QUOTE AND NEWS
Insurance Journal  Nov 25  Comment 
Aon and Chubb Corp. have advised Isle of Man directors that they "may need to go beyond simply complying with new Financial Services Commission (FSC) regulations on insurance to prevent gaps in ...
Flightglobal  Nov 25  Comment 
A new Chinese cargo start-up is set to begin operations soon from Shenzhen International Airport. Shunfeng Airways has finished its preparations and...
Insurance Journal  Nov 24  Comment 
Aon UK announced that it has made six new appointments to its aviation team. "The move is part of Aon’s recruitment drive to bring in fresh thinking and further rejuvenate the strength of ...
StreetInsider.com  Nov 23  Comment 
Visit StreetInsider.com at http://www.streetinsider.com/Corporate+News/Aon+Corp+%28AOC%29+To+Change+Ticker+to+%27AON%27+on+NYSE/5132083.html for the full story.
MarketWatch  Nov 23  Comment 
Insurance Journal  Nov 23  Comment 
Aon Insurance Managers (Isle of Man) (AIM IOM) announced that it has been appointed as captive manager to the BT Group [formerly British Telecom] plc captive, the Isle of Man-based Communicator ...
PR Newswire  Nov 20  Comment 
CHICAGO, Nov. 20 /PRNewswire-FirstCall/ -- Aon Corporation, the leading global provider of risk services and human capital consulting, today announced that Ted T. Devine will be leaving the firm. Effective immediately, Devine will launch 1World
Insurance Journal  Nov 20  Comment 
A study from Aon UK warns that "insurers may reduce the amount of capital they’re willing to commit to the food industry in Q4 2009 and into 2010. Only companies that can evidence a ...
Market Intelligence Center  Nov 19  Comment 
Aon (AOC) was downgraded today by analysts at BofA/Merrill and the stock is now at $38.64, down $1.40 (-3.5%) on volume of 1,989,632 shares traded. The analysts downgraded the stock to Neutral from Buy. Over the last 52 weeks the stock has ranged...
PR Newswire  Nov 19  Comment 
CHICAGO, Nov. 19 /PRNewswire-FirstCall/ -- As employers begin showing signs of recovery, attention starts shifting from survival to success. Critical to this success will be the ability of an organization's human resource department to sort through
Insurance Journal  Nov 18  Comment 
Aon Limited, the UK division of Aon, has appointed Simon Allen as chief operating officer,  subject to the approval of the Financial Services Authority (FSA) He will also join Aon Limited's ...
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AOC AT A GLANCE
 
 
 
 
 
 
 
 

Aon’s operations can be divided into three core groups: Insurance, warranties, and consulting. Aon’s insurance operations are aimed largely at corporations and wealthy individuals. It also provides health and life insurance for individuals. Its warranties segment deals with extended product warranties, and its consulting segment provides its corporate clients with advice on human resources and benefit plans.

Business Overview

Based in Chicago, Aon Corporation (AOC) is the world's largest insurance and reinsurance broker. Through its subsidiaries, the company operates in three broad segments: Risk and Insurance Brokerage Services, Insurance Underwriting, and Consulting. The Risk and Insurance Brokerage Services segment (62.3% of the $9.0 billion total revenues in 2006) consists of Aon's retail and reinsurance brokerage operations, which include a broad range of advisory and outsourcing services such as risk identification and assessment, safety engineering, alternative risk financing, loss management, and program administration for its clients. The Insurance Underwriting segment (22.9%) sells life, accident, and health insurance, along with extended warranty, specialty, and other insurance products. The Consulting segment (14.3%) provides employee benefits, human resources, compensation, outsourcing, change management, and communications for multinationals, small businesses, agents/brokers, and some individual customers. By source, the company derived 74.6% of its 2006 revenues from brokerage commissions and fees, 21.4% from premiums and other, and 4.0% from investment income.

Aon’s business operations fall under one of three categories: Insurance underwriting, risk insurance brokerage services, and consulting. In December 2007, Aon announced that it was planning the sale of the majority of its insurance underwriting business so that it may focus on the other two. Aon’s clients include corporations and other businesses, insurance businesses, independent agents and brokers, governments, and professional organizations.

Risk and Insurance Brokerage Services

Aon’s largest division, the Risk and Insurance Brokerage Services division, accounted for 82% of operating revenue for 2007. Revenue is earned via fees from clients, commission, and consulting fees from other insurance and reinsurance firms.

Risk Management

As a retail broker and insurance underwriter, Aon serves as an advisor to corporate clients on matters regarding property, general, and executive liability, and workers’ compensation. Aon also provides life and disability insurance for individuals and businesses. Its retail brokerage is broken down into sections according to industry specialization, which include entertainment, media, marine, aviation, and construction, amongst others.

Reinsurance Brokerage

Its reinsurance division consults clients on how to increase claims recoveries, enhance the risk to return ratio of investment portfolios, decrease exposure to catastrophic loss worldwide, and improve capital utilization.

Aon acts as a broker to insurance companies wishing to remove risky obligations from its portfolio. It mainly focuses on

Consulting

Aon’s consulting segment accounted for 18% of operating revenue for 2007. Its consulting segment maintains a presence in the United States, Canada, Europe, South Africa, and the Pacific region. Its consulting segment is further divided into consulting services and outsourcing divisions.

Consulting Services

Aon’s consulting services include employee benefit, compensation, management, communications, human resources, and financial advisory and litigation consulting. Aon is the third largest employe benefit consulting in the world and second in the U.S. in terms of revenue. Revenue is generated via client consulting fees as well as placement fees paid by insurance companies for recommending their products.

Its employee benefits arm focuses on attracting, retaining, and motivating employees by providing programs such as executive compensation, retirement benefits, and elective benefits, amongst others.


Image:AOC_Revenue.png Image:AOC_Geographic_Revenue.png

Trends and Forces

  • Fluctuations in interest rates may hurt Aon’s investment portfolio. Aon’s portfolio is largely composed of long-term investments and fixed-maturity products. Declines in the expected returns of the portfolio may render Aon unable to meet its financial obligations. If the securities it holds are downgraded, Aon may have to write the assets off as impaired, which will lead to weaker earnings. Furthermore, if it does not have the liquidity it needs to meet its financial obligations, Aon may be forced to sell parts of its portfolio at below-market prices.
  • Obligations to pension plans have currently been hurting Aon’s earnings. Due to decreasing interest rates, the assets backing several major pension plans under Aon’s control have increased at a slower rate than its liabilities, resulting in unfunded portions of its pension plans. For 2008, Aon expects to transfer $195 million to these plans, which will come out of its earnings.
  • A significant portion of Aon’s business is conducted overseas, which might make it harder to predict future growth and profitability. Although this helps protect Aon from economic downturns in the United States, Aon must conform to each countries’ accounting, staffing, and legal standards. Stricter governmental regulations, longer payment cycles, hyperinflation, and difficulty collecting payments may hurt its investment opportunities and revenue streams. Since all revenues are translated into U.S. dollars, a strong dollar or hyperinflation of the local currency might cause Aon’s financial positions to be understated. Likewise, the converse may make Aon appear more financially stable than it really is.
  • Large-scale disasters may increase claims to levels which Aon is not financially prepared to honor. Terrorist attacks, floods, pandemics, and earthquakes may increase its liabilities and may also decrease its investment portfolio. Depending on the disaster, such as terrorism, Aon may be unable to diversify away its exposure. Furthermore, an economic decline in the affected area may result in clients being unable to pay insurance premiums, leading to a decrease in its business earnings.

References

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