10-QPeriod: Q2 FY2007

Aon plc Quarterly Report for Q2 Ended Jun 30, 2007

Filed August 9, 2007For Securities:AON

Summary

Aon plc's (AON) Q2 2007 report shows solid revenue growth driven by its Risk and Insurance Brokerage Services and Insurance Underwriting segments. Consolidated revenue increased by 13% year-over-year for the quarter, reaching $2.49 billion, with a notable 21% surge in Premiums and other revenue, largely attributed to the Sterling subsidiary's Medicare Advantage products. Net income from continuing operations for the quarter was $238 million, a significant increase from $175 million in the prior year, translating to diluted earnings per share of $0.74 compared to $0.52. The company's restructuring initiatives are progressing, with substantial cost savings realized and expected to continue. Management is also exploring strategic options for its Combined Insurance Company of America, which could result in a spin-off or sale.

Key Highlights

  • 1Total revenue for the second quarter of 2007 increased by 13% to $2.49 billion compared to the prior year's $2.21 billion.
  • 2Income from continuing operations rose to $238 million from $175 million in the same period last year, with diluted EPS increasing to $0.74 from $0.52.
  • 3The Risk and Insurance Brokerage Services segment, Aon's largest, saw revenue grow 9% to $1.52 billion.
  • 4Insurance Underwriting revenue increased by 21% to $610 million, largely driven by the Sterling subsidiary's Medicare Advantage product growth.
  • 5The company repurchased approximately 16.2 million shares for $625 million in the first six months of 2007 as part of its $2 billion share repurchase program.
  • 6Aon is exploring strategic alternatives for its Combined Insurance Company of America, which could involve a spin-off or sale.
  • 7Restructuring initiatives are on track, with an estimated $280 million in annualized cost savings expected by 2008.

Frequently Asked Questions

The primary driver of revenue growth in the Insurance Underwriting segment is the strong performance of the Sterling subsidiary's Medicare Advantage (MA) products, particularly its Private-Fee-For-Service (PFFS) plans.

Aon announced in July 2007 that it is considering strategic options for CICA and its subsidiaries. Preparations are being made for a potential spin-off to shareholders, but the company is also open to inquiries from potential buyers.

The restructuring initiative, which began in 2005, is progressing well. The company has incurred $361 million in costs through June 30, 2007, and anticipates further cost savings of approximately $280 million annually by 2008. Approximately 3,100 of the estimated 3,600 workforce reductions have already occurred.

Recent legislative changes have impacted Sterling's ability to enroll beneficiaries year-round in its MA products. While year-round enrollment was extended through 2008 by legislation passed in late 2006, this was repealed in July 2007. Starting August 1, 2007, Sterling, like other MA plans, will have enrollment limited to specific periods, which is expected to affect revenue growth consistency.