10-QPeriod: Q3 FY2001

Aon plc Quarterly Report for Q3 Ended Sep 30, 2001

Filed November 14, 2001For Securities:AON

Summary

Aon plc's (AON) third-quarter 2001 report reveals a challenging period, significantly impacted by the September 11th World Trade Center tragedy. While the company incurred substantial expenses related to the event, including life insurance benefits for deceased employees and destroyed assets, it also anticipates insurance recoveries that may offset some of these costs. The company is also navigating a comprehensive business transformation plan aimed at improving efficiency and profitability, though this plan has faced implementation challenges and resulted in higher-than-anticipated costs. Despite these headwinds, Aon's core insurance brokerage and other services segment demonstrated revenue growth, albeit with margin pressure. The consulting segment also saw significant revenue expansion, largely driven by acquisitions. The company is also moving forward with its plan to spin off its underwriting business into a separate entity, Combined Specialty Corporation (CSC), expected by Spring 2002, and is co-sponsoring a new Bermuda-based insurance and reinsurance company.

Key Highlights

  • 1Net income for the third quarter of 2001 was $72 million ($0.26 per diluted share), a decrease from $139 million ($0.53 per diluted share) in the same period of 2000, heavily impacted by the September 11th events and business transformation costs.
  • 2The World Trade Center tragedy resulted in $53 million in pre-tax expenses for the quarter, with additional costs expected in future periods, partially offset by anticipated insurance recoveries.
  • 3Total revenue for the third quarter increased by 7% to $1.912 billion, primarily driven by a 10% increase in brokerage commissions and fees.
  • 4The Insurance Brokerage and Other Services segment, Aon's largest, saw revenue grow by 7% to $1.112 billion, but its pretax margins declined due to increased costs related to the business transformation plan and slower new business growth in U.S. retail brokerage.
  • 5The company is proceeding with the spin-off of its underwriting business into a new entity, Combined Specialty Corporation (CSC), expected to be completed by Spring 2002.
  • 6Aon announced plans to co-sponsor a new Bermuda-based insurance and reinsurance company, Endurance Specialty Insurance Ltd., with an initial investment of approximately $200 million.
  • 7The business transformation plan, initially estimated to cost less than $325 million pre-tax, is now expected to exceed this range due to implementation challenges and the impact of the World Trade Center tragedy.

Frequently Asked Questions

The September 11th attacks resulted in $53 million in pre-tax expenses for Aon in the third quarter of 2001. These expenses included life insurance benefits for employees, destroyed assets, and other related costs. While the company anticipates insurance recoveries, the full financial impact is still being assessed and additional costs are expected in future quarters.

Aon's business transformation plan, aimed at improving efficiency and profitability, is ongoing but has faced challenges, leading to higher-than-anticipated costs. For the first nine months of 2001, special charges related to the plan amounted to $218 million. Implementation delays, particularly in the U.S. retail brokerage operations, have increased short-term costs and put pressure on revenues. The overall costs for the plan are now expected to exceed the initial projection of $325 million pre-tax.

Aon's Board of Directors approved a plan to spin off its underwriting business into a new, publicly traded company named Combined Specialty Corporation (CSC). This transaction is expected to be completed by Spring 2002, pending final Board approval, a favorable IRS ruling, and regulatory approvals. Aon also announced plans to co-sponsor a new Bermuda-based insurance and reinsurance company, Endurance Specialty Insurance Ltd., with an initial investment of approximately $200 million, which CSC is expected to be a minority owner of post-spin-off.

The Insurance Brokerage and Other Services segment, Aon's largest, saw revenue increase by 7% to $1.112 billion, driven by brokerage commissions and fees. However, pretax margins declined due to business transformation costs and slower growth in U.S. retail brokerage. The Consulting segment experienced significant revenue growth of 27% to $232 million, largely due to acquisitions. The Insurance Underwriting segment's revenue increased by 5% to $565 million, with pretax income remaining flat year-over-year after excluding World Trade Center charges.