recorded pretax special charges of $145 million
related to management's commitment to a formal plan of restructuring Aon's
brokerage operations as a result of the acquisition of A&A. These charges, in
addition to certain charges taken in 1996, constitute the "Aon Plan." The
restructuring charges included costs related to termination benefits of $40
million, lease abandonments and other exit costs of $68 million and asset
impairments of $37 million relating to the abandonment of systems and real
estate space. Terminations involved 600 positions which occurred in 1997 and
1998 as planned. The lease abandonments amount to $54 million, are primarily
located in the United Kingdom and are being paid out over several years as
planned.
The following table demonstrates the activity related to the Aon Plan
liabilities:
Lease
Abandonments
Termination and Other
(millions) Benefits Exit Costs Total
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Balance at December 31, 1996 $ 12 $ 48 $ 60
Expense charged in 1997 40 68 108
Cash payments in 1997 (48) (10) (58)
------------------------------------
Balance at December 31, 1997 4 106 110
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Cash payments in 1998 (4) (26) (30)
------------------------------------
Balance at December 31, 1998 -- 80 80
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Cash payments in 1999 -- (24) (24)
Credit to expense in 1999 -- (11) (11)
------------------------------------
Balance at December 31, 1999 $ -- $ 45 $ 45
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Also in 1997, due to management's commitment to a formal plan of restructuring
the A&A and Bain Hogg (a late 1996 acquisition) brokerage operations, Aon
estimated costs of $264 million which were allocated to the cost of those
acquisitions (the "A&A and Bain Hogg Plan"). The costs primarily relate to
termination benefits and lease abandonments. Terminations involved 2000
positions that occurred in 1997 and 1998 as planned.
- 34 -
<PAGE>
The following table demonstrates the activity related to the A&A and Bain Hogg
Plan liabilities:
Lease
Abandonments
Termination and Other
(millions) Benefits Exit Costs Total
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Initial liability $ 100 $ 164 $ 264
Cash payments in 1997 (65) (44) (109)
-------------------------------------
Balance at December 31, 1997 35 120 155
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Cash payments in 1998 (35) (45) (80)
-------------------------------------
Balance at December 31, 1998 -- 75 75
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
Cash payments in 1999 -- (28) (28)
Charge to expense in 1999 -- 13 13
-------------------------------------
Balance at December 31, 1999 $ -- $ 60 $ 60
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------
The remaining liabilities at December 31, 1999 primarily relate to real estate.
All of Aon's liabilities relating to acquisitions are reflected in general
expense liabilities in the consolidated statements of financial position.
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
predetermined schedule through 2007.
POOLING OF INTERESTS METHOD
In 1998 and 1997, Aon issued 2,315,000 shares and 411,000 shares of common
stock, respectively, for mergers with insurance brokerage and consulting
organizations. In connection with several of the mergers, 94,000 shares issued
to sellers are being held in escrow at December 31, 1999, 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.
4 DISCONTINUED OPERATIONS
================================================================================
A&A discontinued its property and casualty 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, including provisions to cover
future losses attributable to insurance pooling arrangements, a stop-loss
reinsurance agreement and actions or omissions by various underwriting agencies
previously managed by an A&A subsidiary.
As of December 31, 1999, the liabilities associated with the foregoing
indemnities and liabilities of insurance underwriting subsidiaries that are
currently in run-off result principally from asbestos, pollution and other
health hazard insurance claims and were included in other liabilities in the
accompanying statement of financial position and amounted to $145 million. Such
liabilities are net of reinsurance recoverables and other assets of $178
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.
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.
- 35 -
<PAGE>
5 INVESTMENTS
================================================================================
The components of investment income are as follows:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Short-term investments $ 173 $ 196 $ 178
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Fixed maturities:
Interest income 195 219 210
Income on disposals 52 37 27
Losses on disposals (13) (24) (14)
---------------------------
Total 234 232 223
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Equity securities:
Dividend income 42 80 95
Income on disposals 18 65 52
Losses on disposals (11) (27) (32)
---------------------------
Total 49 118 115
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Limited partnerships and other:
Interest, dividend and other income 79 59 23
Income (losses) on disposals 48 1 (27)
---------------------------
Total 127 60 (4)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Gross investment income 583 606 512
Less investment expenses 6 16 12
---------------------------
Investment income $ 577 $ 590 $ 500
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The components of net unrealized gains (losses) are as follows:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Fixed maturities $ (100) $ 108 $ 130
Equity securities (88) 12 167
Deferred tax credit (charge) 67 (42) (108)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ (121) $ 78 $ 189
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The pretax changes in net unrealized investment gains (losses) are as follows:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Fixed maturities $ (208) $ (22) $ 18
Equity securities (100) (155) 39
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total $ (308) $ (177) $ 57
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The amortized cost and fair value of investments in fixed maturities and equity
securities are as follows:
Gross Gross
(millions) Amortized Unrealized Unrealized Fair
As of December 31, 1999 Cost Gains Losses Value
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
U.S. government and
agencies $ 170 $ 1 $ (11) $ 160
States and political
subdivisions 8 -- (1) 7
Foreign governments 755 14 (19) 750
Corporate securities 1,577 8 (90) 1,495
Mortgage-backed securities 44 -- (1) 43
Other fixed maturities 43 1 (2) 42
------------------------------------------
Total fixed maturities 2,597 24 (124) 2,497
Total equity securities 662 12 (100) 574
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Total $ 3,259 $ 36 $ (224) $ 3,071
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Gross Gross
(millions) Amortized Unrealized Unrealized Fair
As of December 31, 1998 Cost Gains Losses Value
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
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
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
The amortized cost and fair value of fixed maturities, by contractual maturity
as of December 31, 1999, are shown on page 37. 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.
- 36 -
<PAGE>
Amortized Fair
(millions) Cost Value
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------
Due in one year or less $ 152 $ 140
Due after one year through five years 730 729
Due after five years through ten years 841 799
Due after ten years 830 786
Mortgage-backed securities 44 43
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------
Total fixed maturities $ 2,597 $ 2,497
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------
Securities on deposit for regulatory authorities as required by law amounted to
$323 million at December 31, 1999 and $274 million at December 31, 1998. As
required by the bylaws of Lloyd's brokers, cash and short-term investments
subject to floating charges for the benefit of insurance creditors amounted to
$1.2 billion and $1.3 billion at December 31, 1999 and 1998, respectively. Aon
maintains premium trust bank accounts for premiums collected from insureds but
not yet remitted to insurance companies of $1.3 billion at December 31, 1999 and
1998.
At December 31, 1999 and 1998, Aon had $41 million and $56 million,
respectively, of non-income producing investments.
6 DEBT AND LEASE COMMITMENTS
================================================================================
NOTES PAYABLE
The following is a summary of notes payable:
(millions) As of December 31 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------
6.9% debt securities, due July 2004 $ 250 $ --
6.3% debt securities, due January 2004 100 100
6.7% debt securities, due June 2003 150 150
7.4% debt securities, due October 2002 100 100
6.875% debt securities, due October 1999 -- 100
Euro credit facility, due June 2003, with interest
at 3.3% to 3.6% 292 343
Debt guarantee of employee stock ownership
plan (ESOP) -- 17
Notes payable, due in varying installments,
with interest at 4% to 10% 119 113
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------
Total notes payable $ 1,011 $ 923
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------
In May 1999, Aon filed a universal shelf registration on Form S-3 with the
Securities and Exchange Commission for the issuance of $500 million of debt and
equity securities. In a public offering based on the shelf registration, Aon
issued $250 million of 6.9% debt securities due July 2004. The net proceeds from
the sale of the 6.9% notes were used to reduce outstanding short-term commercial
paper borrowings.
In 1999, Aon's 6.875% debt securities, due in October 1999, were redeemed at
100% of the principal amount plus accrued interest.
Interest is payable semi-annually on all debt securities. In addition, the debt
securities are not redeemable by Aon prior to maturity and contain no sinking
fund provisions. Maturities of notes payable are $7 million, $5 million, $103
million, $442 million and $420 million in 2000, 2001, 2002, 2003 and 2004,
respectively.
In 1998, Aon entered into a committed bank credit facility under which certain
European subsidiaries can borrow up to EUR 400 million. At December 31, 1999,
Aon had borrowed EUR 347 million ($351 million) under this facility, of which
$59 million is classified as short-term borrowings and $292 million is
classified as notes payable in the consolidated statements of financial
position. Aon has $1.1 billion of other unused committed bank credit facilities
at December 31, 1999 to support its commercial paper borrowings which were $844
million at December 31, 1999.
Information related to notes payable (excluding the debt guarantee of ESOP) and
short-term borrowings is as follows:
Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
Interest paid (millions) $ 105 $ 87 $ 70
Weighted-average interest rates--
short-term borrowings 5.4% 5.5% 5.6%
- - - - - - - - - - - - - - - - - -------------------------------------------------------------
DEBT GUARANTEE OF ESOP
Aon's ESOP entered into loan agreements to purchase Aon common stock. The loans
were unconditionally guaranteed by Aon and therefore the unpaid balance of the
loans was classified as notes payable in the accompanying consolidated
statements of financial position. An equivalent amount, representing deferred
compensation, was recorded as a deduction from
- 37 -
<PAGE>
stockholders' equity. The ESOP paid $18 million in 1999 and 1998 and $16 million
in 1997, 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
had an interest rate of 8.35% and matured in 1999. The remaining 1,101,000
shares were released for allocation in 1999.
The following table details the shares held by the ESOP at December 31, 1998:
(thousands)
- - - - - - - - - - - - - - - - - ------------------------------------------
Allocated 4,860
Committed to be released 1,101
- - - - - - - - - - - - - - - - - ------------------------------------------
Total 5,961
- - - - - - - - - - - - - - - - - ------------------------------------------
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, 1999 are:
(millions)
- - - - - - - - - - - - - - - - - ------------------------------------------
2000 $ 224
2001 197
2002 176
2003 154
2004 133
Later years 727
- - - - - - - - - - - - - - - - - ------------------------------------------
Total minimum payments required $ 1,611
- - - - - - - - - - - - - - - - - ------------------------------------------
Rental expenses for all operating leases for the years ended December 31, 1999,
1998 and 1997, amounted to $198 million, $202 million and $177 million,
respectively.
7 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.
Income before income taxes and the provision for income taxes consist of the
following:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Income before income taxes:
U.S. $ 444 $ 528 $ 353
Foreign 191 403 189
------------------------------
Total $ 635 $ 931 $ 542
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Provision for income taxes:
Current:
Federal $ 201 $ 184 $ 21
Foreign 60 53 35
State 20 23 18
------------------------------
Total current $ 281 $ 260 $ 74
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Deferred (credit):
Federal $ (42) $ 2 $ 100
Foreign 7 87 24
State (3) -- 5
------------------------------
Total deferred (38) 89 129
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Provision for income tax $ 243 $ 349 $ 203
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
During 1999, 1998 and 1997, Aon's consolidated statements of income reflect a
tax benefit of $26 million, $25 million and $24 million, respectively, on the
capital securities.
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 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income (1.2) (1.8) (3.1)
Amortization of intangible assets
relating to acquired businesses 2.8 1.9 3.3
State income taxes 1.7 1.6 2.8
Other--net -- 0.8 (0.5)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Effective tax rate 38.3% 37.5% 37.5%
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
- 38 -
<PAGE>
Significant components of Aon's deferred tax assets and liabilities are as
follows:
(millions) As of December 31 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Deferred tax assets:
Net operating loss and tax credit carryforwards $ 36 $ 82
Certain purchase accounting and special charges 58 93
Unrealized investment losses 67 --
Employee benefit plans 64 57
Unrealized foreign exchange losses 97 62
Other 156 92
-------------------
Total $ 478 $ 386
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Deferred tax liabilities:
Policy acquisition costs $ (53) $ (41)
Unrealized investment gains -- (42)
Other (127) (38)
-------------------
Total (180) (121)
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Valuation allowance (28) (51)
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Net deferred tax assets $ 270 $ 214
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
There are limitations on the utilization of 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 in
1997. The valuation allowance changed to $51 million in 1998 and $28 million in
1999 corresponding to reductions in related deferred tax assets, with no effect
on income. Subsequently, recognized tax benefits for these items would reduce
excess of cost over net assets purchased. 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, 1999, 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 approximately $127 million.
The amount of income taxes paid in 1999, 1998 and 1997 was $324 million, $249
million and $137 million, respectively.
8 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 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Ceded premiums earned $ 624 $ 580 $ 609
Ceded premiums written 510 528 713
Assumed premiums earned 178 149 298
Assumed premiums written 116 133 284
Ceded benefits to policyholders 377 325 286
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Activity in the liability for policy contract claims is summarized as follows:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Liabilities at beginning of year $ 483 $ 520 $ 535
Incurred losses:
Current year 890 807 814
Prior years (39) (19) (50)
------------------------------
Total 851 788 764
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Payment of claims:
Current year (618) (539) (538)
Prior years (268) (286) (241)
------------------------------
Total (886) (825) (779)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Liabilities at end of year
(net of reinsurance recoverables:
1999-$316, 1998-$296, 1997-$289) $ 448 $ 483 $ 520
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
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<PAGE>
9 REDEEMABLE PREFERRED STOCK, CAPITAL SECURITIES AND STOCKHOLDERS' EQUITY
================================================================================
REDEEMABLE PREFERRED STOCK
At December 31, 1999, 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 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
A 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.
COMMON STOCK
Aon repurchased 2,774,000, 1,043,000 and 303,000 shares in 1999, 1998 and 1997,
respectively, of its common stock, primarily to provide shares for stock
compensation plans and the conversion of preferred stock. In addition, Aon
issued 1.5 million new shares of common stock in 1999 for employee benefit plans
and for acquisitions.
DIVIDENDS
A summary of dividends incurred is as follows:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Redeemable preferred stock $ 3 $ 3 $ 3
8% cumulative perpetual preferred stock -- -- 9
Common stock 207 191 168
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Total dividends incurred $ 210 $ 194 $ 180
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
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 7 for possible tax effects of
distributions made out of untaxed earnings.
Net statutory income of the insurance subsidiaries is summarized as follows:
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Life insurance $ 101 $ 239 $ 265
Property casualty 57 62 66
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Statutory capital and surplus of the insurance subsidiaries is summarized as
follows:
(millions) As of December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Life insurance $ 502 $ 610 $ 724
Property casualty 411 446 438
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
- 40 -
<PAGE>
10 EMPLOYEE BENEFITS
================================================================================
SAVINGS AND PROFIT SHARING PLANS
Aon subsidiaries maintain contributory savings plans for the benefit of United
States salaried and commissioned employees. Provisions made for these plans were
$37 million in 1999 and $22 million in 1998 and 1997.
EMPLOYEE STOCK OWNERSHIP PLAN
Aon subsidiaries maintained a leveraged ESOP for the benefit of the United
States salaried and certain commissioned employees. The final allocation under
the leveraged ESOP was for 1998. Contributions to the ESOP amounted to $16
million and $14 million in 1998 and 1997, respectively. There were no
contributions in 1999.
PENSION AND OTHER POSTRETIREMENT BENEFITS
Aon sponsors defined benefit, pension and postretirement health and welfare
plans that 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.
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 ended December 31, 1999 and 1998 and a
statement of the funded status as of December 31, 1999 and 1998.
Pension Benefits Other Benefits
(millions) 1999 1998 1999 1998
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Reconciliation of benefit obligation
Obligation at beginning
of period $ 756 $ 692 $ 70 $ 61
Service cost 31 32 2 1
Interest cost 55 51 5 5
Participant contributions -- -- 5 4
Plan amendments -- (8) -- --
Actuarial (gain) loss (2) (13) (8) 7
Acquisitions -- 11 -- --
Benefit payments (40) (38) (12) (8)
Curtailments -- -- 7 --
Special termination benefits 32 -- -- --
Change in interest rate (100) 29 -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Obligation at end of period $ 732 $ 756 $ 69 $ 70
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Reconciliation of fair value of plan assets
Fair value at beginning
of period $ 904 $ 853 $ 8 $ 7
Actual return on plan assets 66 60 -- 1
Acquisitions -- 16 -- --
Employer contributions 3 13 -- --
Benefit payments (40) (38) -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Fair value at end of period $ 933 $ 904 $ 8 $ 8
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Funded status
Funded status at
end of period $ 201 $ 148 $ (61) $ (62)
Unrecognized prior-service (6) (6) (5) (10)
Unrecognized gain (169) (99) (16) (16)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Prepaid (accrued) benefit
cost $ 26 $ 43 $ (82) $ (88)
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Pension plan assets include 2.5 million shares of common stock issued by Aon
for 1999 and 1998 on which dividends of $2 million were received in both years.
- 41 -
<PAGE>
In February 1999, 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 1999 resulting from the
program has been included above.
The following table provides the components of net periodic benefit cost
(credit) for the plans for the years ended December 31, 1999, 1998 and 1997:
(millions) Pension Benefits 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Service cost $ 31 $ 32 $ 32
Interest cost 55 51 46
Expected return on plan assets (89) (71) (62)
Amortization of prior-service (1) (1) --
Amortization of net gain (6) -- --
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Net periodic benefit cost (credit) $ (10) $ 11 $ 16
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
(millions) Other Benefits 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Service cost $ 2 $ 1 $ 2
Interest cost 5 5 4
Expected return on plan assets -- (1) (1)
Amortization of prior-service (5) (5) (5)
Amortization of net gain (1) (1) (1)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Net periodic benefit cost (credit) $ 1 $ (1) $ (1)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
The weighted-average assumptions for the measurement period for U.S. benefit
obligations are shown in the following table:
Pension Benefits Other Benefits
1999 1998 1999 1998
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
Discount rate 8.0% 7.2% 8.0% 7.2%
Expected return on plan assets 10.0 9.0 -- --
Rate of compensation increase 4.0 5.0 4.0 5.0
- - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------
ASSUMPTIONS FOR OTHER POSTRETIREMENT BENEFITS
The employer's liability for future plan cost increase is limited in any year to
5% per annum. For measurement purposes in 1999, 1998 and 1997, 7.0%, 7.5% and
8.5%, 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 for the measurement period ended in 1999.
INTERNATIONAL PENSION PLANS
The following tables provide a reconciliation of the changes in obligations and
fair value of assets for the years ended December 31, 1999 and 1998 and a
statement of the funded status as of December 31, 1999 and 1998 for material
international plans, which are located in the United Kingdom and The
Netherlands.
International Pension
(millions) 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Reconciliation of benefit obligation
Obligation at beginning of period $ 2,147 $ 1,623
Service cost 74 61
Interest cost 127 113
Participants contributions 6 7
Benefit payments (77) (73)
Change in interest rate 29 375
Foreign exchange translation (96) 41
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Obligation at end of period $ 2,210 $ 2,147
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Reconciliation of fair value of plan assets
Fair value at beginning of period $ 1,976 $ 1,752
Actual return on plan assets 248 215
Employer contributions 61 33
Participants contributions 6 7
Benefit payments (77) (73)
Foreign exchange translation (92) 42
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Fair value at end of period $ 2,122 $ 1,976
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Funded status
Funded status at end of period $ (88) $ (171)
Unrecognized prior-service 1 1
Unrecognized loss 260 430
Additional minimum pension liability (60) (155)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Prepaid benefit cost $ 113 $ 105
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
In 1999, plans with a projected benefit obligation (PBO) in excess of the fair
value of plan assets had a PBO of $1.4 billion and plan assets with a fair value
of $1.3 billion, and plans with an accumulated benefit obligation (ABO) in
excess of the fair value of plan assets had an ABO of $480 million and plan
assets with a fair value of $440 million. Also, in 1999, the prepaid
- 42 -
<PAGE>
benefit cost presented in the foregoing table is comprised of plans with prepaid
assets of $173 million and accrued liabilities of $60 million.
The following table provides the components of net periodic benefit cost for the
international plans for the measurement period ended in 1999, 1998 and 1997:
(millions) 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Service cost $ 74 $ 61 $ 49
Interest cost 127 113 96
Expected return on plan assets (196) (172) (141)
Amortization of net loss 8 2 --
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Net periodic benefit cost $ 13 $ 4 $ 4
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
The weighted-average assumptions for the measurement period for the
international pension benefit obligations are shown in the following table:
1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Discount rate 6.0- 7.0% 6.0- 7.0% 7.0%
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- 4.5 4.0- 5.5
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
11 STOCK COMPENSATION PLANS
================================================================================
STOCK AWARD PLAN
Under the Aon Stock Award Plan, Aon could award up to 19,400,000 shares of
common stock. At December 31, 1999, approximately 3,900,000 shares remain
available for award. Generally, the award plan requires the employees to
complete three continuous years of service before the award begins to vest in
increments until the completion of a ten-year period of continuous employment.
In general, most awarded shares are issued as they become vested. With certain
limited exceptions, any break in continuous employment will cause forfeiture of
all unvested awards. The compensation cost associated with each award is
deferred and amortized over the period of continuous employment using the
straight-line method.
Aon common stock awards outstanding consist of the following:
(shares in thousands)
Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Shares outstanding at beginning
of year 9,321 9,621 7,815
Granted 2,056 1,179 2,804
Vested and exercised (1,159) (1,205) (855)
Canceled (353) (274) (143)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Shares outstanding at end of year 9,865 9,321 9,621
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
STOCK OPTION PLAN
Under the nonqualified Aon 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. Under the plan, Aon could issue
options to purchase up to 35,000,000 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 six-year period of continuous
employment.
A summary of Aon's stock option activity and related information consists of the
following:
Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
(shares in thousands) Shares Price Shares Price Shares Price
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Beginning
outstanding 10,298 $ 26 9,078 $ 21 7,914 $ 17
Granted 2,417 43 2,381 43 2,469 32
Exercised (1,026) 17 (987) 15 (869) 13
Canceled (466) 28 (174) 22 (436) 19
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Ending
outstanding 11,223 $ 31 10,298 $ 26 9,078 $ 21
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Exercisable at
end of year 1,833 $ 17 1,262 $ 15 1,044 $ 14
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
Options available
for grant 4,843 6,795 9,002
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
- 43 -
<PAGE>
A summary of options outstanding and exercisable is as follows:
As of December 31, 1999
(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
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$ 14.17-$ 15.09 1,423 1.3 $ 14.93 780 $ 14.92
15.22- 21.72 1,303 2.0 16.08 613 16.20
22.89- 22.89 1,614 3.2 22.89 385 22.89
23.56- 28.92 2,136 6.9 28.62 55 25.65
29.63- 42.67 530 7.9 35.70 -- --
43.33- 43.33 2,120 8.2 43.33 -- --
43.44- 49.29 2,097 9.2 43.56 -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$ 14.17-$ 49.29 11,223 5.8 $ 30.51 1,833 $ 17.34
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
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
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$ 12.71-$ 14.86 572 1.9 $ 13.91 315 $ 13.46
15.09- 15.09 1,292 2.2 15.09 446 15.09
15.22- 15.89 1,335 3.1 15.85 297 15.81
15.93- 21.72 423 1.8 16.52 204 16.56
22.89- 22.89 1,848 4.2 22.89 -- --
23.55- 28.92 2,223 7.9 28.63 -- --
35.06- 47.87 2,605 9.1 41.99 -- --
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
$ 12.71-$ 47.87 10,298 5.6 $ 26.31 1,262 $ 15.09
- - - - - - - - - - - - - - - - - --------------------------------------------------------------------------------
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 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Net income (millions):
As reported $ 352 $ 541 $ 299
Pro forma 341 530 292
Net income per share:
Dilutive
As reported 1.33 2.07 1.12
Pro forma 1.29 2.03 1.09
Basic
As reported 1.35 2.11 1.14
Pro forma 1.31 2.07 1.11
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
The fair value per share of options and awards granted is estimated as $10.87
and $35.02 in 1999, $11.01 and $37.39 in 1998, and $5.98 and $27.73 in 1997,
respectively, on the grant date using the Black-Scholes option pricing model
with the following weighted-average assumptions:
1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Dividend yield 2.0% 2.0% 2.5%
Expected volatility 21% 20% 20%
Risk-free interest rate 6% 6% 6%
Expected term life (in years):
Stock options 0.87 1.35 1.35
Stock awards 0 0 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 PLANS
Effective July 1, 1998, Aon adopted an employee stock purchase plan, which
provides for the purchase of a maximum of 7,500,000 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. No
shares were issued under the plan in 1998. In 1999, 333,000 shares were
purchased by employees under the plan. Approximately 320,000 shares were
purchased by employees under the plan in January 2000.
In 1999, Aon adopted an employee stock purchase plan which provides for the
purchase of approximately 720,000 shares of Aon's common stock by eligible U.K.
employees that is similar to the U.S. plan described above. No shares were
issued under the plan in 1999.
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<PAGE>
12 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.
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, 1999
and 1998, Aon placed securities in escrow amounting to $4 million and $8
million, respectively, relating to these derivative contracts.
FOREIGN EXCHANGE RISK MANAGEMENT
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.
Prior to July 1999, Aon managed a group of foreign exchange and interest rate
risks that considered the correlation among thirteen currency rates and two
short-term interest rates. Aon used 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 were reflected as an adjustment to income when settled. For
contracts designated as hedges of a net investment in foreign subsidiary,
realized and unrealized gains were recorded directly to stockholders' equity as
a component of net unrealized foreign exchange gains and losses.
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 in the U.S. and in
Europe.
Interest rate swap agreements are being used to manage asset and liability
durations. Prior to 1999, exchange-traded Eurodollar futures, used in
conjunction with basis rate swaps, were used to manage asset liability durations
related to various other crediting arrangements emanating from other insurance
underwriting businesses. As of December 31, 1999 and 1998, 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 floor agreements and purchases
exchange-traded futures and options to limit its exposure to decreasing
short-term interest rates, primarily relating to brokerage fiduciary funds in
the U.S., U.K. and Europe. 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 and to
manage corporate funding risks. The net effect of swap payments is settled
periodically and reported in income. There is no settlement of underlying
notional amounts. Exchange-traded 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.
- 45 -
<PAGE>
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 for 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 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 1999 1998
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Foreign currency management
Forwards $ 65 $ 195
Futures -- 69
Call options 165 35
Interest rate and asset/liability duration
management
Eurodollar futures 4,455 1,730
Eurosterling options 297 --
Eurosterling futures 329 900
Treasury futures 55 15
Treasury call options 49 30
Treasury put options 35 10
Interest rate swaps--pay fixed 660 1,192
Interest rate swaps--receive fixed -- 172
Basis rate swaps--pay and receive variable 397 184
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Aon amortized into income $6 million in 1999, $1 million in 1998 and $3 million
in 1997 of net deferred gains relating to derivatives. Separately deferred
hedging gains or losses for derivative financial instruments accounted for as
hedges of anticipated transactions were $0 at December 31, 1999 and $5 million
of gains at December 31, 1998.
The interest rates on Aon's outstanding swaps at December 31 are presented
below:
Receive Pay Pay Receive
Fixed Variable Fixed Variable
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------
1999 -- 5.7-5.9% 5.3-6.6% 5.1-6.0%
1998 4.0-8.1% 3.2-8.8% 4.8-9.7% 4.3-5.7%
- - - - - - - - - - - - - - - - - ----------------------------------------------------------------------
As of December 31, 1999, swaps have maturities ranging from January 2000 to July
2004. Aon receives variable rates based on the one-month commercial paper rate.
- 46 -
<PAGE>
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, 1999 and 1998 totaled $312
million and $283 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, 1999 and 1998, the maximum commitment
contained in these agreements was $3.6 billion and $2.8 billion, respectively.
Aon's maximum credit risk under recourse provisions of these agreements was
approximately $260 million and $202 million at December 31, 1999 and 1998,
respectively. In 1999, a subsidiary of Aon sold $10 million of credit protection
in the form of a credit default swap and purchased similar credit protection,
also in the form of a credit default swap, to offset its risk in the
transaction.
An Aon subsidiary issues fixed- and floating-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 are
subject to varying elements of credit and market risk.
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 1999 1998
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
Assets:
Fixed maturities and
equity securities $ 3,071 $ 3,071 $ 3,871 $ 3,871
Other investments 740 739 349 348
Cash, receivables
and short-term
investments 10,545 10,545 9,550 9,550
Derivatives* -- 3 -- (2)
Liabilities:
Investment type
insurance contracts 1,207 1,147 1,261 1,310
Short-term borrowings,
premium payables
and general expenses 10,277 10,277 8,897 8,897
Notes payable 1,011 1,001 923 932
Capital securities 800 792 800 916
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------
* These exclude derivatives with a carrying value of $1 million and $(2) million
and a fair value of $(1) million and $(2) million that are included in other
asset categories at December 31, 1999 and 1998, respectively.
13 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.
In 1998, the Internal Revenue Service (IRS) proposed adjustments to the tax of
certain Aon subsidiaries for the period of 1990 through 1993. Most of these
adjustments should be resolved through factual substantiation of certain
accounting matters. However, 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 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.
- 47 -
<PAGE>
In the second quarter of 1999, Allianz Life Insurance Company of North America,
Inc. ("Allianz") filed an amended complaint in Minnesota adding a brokerage
subsidiary of Aon as a defendant in an action which Allianz brought against
three insurance carriers reinsured by Allianz. These three carriers provided
certain types of workers' compensation reinsurance to a pool of insurers and to
certain facilities managed by Unicover Managers, Inc. ("Unicover"), a New Jersey
corporation not affiliated with Aon. Allianz alleges that the Aon subsidiary
acted as an agent of the three carriers when placing reinsurance coverage on
their behalf. Allianz claims that the reinsurance it issued should be rescinded
or that it should be awarded damages, based on alleged fraudulent, negligent and
innocent misrepresentations by the carriers, through their agents, including the
Aon subsidiary defendant. Aon believes that the Aon subsidiary has meritorious
defenses and the Aon subsidiary intends to vigorously defend this claim.
Except for an action filed to compel Aon to produce documents to which Aon is
responding, the Allianz lawsuit is the only lawsuit or arbitration relating to
Unicover in which any Aon related entity is a party. However, in fourth quarter
1999 Aon recognized a pretax charge for $72 million in general expenses in its
insurance brokerage and other services segment relating to Unicover and other
litigation matters. Of this charge, $27 million is for a January 2000 settlement
of certain Unicover related business reinsured by Reliance Group Holdings, Inc.
The remaining Unicover issues are complex and, therefore, the timing of
resolution cannot be determined at this time.
Certain U.K. subsidiaries of Aon have been required by their regulatory body,
the Personal Investment Authority (PIA), to review advice given by those
subsidiaries to individuals who bought pension plans during the period from
April 1988 to June 1994. These reviews have resulted in a requirement to pay
compensation to clients based on guidelines issued by the PIA. In 1999, Aon
charged general expenses for $121 million in the consulting segment to provide
for these payments. As of December 31, 1999, Aon has $107 million remaining in
general expense liabilities for these payments which are expected to be
disbursed over the next few years. Aon's ultimate exposure from the private
pension plan review, as presently calculated, is subject to a number of variable
factors including, among others, equity markets, the rate of response to the
pension review mailings, the interest rate established quarterly by the PIA for
calculating compensation and the precise scope, duration and methodology of the
review, including whether recent regulatory guidance will have to be applied to
previously settled claims.
Although the ultimate outcome of all matters referred to above 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 beyond
amounts provided. However, it is possible that future results of operations or
cash flows for any particular quarterly or annual period could be materially
affected by an unfavorable resolution of these matters.
- 48 -
<PAGE>
14 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 and reinsurance brokerage
operations, which include specialty and wholesale activity. The Consulting
segment is Aon's employee benefit and human resource consulting organization.
The Insurance Underwriting segment is comprised of direct sales life, accident
and health, extended warranty, specialty and other insurance products. The
Corporate and Other segment revenues consist primarily of investment income on
capital.
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. Intercompany revenues and expenses are eliminated in computing
consolidated revenues and income before income tax. There are no material
inter-segment amounts to be eliminated. Long-lived assets and related
depreciation and amortization are not material.
Selected information about Aon's operating and geographic areas of operation
follows:
CONSOLIDATED REVENUE BY GEOGRAPHIC AREA
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
United States $ 4,131 $ 3,736 $ 3,413
United Kingdom 1,352 1,244 1,158
Continent of Europe 841 790 439
Rest of World 746 723 741
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Total $ 7,070 $ 6,493 $ 5,751
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
INVESTMENT INCOME BY SEGMENT
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Insurance brokerage and other
services (primarily short-term
investments) $ 159 $ 194 $ 163
Consulting 3 6 6
Insurance underwriting
(primarily fixed maturities) 251 240 214
Corporate and other 164 150 117
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Total $ 577 $ 590 $ 500
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
INSURANCE BROKERAGE AND OTHER SERVICES
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Revenue by geographic area:
United States $ 2,146 $ 1,884 $ 1,670
United Kingdom 830 798 733
Continent of Europe 680 626 317
Rest of World 488 474 501
=============================================================================
Revenue by product:
Retail $ 2,831 $ 2,761 $ 2,327
Reinsurance and wholesale 1,313 1,021 894
--------------------------------
Total 4,144 3,782 3,221
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Operating expenses 3,422 3,086 2,749
Amortization of intangibles 38 33 36
--------------------------------
Total expenses 3,460 3,119 2,785
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Income before income tax excluding
special charges 684 663 436
Special charges 191 -- 132
--------------------------------
Income before income tax $ 493 $ 663 $ 304
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Identifiable assets at December 31 $ 9,467 $ 9,006 $ 8,382
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
CONSULTING
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Revenue by geographic area:
United States $ 405 $ 387 $ 358
United Kingdom 147 134 131
Continent of Europe 44 36 18
Rest of World 60 58 46
--------------------------------
Total 656 615 553
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Operating expenses 573 544 491
Amortization of intangibles 3 3 4
--------------------------------
Total expenses 576 547 495
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Income before income tax excluding
special charges 80 68 58
Special charges 122 -- 13
-------------------------------
Income (loss) before income tax $ (42) $ 68 $ 45
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Identifiable assets at December 31 $ 248 $ 150 $ 141
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
- 49 -
<PAGE>
INSURANCE UNDERWRITING
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Revenue by geographic area:
United States $ 1,457 $ 1,366 $ 1,308
United Kingdom 349 290 274
Continent of Europe 115 117 102
Rest of World 185 173 174
=============================================================================
Revenue by product:
Direct sales $ 1,098 $ 1,053 $ 1,035
Extended warranty 730 643 574
Specialty and other 278 250 249
--------------------------------
Total 2,106 1,946 1,858
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Benefits to policyholders 973 896 842
Operating expenses 596 551 530
Amortization of deferred
acquisition costs 247 216 208
------------------------------
Total expenses 1,816 1,663 1,580
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Income before income tax $ 290 $ 283 $ 278
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Identifiable assets at December 31 $ 5,640 $ 5,213 $ 4,936
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
CORPORATE AND OTHER
(millions) Years ended December 31 1999 1998 1997
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Total revenue $ 164 $ 150 $ 119
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Operating expenses 63 60 26
Interest expense 105 87 70
Amortization of intangibles 102 86 81
-------------------------------
Total expenses 270 233 177
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Loss before income tax excluding
special charges (106) (83) (58)
Special charges -- -- 27
--------------------------------
Loss before income tax $ (106) $ (83) $ (85)
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
Identifiable assets at December 31 $ 5,777 $ 5,319 $ 5,232
- - - - - - - - - - - - - - - - - -----------------------------------------------------------------------------
- 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, 1999 and 1998, and the related
consolidated statements of income, stockholders' equity, and cash flows for each
of the three years in the period ended December 31, 1999. 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 auditing standards generally accepted
in the United States. 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, 1999 and 1998, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ ERNST & YOUNG LLP
---------------------
ERNST & YOUNG LLP
Chicago, Illinois
February 8, 2000
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 accounting
principles generally accepted in the United States. 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, 1999, 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 for recommending appointment of the independent auditors and
provides oversight relating to the review of financial information provided to
stockholders and others, the systems of internal control which management and
the board of directors have established and the audit process. 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) 1999 1998 1997 1996 1995
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Brokerage commissions and fees $ 4,639 $ 4,197 $ 3,605 $ 1,919 $ 1,651
Premiums and other 1,854 1,706 1,646 1,577 1,473
Investment income 577 590 500 392 342
---------------------------------------------------------------------
Total revenue 7,070 6,493 5,751 3,888 3,466
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations
excluding special charges $ 547 $ 541 $ 406 $ 351 $ 304
Income from continuing operations 352 541 299 292 304
Discontinued operations -- -- -- 43 99
Net income 352 541 299 335 403
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA*
Income from continuing operations
excluding special charges $ 2.07 $ 2.07 $ 1.55 $ 1.33 $ 1.14
Income from continuing operations 1.33 2.07 1.12 1.10 1.14
Discontinued operations -- -- -- 0.17 0.39
Net income 1.33 2.07 1.12 1.27 1.53
BASIC PER SHARE DATA*
Income from continuing operations 1.35 2.11 1.14 1.11 1.15
Net income 1.35 2.11 1.14 1.29 1.55
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
ASSETS
Investments $ 6,184 $ 6,452 $ 5,922 $ 5,213 $ 10,639
Brokerage and consulting receivables 6,230 5,423 5,320 3,566 2,264
Intangible assets 3,862 3,500 3,094 1,598 1,598
Other 4,856 4,313 4,355 3,346 5,235
----------------------------------------------------------------------
Total assets $ 21,132 $ 19,688 $ 18,691 $ 13,723 $ 19,736
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance premiums payable $ 7,643 $ 6,948 $ 6,380 $ 4,144 $ 2,723
Policy liabilities 4,988 4,823 4,450 4,360 9,556
Notes payable 1,011 923 637 521 554
General liabilities 3,589 3,127 3,552 1,815 4,179
---------------------------------------------------------------------
Total liabilities 17,231 15,821 15,019 10,840 17,012
Redeemable preferred stock 50 50 50 50 50
Capital securities 800 800 800 -- --
Stockholders' equity 3,051 3,017 2,822 2,833 2,674
----------------------------------------------------------------------
Total liabilities and stockholders' equity $ 21,132 $ 19,688 $ 18,691 $ 13,723 $ 19,736
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA*
Dividends paid per share $ 0.82 $ 0.73 $ 0.68 $ 0.63 $ 0.59
Stockholders' equity per share 11.91 11.83 11.20 10.81 10.12
Price range 46 2/3 - 50 3/8 - 39 1/4 - 28 3/4 - 22 9/16 -
26 1/16 32 3/16 26 13/16 21 1/16 13 15/16
Market price at year-end 40.000 36.917 39.083 27.583 22.167
Common stockholders 13,757 12,294 12,698 13,030 13,520
Shares outstanding (in millions) 256.1 255.0 252.0 249.6 243.6
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Per share and common stock data have been restated to reflect the 1999
three-for-two stock split.
</FN>
</TABLE>
- 52 -
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1999
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income Statement Data
Brokerage commissions and fees $ 1,112 $ 1,143 $ 1,127 $ 1,257 $ 4,639
Premiums and other 437 441 475 501 1,854
Investment income 150 139 168 120 577
---------------------------------------------------------------------
Total revenue 1,699 1,723 1,770 1,878 7,070
---------------------------------------------------------------------
Net income excluding special charges 152 151 138 106 547
Net income 50 151 138 13 352
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA*
Net income excluding special charges $ 0.58 $ 0.57 $ 0.52 $ 0.40 $ 2.07
Net income 0.19 0.57 0.52 0.05 1.33
BASIC NET INCOME PER SHARE* 0.19 0.58 0.53 0.05 1.35
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA*
Dividends paid per share $ 0.19 $ 0.21 $ 0.21 $ 0.21 $ 0.82
Stockholders' equity per share 11.27 12.17 12.30 11.91 11.91
Price range 45 1/3 - 46 2/3 - 43 1/8 - 41 11/16 - 46 2/3 -
32 11/16 39 13/16 29 1/16 26 1/16 26 1/16
Shares outstanding (in millions) 256.2 256.2 256.6 256.1 256.1
Average monthly trading volume (in millions) 8.7 9.1 9.6 17.6 11.2
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
(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* $ 0.53 $ 0.54 $ 0.47 $ 0.53 $ 2.07
BASIC NET INCOME PER SHARE* 0.55 0.55 0.48 0.54 2.11
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA*
Dividends paid per share $ 0.17 $ 0.19 $ 0.19 $ 0.19 $ 0.73
Stockholders' equity per share 11.40 11.94 11.75 11.83 11.83
Price range 44 2/3 - 48 1/6 - 50 3/8 - 42 3/4 - 50 3/8 -
36 1/12 41 39 1/4 32 3/16 32 3/16
Shares outstanding (in millions) 253.1 253.4 255.2 255.0 255.0
Average monthly trading volume (in millions) 6.6 7.7 8.6 12.0 8.7
- - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
<FN>
* Per share and common stock data have been restated to reflect the 1999
three-for-two stock split.
</FN>
</TABLE>
- 53 -
<PAGE>
INFORMATION CONCERNING
FORWARD-LOOKING STATEMENTS
This annual report contains certain statements relating to future results, which
are forward-looking statements as that term is defined in the Private Securities
Litigation Reform Act of 1995. These forward-looking statements are subject to
certain risks and uncertainties that could cause actual results to differ
materially from historical results or those anticipated, depending on a variety
of factors such as general economic conditions in different countries around the
world, fluctuations in global equity and fixed income markets, downward
commercial property and casualty premium pressures, the competitive environment
and the actual cost of resolution of contingent liabilities. Further information
concerning the company and its business, including factors that potentially
could materially affect the company's financial results are contained in the
company's filings with the Securities and Exchange Commission.
STRUCTURE OF OPERATING BUSINESSES
Aon Corporation is a holding company. Its separate subsidiary corporations
conduct operations. References herein to "Aon" usually relate to such
subsidiaries, individually or in the aggregate, but on occasion may relate to
Aon Corporation. Express references to "Aon Corporation" relate to the holding
company. Operating businesses are principally involved in insurance brokerage,
consulting and insurance underwriting; however, references in this annual report
are not intended to be a complete or inclusive list of our businesses.
- 54 -
<PAGE>
Exhibit 21
<TABLE>
<CAPTION>
Aon Corporation and its Subsidiaries (as of December 31, 1999)
<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.G.Y.C. Corretores de Seguros Ltda. Portugal
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
ACGMGA Corp. Texas
ACN 004 192 394 Australia
ACN 006 278 226 Australia
ACN 008 497 318 Australia
ACN 051 158 984 Australia
ACN 075 486 243 Australia
ACP Insurance Agency, Inc. Texas
Administradora Centurion Ltda Colombia
Admiseg SA Argentina
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
AGISA, S.A. Mexico
Agostini Insurance Brokers Ltd. Trinidad
Agricola Training Limited United Kingdom
Agricola Underwriting Limited United Kingdom
Agricola Underwriting Management Limited New Zealand
Agricola Underwriting Management Pty Ltd. Australia
Agricultural Risk Management (Pacific) Ltd New Zealand
Agricultural Risk Management Argentina S.A. Argentina
Agricultural Risk Management Chile Chile
- 1 -
<PAGE>
Agricultural Risk Management North America, Inc. Kansas
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
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
Air-Con Solution Ltd. Thailand
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
AIS Management Corporation California
Aldebaran S.R.L. Rome Italy
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 (Taiwan) Ltd. Taiwan
Alexander & Alexander (Thailand) Ltd. Thailand
Alexander & Alexander Asia Holdings Pte. Ltd. Singapore
Alexander & Alexander B.V. Netherlands
Alexander & Alexander Benefits Services of Louisiana Inc. Louisiana
Alexander & Alexander Colombia Ltda. Colombia
Alexander & Alexander Consultants S.A. France
Alexander & Alexander Corretores e Consultores de Seguros Lda. Portugal
Alexander & Alexander Europe GmbH Austria
Alexander & Alexander Europe Ltd. United Kingdom
Alexander & Alexander Far East Partners Hong Kong
Alexander & Alexander Galicia, S.A. Spain
Alexander & Alexander Holdings B.V. Netherlands
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 Korea Inc. Korea
Alexander & Alexander Limited United Kingdom
Alexander & Alexander Ltd. Fiji
Alexander & Alexander Ltd. New Zealand
Alexander & Alexander Ltd. (Thailand) Thailand
Alexander & Alexander Mexico Agente de Seguros y de Fianza S.A. de C.V. Mexico
Alexander & Alexander Middle East Limited Bermuda
- 2 -
<PAGE>
Alexander & Alexander of Colombia Ltda. Colombia
Alexander & Alexander of Kansas, Inc. Kansas
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 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 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 Scotland
Alexander Clay Communications Limited United Kingdom
Alexander Consulting Groep B.V. Netherlands
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) Limited Bermuda
Alexander Howden Holdings Limited United Kingdom
Alexander Howden Insurance Services of Texas, Inc. Texas
Alexander Howden International Limited United Kingdom
Alexander Howden Leasing Ltd. United Kingdom
Alexander Howden Limited United Kingdom
Alexander Howden North America, Inc. Georgia
Alexander Howden North America, Inc. Massachusetts
Alexander Howden North America, Inc. New York
Alexander Howden North America, Inc. Ohio
- 3 -
<PAGE>
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 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 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 Underwriting Agencies Limited Bermuda
Alexander Underwriting Services Inc. Maryland
Alexander Underwriting Services Limited United Kingdom
Alexander Watkins S.A. de C.V. Mexico
Alexander, Ayling, Barrios & Cia, S.A. Argentina
Algemeen Asurantiekantoor van 1863 Justin van de Port bv Netherlands
Allen Insurance Associates, Inc. California
Alpenbeck Limited United Kingdom
American Special Risk Insurance Company Delaware
Anchor Reinsurance Company, Ltd. Bermuda
Anchor Underwriting Managers, Ltd. Bermuda
Anderson and Anderson Insurance Brokers, Inc. California
Anderson and Anderson of Los Angeles Insurance Brokers, Inc. California
Anderson and Anderson of Orange County Insurance Brokers, Inc. California
Anderson and Anderson/Benefits Insurance Brokers, Inc. California
Anderson and Anderson/D-K&S Insurance Brokers, Inc. California
- 4 -
<PAGE>
Andes Global Ltd. Brit. Virgin Islands
Andrea Scagliarni Assicurazione Italy
Anglo-Swiss Reinsurance Brokers Ltd. Switzerland
Anistics Ltd. United Kingdom
ANR Engineering Limited United Kingdom
Anscor Insurance Brokers Inc. Philippines
Aon Hudig cv Netherlands
Aon WACUS Kreditversicherungsmakler GmbH & Co. Germany
Aon WACUS Verwaltungs GmbH Germany
Aon (Panama) Ltd. S.A. Panama
Aon Acquisition Corporation of Arkansas Arkansas
Aon Acquisition Corporation of New Jersey New Jersey
Aon Adjudication Services Limited United Kingdom
Aon Administrative Services Corp. California
Aon Advisors (U.K.) Limited United Kingdom
Aon Advisors, Inc. Virginia
Aon Aisa Ltd Hong Kong
Aon Alexander & Alexander N.V. Belgium
Aon Andueza Nikols, Corredores de Seguros S.A. Chile
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 Assurances Credit SA France
Aon Aviation, Inc. Illinois
Aon Bain Hogg Limited United Kingdom
Aon Belgium nv Belgium
Aon Benefit Services, Inc. Massachusetts
Aon Benefits Insurance Brokers (Singapore) Pte. Ltd. Singapore
Aon BEP Inc. Quebec
Aon Boels & Begault S.A. Belgium
Aon Brasil Resseguros Ltda Brazil
Aon Brazil Corretores de Seguros Ltda. Brazil
Aon Broker Services, Inc. Illinois
Aon Broking Services S.A. Argentina
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 Centurion S.A. Corredores de Seguros Colombia
Aon Ceska republika spol. s.r.o. Czech Republic
Aon Colombia S.A. Corredores de Seguros Colombia
Aon Commercial Risks Hong Kong Ltd. Hong Kong
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<PAGE>
Aon Compensation and Benefits Limited United Kingdom
Aon Conseil Assurances de Personnes SA France
Aon Consulting & Insurance Services California
Aon Consulting (Malaysia) Sdn Bhd. Malaysia
Aon Consulting Agency, Inc. Texas
Aon Consulting Belgium S.A. Belgium
Aon Consulting Chile Limitada Chile
Aon Consulting Consultores de Seguros Ltda. Brazil
Aon Consulting Denmark A/S Denmark
Aon Consulting Financial Services Limited United Kingdom
Aon Consulting GmbH Germany
Aon Consulting Group Limited United Kingdom
Aon Consulting Hong Kong Ltd. Hong Kong
Aon Consulting Inc. Canada
Aon Consulting Limited United Kingdom
Aon Consulting Nederland cv Netherlands
Aon Consulting New Zealand Ltd. New Zealand
Aon Consulting of Maryland, Inc. Maryland
Aon Consulting Pty Limited Australia
Aon Consulting S.A. Colombia
Aon Consulting South Africa (Pty) Ltd. South Africa
Aon Consulting Thailand Ltd. Thailand
Aon Consulting Worldwide, Inc. Maryland
Aon Consulting, Inc. Florida
Aon Consulting, Inc. New Jersey
Aon Consulting, Inc. New York
Aon Consulting, Inc. Ohio
Aon Consulting, Inc. Texas
Aon Consulting, Inc. of Arizona Arizona
Aon Consulting, Limited Quebec
Aon Consulting, S.A. de C.V. Mexico
Aon Corporation Australia Limited Australia
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 Employee Risk Solutions Limited United Kingdom
Aon Enterprise Insurance Services, Inc. Illinois
Aon Enterprise Insurance Services, Inc. Texas
Aon Entertainment Risk Services Limited United Kingdom
Aon Finance Limited United Kingdom
Aon Financial Planning Ltd. Australia
Aon Financial Products, Inc. Delaware
Aon Financial Services Group of Colorado, Inc. Colorado
Aon Financial Services Group of New York, Inc. New York
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<PAGE>
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 Financial Services Limited United Kingdom
Aon Finland OY Finland
Aon Forfaiting Limited United Kingdom
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 Gil y Carvajal Flotas, SA Spain
Aon Gil y Carvajal Portugal - Corretores de Seguros SA Portugal
Aon Global Risk Consultants Limited United Kingdom
Aon Grieg AS Norway
Aon Grieg P&I AS Norway
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 New Zealand Ltd. New Zealand
Aon Group Venezuela, Corretaje de Reaseguro, C.A. Venezuela
Aon Group, Inc. Maryland
Aon Hamond & Regine, Inc. New York
Aon Hazard Limited United Kingdom
Aon Health Services Inc. Texas
Aon Healthcare Insurance Services of Arizona, Inc. Arizona
Aon Healthcare Insurance Services, Inc. California
Aon Hellas A.E. Greece
Aon Holdings Antillen nv Netherland Antilles
Aon Holdings Australia Ltd. Australia
Aon Holdings Belgium nv Belgium
Aon Holdings bv Netherlands
Aon Holdings Denmark A/S Denmark
Aon Holdings Hong Kong Limited Hong Kong
Aon Holdings International BV Netherlands
Aon Holdings New Zealand Ltd. New Zealand
Aon Home Warranty Services, Inc. Delaware
Aon Hudig Groningen bv Netherlands
Aon Hudig Hengelo bv Netherlands
Aon Hudig Nijmegen bv Netherlands
Aon Hudig Noordwijk bv Netherlands
Aon Hudig Tilburg bv Netherlands
Aon Hudig Venlo bv Netherlands
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<PAGE>
Aon Hudig-Schreinemacher vof Netherlands
Aon India Limited United Kingdom
Aon Innovative Solutions, Inc. Missouri
Aon Insurance Management Agencies (Hong Kong) Ltd. Hong Kong
Aon Insurance Management Services - Virgin Islands, Inc. U.S. Virgin Islands
Aon Insurance Management Services, Inc. Delaware
Aon Insurance Managers (Antilles) nv Netherland Antilles
Aon Insurance Managers (Bermuda) Ltd. Bermuda
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 Italia SpA Italy
Aon Jauch & Hubener Consulting GmbH Germany
Aon Jauch & Hubener GmbH Germany
Aon Jauch & Hubener Holdings Gmbh Germany
Aon Jauch & Hubener Privates Vorsorgemanagement GmbH Germany
Aon Jauch & Hubener Versicherungsconsulting Ges. mbH Austria
Aon Jauch & Hubener Verwaltungs- GmbH Germany
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 Malta Ltd. Malta
Aon Managed Care Risk & Insurance Services, Inc. California
Aon Manzitti S.p.A. Italy
Aon Mibrag Versicherungsvermittlungs GmbH Germany
Aon Middle East United Arab Emirates
Aon Minet Ltd. New Zealand
Aon Mozambique Ltd. Mozambique
Aon Natural Resources Asia Ltd. Labuan
Aon Nikols Adriatica Srl Italy
Aon Nikols bv Netherlands
Aon Nikols Chile bv Netherlands
Aon Nikols Colombia Holdings SA Colombia
Aon Nikols Latin America bv Netherlands
Aon Nikols N.E. SpA Italy
Aon Nikols NBB Srl Italy
Aon Nikols Srl Italy
Aon Nikols Torino Srl. Italy
Aon Nominees Limited United Kingdom
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<PAGE>
Aon Ossa Ltda, Corredores de Reaseguros United Kingdom
Aon Overseas Holdings Limited United Kingdom
Aon OWA Insurance Services GmbH & Co. Germany
Aon OWA Verwaltungs GmbH Germany
Aon Partnership Limited United Kingdom
Aon Pension Trustees Limited United Kingdom
Aon PHI Acquisition Corporation of California California
Aon Pilar Corretora E Servicos de Seguros S/C Ltda. Brazil
Aon Polska sp.z.o.o. Poland
Aon Previsonals y Personas Ltda, Corredores de Reaseguros y Consultores United Kingdom
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 Africa (Pty) Ltd. South Africa
Aon Re Aviation Limited United Kingdom
Aon Re Belgium nv Belgium
Aon Re Canada Inc. Canada
Aon Re China Ltd. Hong Kong
Aon Re Iberia SA Spain
Aon Re Inc. Illinois
Aon Re Latinoamericana, S.A. Mexico
Aon Re Netherlands cv Netherlands
Aon Re Non-Marine 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, Inc. Delaware
Aon Real Estate Services, Inc. New York
Aon Reed Stenhouse Inc. Canada
Aon Reinsurance Brokers Asia Pte Ltd. Singapore
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 A/S Denmark
Aon Risk Management Services Italia srl. Italy
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 (PNG) Pty. Ltd. Papau New Guinea
Aon Risk Services (Barbados) Ltd. Barbados
Aon Risk Services (Cayman) Ltd. Cayman Islands
Aon Risk Services (Chile) S.A. Chile
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<PAGE>
Aon Risk Services (Europe) S.A. Luxembourg
Aon Risk Services (Fiji) Ltd. Fiji
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 (Thailand) Ltd. Thailand
Aon Risk Services (Vanuatu) Ltd. Vanuatu
Aon Risk Services (Western Samoa) Ltd. American Samoa
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 Canada Inc. Canada
Aon Risk Services Companies, Inc. Maryland
Aon Risk Services Do Brazil Corretores de Seguros Ltda. Brazil
Aon Risk Services Holdings (Chile) Ltda. Chile
Aon Risk Services Holdings UK Limited United Kingdom
Aon Risk Services Hong Kong Ltd. Hong Kong
Aon Risk Services International (Holdings) Inc. Delaware
Aon Risk Services International Limited United Kingdom
Aon Risk Services Japan Ltd. Japan
Aon Risk Services Limited United Kingdom
Aon Risk Services New Zealand Pty. Ltd. New Zealand
Aon Risk Services of Missouri, Inc. Missouri
Aon Risk Services of Texas, Inc. Texas
Aon Risk Services Singapore (Insurance Brokers) Pte. Ltd. Singapore
Aon Risk Services Solomon Islands Ltd. Solomon Islands
Aon Risk Services Taiwan Ltd. Taiwan
Aon Risk Services UK Limited United Kingdom
Aon Risk Services, Inc. of Alabama Alabama
Aon Risk Services, Inc. of Arizona Arizona
Aon Risk Services, Inc. of Arkansas Arkansas
Aon Risk Services, Inc. of Central California Insurance Services California
Aon Risk Services, Inc. of Colorado Colorado
Aon Risk Services, Inc. of Connecticut Connecticut
Aon Risk Services, Inc. of Florida Florida
Aon Risk Services, Inc. of Georgia Georgia
Aon Risk Services, Inc. of Hawaii Hawaii
Aon Risk Services, Inc. of Idaho Idaho
Aon Risk Services, Inc. of Illinois Illinois
Aon Risk Services, Inc. of Indiana Indiana
Aon Risk Services, Inc. of Kansas Kansas
Aon Risk Services, Inc. of Kentucky Kentucky
Aon Risk Services, Inc. of Louisiana Louisiana
Aon Risk Services, Inc. of Maryland Maryland
Aon Risk Services, Inc. of Massachusetts Massachusetts
Aon Risk Services, Inc. of Michigan Michigan
Aon Risk Services, Inc. of Minnesota Minnesota
- 10 -
<PAGE>
Aon Risk Services, Inc. of Montana Montana
Aon Risk Services, Inc. of Nebraska Nebraska
Aon Risk Services, Inc. of Nevada Nevada
Aon Risk Services, Inc. of New Jersey New Jersey
Aon Risk Services, Inc. of New Mexico New Mexico
Aon Risk Services, Inc. of New York New York
Aon Risk Services, Inc. of Northern California Insurance Services California
Aon Risk Services, Inc. of Ohio Ohio
Aon Risk Services, Inc. of Oklahoma Oklahoma
Aon Risk Services, Inc. of Oregon Oregon
Aon Risk Services, Inc. of Pennsylvania Pennsylvania
Aon Risk Services, Inc. of Rhode Island Rhode Island
Aon Risk Services, Inc. of Southern California Insurance Services California
Aon Risk Services, Inc. of Tennessee Tennessee
Aon Risk Services, Inc. of the Carolinas North Carolina
Aon Risk Services, Inc. of Utah Utah
Aon Risk Services, Inc. of Virginia Virginia
Aon Risk Services, Inc. of Washington Washington
Aon Risk Services, Inc. of Washington, D.C. District of Columbia
Aon Risk Services, Inc. of Wisconsin Wisconsin
Aon Risk Services, Inc. of Wyoming Wyoming
Aon Risk Services, Inc. U.S.A. New York
Aon Risk Technologies, Inc. Delaware
Aon S.G.C.A. France
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 Southern Europe b.v. Netherlands
Aon Space SA France
Aon Space, Inc. District of Columbia
Aon Special Risk Resources Limited United Kingdom
Aon Special Risk Resources, Inc. Delaware
Aon Special Risks, Inc. Illinois
Aon Specialty Denmark A/S Denmark
Aon Specialty Re, Inc. Illinois
Aon Stockholm Sweden
Aon Superannuation Pty Limited Australia
Aon Surety & Guarantee Limited United Kingdom
Aon Sweden AB Sweden
Aon Tanzania Ltd. Tanzania
Aon Technical Insurance Services, Inc. Illinois
- 11 -
<PAGE>
Aon Trade Credit Insurance Brokers S.r.l. Italy
Aon Trade Credit Insurance Services, Inc. California
Aon Trade Credit, Inc. Illinois
Aon Trade Credit, Inc. New York
Aon UK Holdings Limited United Kingdom
Aon UK Limited United Kingdom
Aon UK Trustees Limited United Kingdom
Aon Underwriting Agancies (Hong Kong) Ltd. Hong Kong
Aon Vietnam Vietnam
Aon Warranty Group Limited (UK) United Kingdom
Aon Warranty Group, Inc. Illinois
Aon Warranty Korea, Inc. Korea
Aon Warranty Services do Brasil 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 Limitada Barranquilla Corredores de Seguros Colombia
Aon-Baoviet Inchcape Insurance Services Limited Vietnam
Aongyc - Resseguros e Consultores de Seguros, Ltda Portugal
AOPA Insurance Agency, Inc. Maryland
AOPA Insurance Agency, Inc. Texas
APAC (Alliance Pour l'Assurance Credit) Sarl France
APM Services Limited Hong Kong
Aporia Leasing Limited United Kingdom
APS International Limited United Kingdom
APS Life & Pensions Limited United Kingdom
Argenbroker Buenos Aires Argentina
ARM COVERAGE INC. New York
ARS Holdings, Inc. Louisiana
Artemis Securities Ltd. Guernsey
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
Asharo bv Netherlands
Asia Area Underwriters Ltd. Hong Kong
Asian American Finance Limited Bermuda
Asian Reinsurance Underwriters Limited Hong Kong
Assekurazkontor fur Industrie und Verkehr GmbH Germany
Assidoge Srl Italy
Assistance Au Management Et A La Prevention Des Risques De L'Entreprise France
Associated Brokers International Zimbabwe
Associated Fund Adminstrators Botswana (Pty) Limited Botswana
- 12 -
<PAGE>
Associated Ins. Broker of Botswana Botswana
Associates Dealer Group of Bellevue, Washington, Inc. Washington
Association of Real Estate and Real Estate Related Professionals Missouri
Association of Rural and Small Town Americans Missouri
Assurance et Courtages Reunis pour la Gestion - ACR Gestion SAS France
Assurantie Groep Langeveldt c.v. Netherlands
ATJ Capital Forsakringsmakleri AB Sweden
Atkins Kroll Insurance Inc. Guam
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 Warranty Services of Florida, Inc. Florida
Automotive Warranty Services, Inc. Delaware
AV Agrar Versicherungsdienst GmbH Germany
Ayala Aon Insurance Brokers, Inc. Philippines
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 Consulting AB Sweden
Bain Clarkson Forsakringskonsult AB, Stockholm Sweden
Bain Clarkson Limited United Kingdom
Bain Clarkson Members Underwriting Agency Ltd. United Kingdom
Bain Clarkson R.B. Ltd. United Kingdom
Bain Clarkson Underwriting Management Ltd. United Kingdom
Bain Dawes (London) Ltd. United Kingdom
Bain Dawes Services Ltd. United Kingdom
Bain Hogg Australia (Holdings) Ltd. Australia
Bain Hogg Australia Ltd. Australia
Bain Hogg Chile S.A. Corredoros de Reasguro Chile
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<PAGE>
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 Investments (Australia) Pty Ltd. Australia
Bain Hogg Ltd. United Kingdom
Bain Hogg Malawi Ltd. Malawi
Bain Hogg Management Ltd. United Kingdom
Bain Hogg Pensions Pty Ltd. Australia
Bain Hogg Robinson Pty Ltd. Australia
Bain Hogg Russian Insurance Brokers Ltd. Russia
Bain Hogg Trustees Ltd. United Kingdom
Bain Hogg Uganda Ltd. Uganda
Bain Insurance Brokers Kenya Ltd. Kenya
Banca Seguros Colon, S.A. Colombia
Bankers Insurance Service Corp. Illinois
Barros & Carrion, Inc. Puerto Rico
BEC Insurance Services Limited United Kingdom
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
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
BH No. 1 Ltd. United Kingdom
BHR, Inc. Delaware
Black Portch & Swain (Financial Services) 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 Vlaanderen S.A. 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
- 14 -
<PAGE>
Brennan Group, Inc., The Delaware
BRIC, Inc. North Carolina
Brichetto Corretora de Seguros S/C Ltda Brazil
Brichetto Tecnica SA Argentina
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 Herverzekeringen b.v. Netherlands
Bryson Associates Incorporated Pennsylvania
Bryson Associates Incorporated of Georgia Georgia
Budapest Pension Fund Company Hungary
Bureau d'Assurances Pirrotte GmbH Luxembourg
Bureau d'Assurances Pirrotte GmbH & Co. KG Luxembourg
Burlington Insurance Services Ltd. United Kingdom
Burnie Enterprises Pty. Ltd. Papau New Guinea
Business Health Services, Inc. California
bv Algemeen Asurantiekantoor Schreinemacher Netherlands
C A Robinson & Partners Ltd. United Kingdom
C.I.C. Realty, Inc. Illinois
Cabinet Joos SARL France
Caleb Brett Iberica, S.A. Spain
California Group Services California
Cambiaso Risso & Co. (Assicuriazioni Napoli) Italy
Cambiaso Risso & Co. (Assicuriazioni) Srl Italy
Cambiaso Risso & Co. SA Italy
Cambridge Galaher Settlements and Insurance Services, Inc. California
Cambridge Professional Liability Services, Inc. Florida
Cambridge Professional Liability Services, Inc. Illinois
Cambridge Professional Liability Services, Inc. Pennsylvania
Cambridge Settlement Services, Inc. Minnesota
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
Cananwill, Inc. California
Cananwill, Inc. Pennsylvania
CAP Managers Ltd. Bermuda
Captive Assurance Partners California
Carstens & Schues GmbH & Co. Germany
Carstens & Schues Poland Ltd. Poland
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<PAGE>
Carstens & Schues Verwaltungs GmbH Germany
Catz & Lips B.V. Netherlands
CCM McGrath Berrigan Ltd. Ireland
CD Benefit, Inc. Texas
CECAR - Compagnie Europeene de Courtage d'Assurances et de Reassurances SAe France
CECAR Deutschland GmbH Germany
CECAR Inchcape Asia Ltd. Hong Kong
CECAR Portugal Portugal
Celinvest Amsterdam bv Netherlands
Central Technica SA Spain
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
CICA Superannuation Nominees Pty. Ltd. Australia
CI-Erre Srl Italy
Cinema Completions International, Inc. Delaware
Citadel Insurance Company Texas
CJP, Inc. Delaware
Clarkson Bain Japan Ltd. United Kingdom
Clarkson LMS Ltd. United Kingdom
Clarkson Puckle Group, Ltd. United Kingdom
Clarkson Puckle Holdings Ltd. United Kingdom
Clarkson Puckle Ibex Ltd. United Kingdom
Clarkson Puckle Ltd. United Kingdom
Clarkson Puckle Overseas Holdings Ltd. United Kingdom
Clay & Partners (1987) Limited United Kingdom
Clay & Partners Independent Trust Corporation Ltd. United Kingdom
Clay & Partners Ltd. United Kingdom
Clay & Partners Pension Trustees Limited United Kingdom
Claytime Ltd. United Kingdom
Clinton, Curtis, Melling Ltd. Ireland
CNL Nikols SA Spain
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 Insurance Company de Argentina S.A. Compania de Seguros Argentina
Combined Insurance Company of America Illinois
Combined Insurance Company of Europe Limited Ireland
Combined Insurance Company of New Zealand Limited New Zealand
- 16 -
<PAGE>
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 Brasil S.A. Brazil
Combined Seguros Mexico, S.A. de C.V. Mexico
Commercial and Political Risk Consultants Ltd. United Kingdom
Commercial Credit Corporation United Kingdom
Compagnie Franco-Belge d'Investissement et de Placement Belgium
Compagnie Metropolotaine de Conseil - CMC SA France
CompLogic, Inc. Rhode Island
Compta Assur (SA) France
Consultoria Vida y Pensiones S.A. Spain
Consumer Program Administrators, Inc. Illinois
Contract & Investment Recoveries Ltd. United Kingdom
Control de Riesgos, S.A. Spain
Control y Global Services, S.A. Spain
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
Correduria de Seguros Gruppo Herrero, S.A. Spain
CoSec 2000 Limited United Kingdom
Coughlan General Insurances Limited Ireland
Couparey Nominees Limited 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, LLC New Jersey
Customer Loyalty Institute, Inc. Michigan
cv 't Huys ter Merwe Netherlands
CYARSA, Correduria de Reaseguros, S.A. Spain
CYARSA, Portugal, Correduria de Reaseguros, Ltda. Portugal
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
- 17 -
<PAGE>
Document Risk Management Limited United Kingdom
Dominion Mutual Insurance Brokers Ltd. Canada
Dormante Holdings Limited United Kingdom
Downes & Burke (Special Risks) Ltd. United Kingdom
Dreadnaught Insurance Company Limited Bermuda
Duggan Insurances Limited Ireland
DUO AS Norway
Duoband Enterprises Ltd. United Kingdom
DuPage Care Administrators, Inc. Illinois
E. Lillie & Co. Limited United Kingdom
Eastaf Holdings Ltd. United Kingdom
ECCO Insurance Services, Inc. Texas
Edward Lumley & Sons (Underwriting Agencies) Ltd. United Kingdom
Elektrorisk Beheer bv Netherlands
Elm Lane Limited United Kingdom
Employee Benefit Communications, Inc. Florida
Energy Insurance Brokers & Risk Management Consultants Ltd. United Kingdom
ENTAB Insurance Services Ltd. United Kingdom
Entertainment Managers Insurance Agency of New York, Inc. New York
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 Corredores de Reaseguros SA Chile
Excess Underwriters Agency, Inc. New York
Excess Versicherungsagentur GmbH Germany
EXKO Excess Ruckversicherungs-AG 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 Assurance Conseil - FAC SA France
Financial Solutions Insurance Services, Inc. Illinois
Finsbury Healthcare Limited United Kingdom
Firma A.J. Driessen C.V. Netherlands
Forsakringsmaklarna Syd KB Sweden
France Cote D'Afrique France
France Fenwick Limited United Kingdom
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<PAGE>
Frank B. Hall & Co. (N.S.W.) Pty. Ltd. Australia
Frank B. Hall & Co. Holdings (N.Z.) Limited New Zealand
Frank B. Hall (Ireland) Limited Ireland
Frank B. Hall (Reinsurance) France S.A. France
Frank B. Hall (Underwriting Managers) Ltd. Bermuda
Frank B. Hall (United Kingdom) Limited United Kingdom
Frank B. Hall Insurance Brokers (S) Pte. Ltd. Singapore
Frank B. Hall Re (Latin America) Inc. Panama
FS Insurance Agency of California, Inc. California
FS Insurance Agency, Inc. Ohio
G&C Venezuela. S.A. Venezuela
Galaher Settlements Company of New York, Inc. New York
Garantie Europeene de Publication S.A. France
Gardner Mountain Financial Services Ltd. United Kingdom
Gardner Mountain Trustees Ltd. United Kingdom
Gateway Alternatives, L.L.C. Delaware
Gateway Insurance Company, Ltd. Bermuda
General Service Srl Italy
Gestas (1995) Inc. Canada
Giesy, Greer & Gunn, Inc. Oregon
Gil y Carvajal - Consultores, Lda. Portugal
Gil y Carvajal Chile Ltda., Corredores de Seguros Chile
Gil y Carvajal Consultores, S.A. Spain
Gil y Carvajal Correduria de Seguros, SA Spain
Gil y Carvajal Global Services S.A. Spain
Gil y Carvajal Iberoamerica, S.A. Spain
Gil y Carvajal Iberoamerica, SA Peru
Gil y Carvajal S.A. Corredores de Seguros Colombia
Gil y Carvajal Seguros, SA Spain
Gil y Carvajal UK Ltd. United Kingdom
Gil y Carvajal, S.A. Vida y Pensiones Spain
Gilman Swire Willis Ltd. Hong Kong
Gilroy Broome & Scrini (Trustees) Ltd. United Kingdom
Global Entertainment & Media Insurance Agency, L.L.C. Illinois
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 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
Groupement Europeen d'Assurances Generales France
Growth Enterprises Ltd. Bahamas
Guardrisk Insurance Company Limited South Africa
- 19 -
<PAGE>
Guernsey Nominees (Pty) Limited Guernsey
Gwelforth Ltd. United Kingdom
H.A.R.B. Ltd. United Kingdom
H.L. Puckle (Underwriting) Ltd. United Kingdom
Hadenmead Limited 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
Hans R Schmidt 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
Heerkens Thijsen Groep bv Netherlands
Heerkens Thijssen & Co. bv Netherlands
Heerkens Thijssen Caviet vof Netherlands
Heiland Versicherungs-Service GmbH Germany
Heli Agency Korea
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
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
Horwitch Insurance Agency, Inc. Illinois
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
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<PAGE>
HRGM Management Services Ltd. United Kingdom
HRGM Marine Ltd. United Kingdom
HRS EDV Systemhaus GmbH Germany
Hudig Langeveldt Pte Ltd. Singapore
Hudig-Langeveldt (Pensioenbureau) bv Netherlands
Hudig-Langeveldt (Reinsurance) bv Netherlands
Hudig-Langeveldt Coens N.V. Belgium
Hudig-Langeveldt Janson Elffers B.V. Netherlands
Hudig-Langeveldt Kyoritsu Ltd. Japan
Hudig-Langeveldt Makelaardij in Assurantien bv Netherlands
Hudig-Langeveldt 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
Ian H. Graham, Inc. California
Ibex Managers Ltd. Kenya
ICR-Riass Srl Italy
Impact Forecasting Limited United Kingdom
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 Holdings (HK) Ltd. Hong Kong
Indemnity Insurance Services (Pty) Limited South Africa
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 Finance Limited United Kingdom
Integrated Risk Resources 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
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<PAGE>
International Film Finance Limited Partnership United Kingdom
International Industrial Insurances Limited Ireland
International Insurance Brokers Ltd. Jamaica
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 Specialty, Inc. Delaware
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 (Inter-Gremium) AG Switzerland
J H Minet Agencies Ltd. United Kingdom
J H Minet Puerto Rico Inc. Puerto Rico
J H Minet Reinsurance Services Limited 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.S. Johnson & Co. Ltd. Bahamas
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 Ges. m.b.H. Austria
Jauch & Hubener GmbH Austria
Jauch & Hubener Kft. Hungary
Jauch & Hubener Management betriebliche Versorgungen Germany
Jauch & Hubener Personalvorsorgestiftung Switzerland
Jauch & Hubener Reinsurance Inter. Services of North America New Jersey
Jauch & Hubener Reinsurance Services Ltd. United Kingdom
Jauch & Hubener Ruckversicherungs-Vermittlungsges mbH Germany
Jauch & Hubener spol sro Czech Republic
Jenner Fenton Slade (Special Risks) Limited United Kingdom
Jenner Fenton Slade Group Limited United Kingdom
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<PAGE>
Jenner Fenton Slade Limited United Kingdom
Jenner Fenton Slade Political Risks Limited United Kingdom
Jenner Fenton Slade Reinsurance Services Limited United Kingdom
Jenner Fenton Slade Surety and Specie Limited United Kingdom
JFC Consulting, Inc. Delaware
JFS (Sudamerica) SA Uruguay
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
Johnson Rooney Welch, Inc. California
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
Karl Alt & Co. GmbH Germany
Keeling Insurance Services California
Keith Rayment & Associates Ltd. United Kingdom
Keyaction Ltd. United Kingdom
Kininmonth Limited Ireland
Kroller Holdings B.V. Netherlands
L & G LMX 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
LBN Asia International Reinsurance Brokers Pte Ltd. Singapore
Le Blanc de Nicolay Asia Hong Kong
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 Ruckversicherungsmakler GmbH Germany
Le Blanc de Nicolay U.S., Inc. Delaware
Le Blanc de Nicolay Zurich Switzerland
Lescorp Limited United Kingdom
Leslie & Godwin (C.I.) Limited Guernsey
Leslie & Godwin (Reinsurance) Copenhagen A/S Denmark
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<PAGE>
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
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
Litigation Risk Management Limited United Kingdom
London General Holdings Limited United Kingdom
London General Insurance Company Limited United Kingdom
Lowndes Lambert Insurance Limited Ireland
Lumley Insurance Brokers (Pty) Ltd. South Africa
Lumley JFS Limited United Kingdom
Lumley Municipal & General Insurance Brokers (Natal) (Pty) Ltd. South Africa
Lumley Municipal & General Insurance Brokers (Orange Free State) (Pty) Ltd. South Africa
Lumley Municipal & General Insurance Brokers (Pty) Ltd. South Africa
Lumley Municipal & General Insurance Brokers (Transvaal) (Pty) Ltd. South Africa
Lumley Petro-Energy Insurance Brokers (Pty) Ltd. South Africa
M Y A Ltda. Asesorias Integrales Colombia
M Y A Salud Ltda Agentes De Medicina Prepagada Colombia
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. 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
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<PAGE>
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
Mahamy Company plc (Aon Iran) Iran
Management and Regulator Services, Inc. New York
Mansell Investments Ltd. Gibraltar
Mansfeld, Hubener & Partners Gmbh Germany
Marinaro Dundas SA Argentina
Marinaro Dundas SA Uruguay
Maritime Underwriters, Ltd. Bermuda
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
MEIE Argentina SA Argentina
MIB UK (Holdings) Ltd. United Kingdom
Mibsa Investments (Namibia) (Pty) Limited Namibia
Minahan Reinsurance Management Limited United Kingdom
Minerva Holdings (Pvt) Limited Zimbabwe
Minet (Taiwan) Ltd. Taiwan
Minet a.s. Czech Republic
Minet Africa Holdings Ltd. United Kingdom
Minet Airport Insurance Services Ltd. United Kingdom
Minet AS Norway
Minet Australia Holdings 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
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Minet Europe Holdings Ltd. United Kingdom
Minet Financial Services Ltd. United Kingdom
Minet Firstbrokers Oy Finland
Minet Group United Kingdom
Minet Group Holdings United Kingdom
Minet Group Services Ltd. United Kingdom
Minet Holdings Guernsey Limited Guernsey
Minet Holdings Inc. New York
Minet Hong Kong Ltd. Hong Kong
Minet ICDC Insurance Brokers Ltd. Kenya
Minet Inc. (Canada) Canada
Minet Ins. Brokers (Holdings) (NZ) Ltd. New Zealand
Minet Ins. Brokers (Zimbabwe) (Pvt) Ltd. Zimbabwe
Minet Insurance Brokers (Holdings) Ltd. United Kingdom
Minet Insurance Brokers (Thailand) Ltd Thailand
Minet Insurance Brokers (Uganda) Limited Uganda
Minet Insurance Services (UK) Ltd. United Kingdom
Minet International (Holdings) Ltd. United Kingdom
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 S.A. de C.V. Mexico
Minet Singapore Pte. Ltd. Singapore
Minet Trans Risk Services Ltd. United Kingdom
Minet Trustees Ltd. United Kingdom
Minet West Africa Ltd. United Kingdom
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<PAGE>
Minet Zambia Limited Zambia
Minet Zimbabwe (Pvt) Ltd. Zimbabwe
Minken Properties Ltd. Kenya
MLH International Inc. Ontario
Moes & Caviet Last bv Netherlands
Morency, Weible & Sapa, Inc. Illinois
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 Product Care Company Illinois
National Transportation Adjusters, Inc. Nebraska
NB Life Agents, Inc. New York
Needler Heath (UK) Ltd. United Kingdom
Needler Heath Dixon Ltd. United Kingdom
Netherlands Construction Insurance Services 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 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 Stewart-Brown Limited United Kingdom
Nikols Chile SA Chile
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<PAGE>
Nikols Galicia SA Spain
Nikols Iberia SA Spain
Nikols International Ltd. Brit. Virgin Islands
Nikols Portugal Ltda Portugal
Nikols SA Switzerland
Nikols Segiber Ltda Portugal
Nissho Iwai (Japan) Japan
Nixon Constable & Company Ltd. United Kingdom
Norsk Forsikringsservice AS Norway
North Derbyshire Finance Company Limited, The United Kingdom
Norwegian Insurance Partners A/S Norway
Norwegian Insurance Partners as (Non-Marine) Norway
NRC Reinsurance Company Ltd. Bermuda
nv Insurance Louis Delhaize (en abrege INSURDEL) Belgium
Ohio Cap Insurance Company, Inc. Bermuda
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 S&C of PA, Inc. Pennsylvania
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 New York, A Corporation New York
OUM & Associates of Ohio, A Corporation Ohio
OWA Hoken (UK) Limited United Kingdom
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
Pat Ryan & Associates, B.V. Netherlands
Paul J.F. Schultz oHG Germany
PBG Pensions Beratungs-Gesellschaft mbH (Partnership) Germany
Pernas HHL Insurance Brokers Sdn Bhd Malaysia
Pernas HHL Reinsurance Brokers Sdn. Bhd. Malaysia
- 28 -
<PAGE>
PHH Insurance Associates Corporation Maryland
Pinerich Limited Ireland
PL Ferrari & Co International Srl Italy
Plaire SA France
Poland Puckle Insurance Brokers Ltd. United Kingdom
Premier Auto Finance, Inc. Delaware
Premier Auto Finance, L.P. Illinois
Premier Receivables Purchase Facility, LLC Delaware
Prescot Insurance Holdings Ltd. United Kingdom
Presidium Companies, Inc. Delaware
Presidium Holdings, Inc. Delaware
Presidium, Inc. Delaware
Private Client Trustees Ltd. Ireland
Product Care, Inc. Illinois
Produgar Portugal
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
PYXYS-Gestion de Flottes SA France
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 Pension Fund Trustees Ltd. United Kingdom
Ralph S. Harris (Insurance) Pty. Ltd. Zimbabwe
RAMRO y Asociados, S.C. Mexico
Rath & Strong, Inc. Massachusetts
RBH General Agencies (Canada) Inc. Quebec
RDG Resource Dealer Group (Canada) Inc. Canada
RDG Securities Corporation Illinois
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
Reserv Corporation Pennsylvania
Resource Acquisition Corporation Delaware
Resource Dealer Group of Alabama, Inc. Alabama
- 29 -
<PAGE>
Resource Dealer Group of Arizona Insurance Services, Inc. Arizona
Resource Dealer Group of Indiana, Inc. Indiana
Resource Dealer Group of Kentucky, Inc. Kentucky
Resource Dealer Group of Massachusetts Insurance Agency, Inc. Massachusetts
Resource Dealer Group of Mississippi, P.A. Mississippi
Resource Dealer Group of Nevada, Inc. Nevada
Resource Dealer Group of New Mexico, Inc. New Mexico
Resource Dealer Group of Ohio Agency, Inc. Ohio
Resource Dealer Group of Texas, Inc. Texas
Resource Dealer Group, Inc. Illinois
Resource Dealer Group, Inc. Mississippi
Resource Dealer Insurance Services of California, Inc. California
Resource Financial Corporation Delaware
Resource Life Insurance Company Illinois
Resource Training, Inc. Illinois
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
Rockford Holding, Inc. Delaware
Rockford Life Insurance Company Arizona
Rollins Heath (Japan) Ltd. Japan
Rollins Heath Korea Co. Ltd. Korea
Rollins Hudig Hall & Co. (N.S.W.) Pty. Ltd. Australia
Rollins Hudig Hall (Hong Kong) Ltd. Hong Kong
Rollins Hudig Hall (Nederland) Limited United Kingdom
Rollins Hudig Hall (Scandinavia) A/S Norway
Rollins Hudig Hall Associates B.V. Netherlands
Rollins Hudig Hall Finance bv Netherlands
Rollins Hudig Hall Mexico Agente De Seguros Y De Fianzas, S.A. De C.V. Mexico
Rollins Hudig Hall Netherlands b.v. Netherlands
Rollins Hudig Hall Services Limited United Kingdom
Rollins Hudig Hall Sweden AB Sweden
Rollins Hudig Hall Versicherungsmakler Gesellschaft m.b.H. Austria
Ropeco Pty Ltd. Australia
Rostron Hancock Ltd. United Kingdom
Roundwise Limited United Kingdom
Ruben Entertainment Insurance Services United Kingdom
RUMEX VermogensverwaltungsGmbH Germany
Ryan Insurance Group France S.A.R.L. France
Ryan Warranty Services Canada, Inc. Canada
Ryan Warranty Services Quebec, Inc. Ontario
Rydata Limited United Kingdom
- 30 -
<PAGE>
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. Mark Brockinton & Associates of Texas, Inc. Texas
S.A.B. S.p.A. Italy
Saat Van Marwijk Beheer bv Netherlands
Saat Van Marwijk Noordwijk B.V. Netherlands
Salud Centurion Ltda. Agente de Medicina Prepagada Colombia
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 Marine Limited United Kingdom
Securities Guarantee Company Limited United Kingdom
Sedgwick Brichetto Argentina SA Argentina
Sedgwick Corredores de Reaseguros Ltda Colombia
Sedgwick Correduria de Seguros SA Spain
Seguros Inchcape Macau Lda. Macau
Select Direct Limited Scotland
Select Healthcare Insurance Services California
Service Protection, Inc. Illinois
Service Saver, Incorporated Florida
ServicePlan of Florida, Inc. Florida
ServicePlan, Inc. Illinois
Servicios A.B.S., S.A. Mexico
Servicios Inmoboliarios Guadalajara, S.C. Mexico
Servicios Y Garantias Ryan S.L. Spain
SGAP SA France
SGL Logistica Srl Italy
Sherwood Insurance Agency, Inc. of New York New York
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
SIS Services of New York, Inc. New York
SLE Worldwide Australia Pty Limited Australia
SLE Worldwide Limited United Kingdom
- 31 -
<PAGE>
SLE Worldwide Mexico, Agente de Seguros, S.A. de C.V. Mexico
SLE Worldwide, Inc. Delaware
SN Re SA (Brichetto Sudamericana) Argentina
Societe Centrale de Courtage d'Assurances France
Societe Europeenne d'Etudes et de Courtages - SEEC SA France
Sodarcan Inc. Canada
Sodartec Inc. Canada
Soriero & Company, Inc. Texas
Sorim (1987) Ltd. United Kingdom
Sorim Services (1987) Ltd. United Kingdom
Sothanasiri Co. Ltd. Thailand
Southern Cross Underwriting Pty. Limited Australia
Special Risk Resources Insurance Agency, Inc. California
Special Risk Services Limited United Kingdom
Special Risk Services, Inc. New York
Specialty Benefits, Inc. Indiana
Spicafab Limited United Kingdom
Steetley Leslie & Godwin Limited Guernsey
Stenhouse (South East Asia) Pte. Ltd. Singapore
Stenhouse Marketing Services (London) Ltd. United Kingdom
Stenhouse Marketing Services, Inc. Delaware
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
Superannuation Management Nominees Ltd. New Zealand
Surety & Guarantee Consultants Limited United Kingdom
Surveyors Claims Services Ltd. United Kingdom
Suys & Janssens SA 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
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 Ohio, Inc. Ohio
- 32 -
<PAGE>
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
Tecsefin Centroamerica, S.A. Panama
Tecsefin Guatemala Panama
Tecsefin Salvador Panama
Tecsefin, S.A. Colombia
Ted Harty & Associates, Inc. Georgia
Terbroker srl Italy
Tethercrest Ltd. United Kingdom
Texecur Versicherungs Vermittlungs GmbH Germany
The Alexander Consulting Group Ltd. Canada
The Alexander Consulting Group Ltd. New Zealand
The Alexander Consulting Group Ltd. Scotland
The Credit Insurance Association France SA France
The Credit Insurance Association Ltd. United Kingdom
The 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
Underwriters Marine Services Limited United Kingdom
Underwriters Marine Services of Texas, Inc. Texas
Underwriters Marine Services, Inc. Louisiana
Union Centurion, S.A.de C.V. Mexico
Unison Consultants Europe E.E.I.G. Belgium
Unison GEIE Belgium
Unison SA Belgium
Unison Technical Services Belgium
United Car & Van Rental Ltd. United Kingdom
United Iranian Insurance Services plc Teheran Iran
Uzbeksugurta Howden Lihou Republic of Uzbekistan
Valex Insurance Agency, Inc. Texas
Varity Risk Management Services Ltd. United Kingdom
Vassal Properties (Pty) Ltd. Botswana
Verband der Jauch & Hubener Unterstutzungskassen Germany
Vesselforward Ltd. United Kingdom
Virginia Surety Company, Inc. Illinois
VOL Properties Corporation Delaware
Wackerbarth Hardman (Holdings) Limited United Kingdom
Wackerbarth Holdings Limited United Kingdom
- 33 -
<PAGE>
Wackerbarth International Holdings Bv Netherlands
WACUS Kreditversicherungsmakler GmbH Austria
WACUS Magyarorszag Hitelbitzositasi Tanacsado es Kozvetito Kft. Hungary
WAS Betriebsfuhrungs-GmbH Germany
WAVECA CA Venezuela
Wed. Jacobs & Brom bv Netherlands
Wexford Underwriting Managers, Inc. Delaware
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
World Shipping Services Ltd Italy
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
Yin Hwa Insurance Agent Co Ltd. Taiwan
ZAO Aon Insurance Brokers Russia
Zimbabwe Risk Managers (Pvt) Ltd. Zimbabwe
</TABLE>
- 34 -
<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 8, 2000, included in the 1999
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 8, 2000, 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
of Aon Corporation described in the following table of our report dated February
8, 2000, 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.
Registration Statement
----------------------
Form Number Purpose
---- ------ -------
S-8 33-27984 Pertaining to Aon's savings plan
S-8 33-42575 Pertaining to Aon's stock award plan and stock
option plan
S-8 33-59037 Pertaining to Aon's stock award plan and stock
option plan
S-4 333-21237 Offer to exchange Capital Securities of Aon Capital A
S-3 333-50607 Pertaining to the registration of 369,000 shares of
common stock
S-8 333-55773 Pertaining to Aon's employee stock purchase plan
S-3 333-78723 Pertaining to the registration of debt securities,
preferred stock and common stock
ERNST & YOUNG LLP
Chicago, Illinois
March 21, 2000
<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-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<EXCHANGE-RATE> 1.0
<CASH> 3,199 <F1>
<SECURITIES> 3,071 <F2>
<RECEIVABLES> 7,440
<ALLOWANCES> 94
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F3>
<PP&E> 1,537
<DEPRECIATION> 821
<TOTAL-ASSETS> 21,132
<CURRENT-LIABILITIES> 0 <F3>
<BONDS> 1,011 <F4>
850 <F5>
0
<COMMON> 259 <F6>
<OTHER-SE> 2,792
<TOTAL-LIABILITY-AND-EQUITY> 21,132
<SALES> 0
<TOTAL-REVENUES> 7,070
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 6,435 <F7>
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 105
<INCOME-PRETAX> 635
<INCOME-TAX> 243
<INCOME-CONTINUING> 392
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 352
<EPS-BASIC> 1.35 <F6>
<EPS-DILUTED> 1.33 <F6>
<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> Adjusted to reflect three-for-two stock split effective May 17, 1999.
<F7> Represents total expenses.
</FN>
</TABLE>
