10-QPeriod: Q2 FY2003

Aon plc Quarterly Report for Q2 Ended Jun 30, 2003

Filed August 13, 2003For Securities:AON

Summary

Aon plc's second quarter 2003 report (filed August 12, 2003) shows a significant rebound in profitability compared to the prior year's second quarter. Total revenue increased by 15% to $2.44 billion, driven by strong performance in brokerage commissions and fees, particularly from reinsurance and international operations. Net income available to common stockholders was $146 million ($0.46 per share), a substantial improvement from a net loss of $0 in the same period last year. This turnaround is attributed to operational improvements across its Risk and Insurance Brokerage Services segment, increased investment income partially boosted by a gain on Endurance warrants, and effective cost management, although general expenses saw a notable increase. The company continues to navigate business transformation initiatives and manage ongoing legal contingencies.

Key Highlights

  • 1Total revenue increased by 15% to $2.44 billion for the second quarter of 2003 compared to the prior year.
  • 2Net income available for common stockholders was $146 million ($0.46 per share), a significant improvement from a break-even result in Q2 2002.
  • 3The Risk and Insurance Brokerage Services segment showed strong revenue growth of 17% (11% on a comparable currency basis).
  • 4Investment income increased significantly, partly due to a $21 million pretax gain from the valuation of Endurance warrants following their IPO.
  • 5General expenses increased by 9% to $1.82 billion, driven by business growth, higher pension costs, and increased insurance costs.
  • 6The company made progress on its business transformation plan, incurring $4 million in payments during the quarter.
  • 7Aon's financial condition remains solid with total assets at $27.9 billion, although long-term debt saw some repayment and short-term borrowings increased.

Frequently Asked Questions

The primary driver was an increase in brokerage commissions and fees, reflecting growth in new business, strong renewal rates, and higher revenue from outsourcing contracts, particularly from the reinsurance and international brokerage areas.

Profitability saw a significant improvement. Net income available for common stockholders was $146 million in Q2 2003, compared to $0 in Q2 2002. This was driven by revenue growth and improved operational performance across segments.

The Endurance warrants are derivative instruments whose value increased by $21 million (pretax) in the second quarter of 2003 after Endurance completed its Initial Public Offering. This increase in value was recognized as investment income in the Corporate and Other segment and contributed to the overall improved financial results.

The main expense categories are General expenses and Benefits to policyholders. General expenses increased by 9% due to business growth, higher pension plan costs, and increased insurance costs. Benefits to policyholders decreased due to a lower payout ratio. Notably, a $9 million pretax charge related to the World Trade Center disaster was included in expenses for the quarter.