Aon (AON)

EXECUTIVE SUMMARY

The current global economic recession is providing significant headwind for our business.  We continue to operate in a soft insurance pricing market, as property and casualty rates continue to decline, although at a somewhat slower pace.  In addition to pricing declines, we are seeing a volume impact driven by the current economic environment, which places pressure on our business in three primary ways:

·                  Declining insurable risks due to decreasing asset values, including property values, shipment volume, payroll and number of active employees,

·                  Client cost-driven behavior, where clients are actively looking to reduce spending in order to meet budget reductions and increase risk retention, as a result of prioritizing their total spending, and

·                  Sector specific weakness, including financial services, construction, private equity, and mergers and acquisitions, all of which have been particularly impacted by the current recession.

Despite this difficult market environment, we grew the business organically and took further steps to streamline our product portfolio around our core businesses while reducing capital requirements.

Organic revenue growth in first quarter 2009 was 1%, with growth of 1% in our Risk and Insurance Brokerage Services segment and growth of 2% in our Consulting segment.  See our discussion below for more details regarding organic revenue growth.

Our consolidated pretax margins from continuing operations improved from 13.5% in 2008 to 18.5% in 2009.  The improvement is mainly attributable to a $83 million pension curtailment gain related to the decision to cease crediting future benefits relating to salary and service in our U.S. defined benefit pension plan, the positive impact of Benfield and other acquisitions, lower restructuring costs, and organic revenue growth, which more than offset lower investment income and the unfavorable impact of foreign currency translation.

The following is a summary of our first quarter 2009 financial results:

·                  Revenue decreased $51 million or 3% overall, as the negative effect of foreign exchange translation was only partially offset by the impact of Benfield and other acquisitions and organic revenue growth.

·                  Operating expenses decreased 9% in 2009 due primarily to favorable foreign exchange translation and the pension curtailment gain, partially offset by the impact of Benfield and other acquisitions.

·                  Income from continuing operations increased $53 million in 2009 to $235 million.

·                  Diluted earnings per share from continuing operations attributable to Aon’s stockholders was $0.80 in 2009, an increase of 45% from 2008’s $0.55 per share.