-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, DiAYQzRQAWiOSv72D9kkZ6i4I/Mqq6tywrTFge5JyNWis+uhqnYN/DgOtRVSmgNR 0y4rlzSuOEn70wb9Sx3VGw== 0000948572-00-000017.txt : 20000531 0000948572-00-000017.hdr.sgml : 20000531 ACCESSION NUMBER: 0000948572-00-000017 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000324 FILER: COMPANY DATA: COMPANY CONFORMED NAME: AON CORP CENTRAL INDEX KEY: 0000315293 STANDARD INDUSTRIAL CLASSIFICATION: 6321 IRS NUMBER: 363051915 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 001-07933 FILM NUMBER: 578323 BUSINESS ADDRESS: STREET 1: 123 N WACKER DR CITY: CHICAGO STATE: IL ZIP: 60606 BUSINESS PHONE: 3127013000 FORMER COMPANY: FORMER CONFORMED NAME: COMBINED INTERNATIONAL CORP DATE OF NAME CHANGE: 19870504 10-K 1 AON CORPORATION - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED] Commission File Number: 1-7933 Aon Corporation (Exact Name of Registrant as Specified in its Charter) DELAWARE (State or Other Jurisdiction of 36-3051915 Incorporation or Organization) (I.R.S. Employer 123 NORTH WACKER DRIVE, Identification No.) CHICAGO, ILLINOIS 60606 (Address of Principal Executive Offices) (Zip Code) (312) 701-3000 (Telephone Number) Securities registered pursuant to Section 12(b) of the Act: Name of Each Exchange Title of Each Class on Which Registered ------------------- ------------------- Common Stock, $1 par value New York Stock Exchange* 7.40% Notes Due 2002 New York Stock Exchange Securities registered pursuant to Section 12(g) of the Act: NONE *The Common Stock of the Registrant is also listed for trading on the Chicago Stock Exchange and the International Stock Exchange London. Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES [X] NO [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements, incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X] Aggregate market value of the voting stock held by non-affiliates of the Registrant as of February 23, 2000 was $5,042,411,250. Number of shares of $1.00 par value Common Stock outstanding as of February 23, 2000 was 256,453,450. DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE: Annual Report to Stockholders of the Registrant for the Year 1999 (Parts I, II and IV) Notice of Annual Meeting of Holders of Common Stock and Series C Preferred Stock and Proxy Statement for Annual Meeting of Stockholders on April 18, 2000 of the Registrant (Part III) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- PART I ITEM 1. BUSINESS. The Registrant is a holding company whose operating subsidiaries carry on business in three distinct segments: (i) insurance brokerage and other services, (ii) consulting, and (iii) insurance underwriting. Incorporated in 1979, it is the parent corporation of long-established and more recently formed companies. The Insurance Brokerage and Other Services segment consists principally of Aon's retail and reinsurance brokerage operations, which includes specialty and wholesale activity. These services are provided by Aon Group, Inc., its subsidiaries and certain other indirect subsidiaries of the Registrant (the "Aon Group") including Aon Risk Services Companies, Inc.; Aon Holdings bv; Aon Services Group, Inc.; Aon Re Worldwide, Inc.; Aon Group Limited; and Alternative Market Operations ("AMO"). The Consulting segment provides a range of consulting services including employee benefits, human resources, compensation and change management. These services are provided by Aon Consulting Worldwide, Inc. which is also a subsidiary of Aon Group. Aon Group revenues grew significantly in 1997, 1998 and 1999 when the Registrant acquired, among other companies, Alexander & Alexander Services Inc. ("A&A"), The Minet Group, and Jauch & Hubener in 1997; Le Blanc de Nicolay, Gil y Carvajal and Auto Insurance Specialists, Inc. in 1998; and the Nikols Group, Presidium Holdings, Inc. and Societe Generale d' Assurance et de Prevoganie in 1999. Aon's Insurance Underwriting segment is comprised of direct sales life and accident and health insurance, extended warranty, specialty and other insurance products. Combined Insurance Company of America ("Combined Insurance") engages in the marketing and underwriting of life and accident and health insurance products. Virginia Surety Company, Inc. and London General Insurance Company Limited offer extended warranty and specialty insurance products. The Registrant hereby incorporates by reference pages 8 through 17, 19 through 21, and pages 49 and 50 of the Annual Report to Stockholders of the Registrant for the Year 1999 ("Annual Report"). COMPETITION AND INDUSTRY POSITION (1) INSURANCE BROKERAGE AND OTHER SERVICES Aon Group, Inc. ("Aon Group"); Aon Risk Services Companies, Inc. ("Aon Risk Services Companies"); Aon Holdings bv ("Aon Holdings"); Aon Services Group, Inc. ("Aon Services Group"); Aon Re Worldwide, Inc. ("Aon Re"); Aon Group Limited ("AGL"); Alternative Market Operations ("AMO"). Aon Group is the holding company for the subsidiaries which conduct the Registrant's commercial brokerage and consulting operations. Aon Group companies have 550 offices around the world in 120 countries. In 1999, Aon Group employed over 39,000 professionals and support personnel to serve the diverse needs of clients. Aon Risk Services Companies' subsidiaries operate in a highly competitive industry and compete with a large number of retail insurance brokerage and agency firms as well as individual brokers and agents and direct writers of insurance coverage. Aon Risk Services Companies' subsidiaries provide risk management services, including insurance placement, claims management, loss control and administrative services. It has also developed certain specialist niche areas such as marine, aviation, directors and officers liability, financial institutions, construction, energy, media and entertainment. In 1999, significant investments were made in professional talent, technology and the development of specialized products and services to meet the evolving needs of clients. Subsidiaries of Aon Risk Services Companies and Aon Holdings operate through owned offices in North America and Europe, as well as in South America, Africa, Australia and Asia. The acquisition of A&A significantly augmented the Registrant's presence in Latin America, Asia, Africa and Australia, and the acquisitions of Jauch & - 2 - Hubener, Le Blanc de Nicolay, Gil y Carvajal and The Nikols Group strengthened the Registrant's presence throughout Europe. Aon Services Group addresses the highly specialized product development, consulting and administrative risk management needs of professional groups, service businesses, governments, healthcare providers and commercial organizations. It also provides underwriting management skills, claims and risk management expertise, and third-party administration services to insurance companies. Aon Services Group operating subsidiaries market and broker both the primary and reinsurance risks of these programs. For individuals and businesses, Aon Services Group provides affinity products for professional liability, life, disability income and personal lines. The acquisition of The Minet Group by the Registrant augmented Aon Services Group's already strong expertise in wholesale brokerage and professional liability programs. The 1998 acquisition of Auto Insurance Specialists, Inc., an insurance broker specializing in automobile insurance coverages, gives Aon Services Group a significant presence in that market with opportunities for wide geographic application. Aon's reinsurance brokerage activities are organized under Aon Re in the United States and AGL in the United Kingdom. Aon Re is the largest reinsurance broker in the world, offering reinsurance, analytical services and alternative risk financing vehicles. Aon Re serves the alternative market with reinsurance placement, alternative risk services, captive management services and catastrophe information forecasting. AGL is a London-based Lloyd's broker that places wholesale and reinsurance business in the London and international markets and serves the needs of a wide range of clients around the world. AMO was established by Aon in late 1997 and is a leader in specialty underwriting solutions and custom-designed products and services. Several of AMO's specialties include entertainment, public entities, professional liability, workers compensation, and media business and financial institutions. (2) CONSULTING Aon Consulting Worldwide, Inc. ("Aon Consulting") Subsidiaries of Aon Consulting (and the European benefits operations of Aon Holdings) serve the employee benefit needs of clients around the world. Aon Consulting is one of the world's largest integrated human resources consulting organizations. Focusing on the increasing demand for outsourcing solutions, Aon Consulting targets emerging businesses, IPOs, recent mergers and acquisitions and corporations that are reengineering staff functions. In the United States, the benefits environment continues to change as companies look for ways to manage their benefits costs while increasing the choices offered to their employees. Aon Consulting, with its expertise in all areas of benefits and compensation, and its access to the Registrant's other subsidiaries, is well-positioned to serve this market. Aon Consulting subsidiaries offer services to clients including organizational analysis and HR strategic planning, recruitment and selection, benefits design and management training and development, job design and competency modeling; compensation and reward systems; human resources compliance and risk management; and individual and organizational change management. Benefits issues in foreign countries are becoming more complicated, and Aon Holdings and Aon Consulting anticipate increased demand for their services in these markets. - 3 - (3) INSURANCE UNDERWRITING Combined Insurance Company of America ("Combined Insurance"); Combined Life Insurance Company of New York ("CLICNY"); Virginia Surety Company, Inc. ("VSC"); London General Insurance Company Limited ("London General"); and Aon Warranty Group, Inc. ("Aon Warranty"). The Registrant's insurance underwriting subsidiaries are part of a highly competitive industry that serves individual consumers in North America, Europe, Latin America and the Pacific by providing accident and health coverage, traditional life insurance and extended warranties through distribution networks most of which are directly owned by the Registrant's subsidiaries. The life and accident and health distribution network encompasses primarily the agents of Combined Insurance and CLICNY ( which operates exclusively in the State of New York). With more than five million policy- holders, Combined Insurance has more individual accident policies in force than any other United States company. Combined Insurance, the Registrant's principal life and accident and health insurer, has a direct sales force of several thousand career agents calling on individuals to sell a broad spectrum of accident and health products and is one of the few companies with agents that call on customers every six months to renew coverage and to sell additional coverage. Combined Insurance's current product portfolio often allows policy- holders the option of paying premiums monthly through a pre-authorized check mechanism. Those policyholders are still called on by an agent to add additional coverage. Combined Insurance offers a wide range of accident-only and sickness- only insurance products, including short-term disability, cancer aid, Medicare supplement, disability income and long-term care coverage. Most of Combined Insurance's products are primarily fixed indemnity obligations, thereby not subject to escalating medical costs. Combined Insurance offers a simplified accident and sickness long-term disability policy. In addition to its traditional business, Combined Insurance has expanded its product distribution through payroll deduction, worksite marketing programs. Combined Insurance's business is conducted by the Registrant's operations in the United States, Canada, Latin America, Europe and Asia Pacific. Combined Insurance and CLICNY market whole life products through direct sales career agents in the United States. The Registrant's extended warranty and specialty insurance business, conducted by VSC subsidiaries in North America, South America and Asia Pacific and London General in Europe, is composed primarily of extended warranty insurance products, professional liability insurance coverages, workers' compensation and specialty financial institution coverages. VSC and London General are among the world's largest underwriters of consumer extended warranties. The automobile warranty products are sold in the United States, Canada, the United Kingdom, Ireland, France, The Netherlands, Belgium, Spain, Argentina, Brazil, Australia and Japan. Aon Warranty Group handles the administration of certain extended warranty products on automobiles, electronic goods, personal computers and appliances. It serves manufacturers, distributors and retailers of major worldwide consumer product and financial institutions, associations and affinity groups in North America and in Europe. - 4 - (4) DISCONTINUED OPERATIONS The Registrant hereby incorporates by reference note 4 of the Notes to Consolidated Financial Statements on page 35 of the Annual Report. LICENSING AND REGULATION Regulatory authorities in the states or countries in which the operating subsidiaries of Aon Group conduct business may require individual or company licensing to act as brokers, agents, third party administrators, managing general agents, reinsurance intermediaries or adjusters. Under the laws of most states in the United States and in most foreign countries, regulatory authorities have relatively broad discretion with respect to granting, renewing and revoking brokers' and agents' licenses to transact business in the state or country. The manner of operating in particular states and countries may vary according to the licensing requirements of the particular state or country, which may require, among other things, that a firm operate in the state or country through a local corporation. In a few states and countries, licenses are issued only to individual residents or locally-owned business entities. In such cases, Aon Group subsidiaries have arrangements with residents or business entities licensed to act in the state or country. Insurance companies must comply with laws and regulations of the jurisdictions in which they do business. These laws and regulations are designed to ensure financial solvency of insurance companies and to require fair and adequate service and treatment for policyholders. They are enforced by the states in the United States, by industry self-regulating agencies in the United Kingdom, and by various regulatory agencies in other countries through the granting and revoking of licenses to do business, licensing of agents, monitoring of trade practices, policy form approval, minimum loss ratio requirements, limits on premium and commission rates, and minimum reserve and capital requirements. Compliance is monitored by the state insurance departments through periodic regulatory reporting procedures and periodic examinations. The quarterly and annual financial reports to the regulators in the United States utilize statutory accounting principles which are different from the generally accepted accounting principles used in stockholders' reports. The statutory accounting principles, in keeping with the intent to assure the protection of policyholders are based, in general, on a liquidation concept while generally accepted accounting principles are based on a going-concern concept. The state insurance regulators are members of the National Association of Insurance Commissioners ("NAIC"). This Association seeks to promote uniformity of, and to enhance the state regulation of, insurance. Both the NAIC and the individual states continue to focus on the solvency of insurance companies and their conduct in the market place. This focus is reflected in additional regulatory oversight by the states and emphasis on the enactment or adoption of a series of NAIC model laws and regulations designed to promote solvency. Any increase in any solvency-related oversight by the states is not expected to have any significant impact on the insurance business of the Registrant. Several years ago, the NAIC developed a formula for analyzing insurers called risk-based capital ("RBC"). RBC is intended to establish "minimum" capital threshold levels that vary with the size and mix of a company's business. It is designed to identify companies with the capital levels that may require regulatory attention. RBC does not have any significant impact on the insurance business of the Registrant. The state insurance holding company laws require prior notice to and approval of the domestic state insurance department of intracorporate transfers of assets within the holding company structure, including the payment of dividends by insurance company subsidiaries. In addition, the premium finance loans by Cananwill, Inc., an indirect wholly-owned subsidiary of the Registrant, are subject to one or more of truth-in-lending and credit regulations, insurance premium finance acts, retail installment sales acts and other similar consumer protection legislation. Failure to comply with such laws or regulations can result in the temporary suspension or permanent loss of the right to engage in business in a particular jurisdiction as well as other penalties. Recent federal and state laws and proposals mandating specific practices by medical insurers and the health care industry will not, because of the nature of the business of the Registrant's subsidiaries, materially affect the Registrant. Numerous states have had legislation introduced to reform the health care system and such legislation has passed in several states. While it is impossible to forecast the precise nature of future federal and state health care changes, the Registrant does not expect a major impact on its operations because of the supplemental nature of - 5 - most of the policies issued by its insurance subsidiaries and because the coverages are primarily purchased to provide, on a fixed-indemnity basis, protection against loss-of-time or disability benefits. Congress has passed the Financial Services Modernization Act commonly known as S 900 or the Gramm, Leach, Bliley Act. While S 900 makes substantial changes in allowing financial organizations to diversify, the Registrant does not believe the enactment of S 900 will have a material effect on the business of its insurance institutions. CLIENTELE No significant part of the Registrant's or its subsidiaries' business is dependent upon a single client or on a few clients, the loss of any one of which would have a material adverse effect on the Registrant. EMPLOYEES The Registrant's subsidiaries had approximately 50,000 employees at the end of 1999 of whom approximately 42,000 are salaried and hourly employees and the remaining 8,000 are sales representatives who are generally compensated wholly or primarily by commission. ITEM 2. PROPERTIES. The Registrant's subsidiaries own and occupy office buildings in six states and certain foreign countries, and lease office space elsewhere in the United States and in various foreign cities. Loss of the use of any owned or leased property, while potentially disruptive, would have no material impact on the Registrant. - 6 - ITEM 3. LEGAL PROCEEDINGS. The Registrant hereby incorporates by reference note 13 of the Notes to Consolidated Financial Statements on pages 47 and 48 of the Annual Report. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. None. EXECUTIVE OFFICERS OF THE REGISTRANT Executive officers of the Registrant are regularly elected by its Board of Directors at the annual meeting of the Board which is held following each annual meeting of the stockholders of the Registrant. The executive officers of the Registrant were elected to their current positions on April 16, 1999 to serve until the meeting of the Board following the annual meeting of stockholders on April 18, 2000. Ages shown are as of December 31, 1999. For information concerning certain directors and executive officers of the Registrant, see item 10 below. As of March 24, 2000, the following individuals are also executive officers of the Registrant as defined in Rule 16a-1(f): HAS CONTINUOUSLY SERVED AS AN OFFICER OF REGISTRANT OR NAME, AGE, AND ONE OR MORE OF CURRENT OFFICE ITS SUBSIDIARIES BUSINESS EXPERIENCE OR PRINCIPAL POSITION SINCE PAST 5 YEARS --------------------- ----- ------------ Harvey N. Medvin, 63 1972 Mr. Medvin became Vice President Executive Vice President and and Chief Financial Officer of the Chief Financial Officer Registrant in 1982 and was elected to his current position in 1987. He also serves as a Director or Officer of certain of the Registrant's subsidiaries. Daniel T. Cox, 53 1986 Mr. Cox was elected to his current Executive Vice President position in 1991 and, prior to their sale in 1996, had served as Chairman and Chief Executive Officer of certain of the Registrant's under- writing subsidiaries. Mr. Cox has headed the Registrant's benefits consulting operation since 1987. He also serves as Director or Officer of certain of the Registrant's subsidiaries. Michael A. Conway, 52 1990 Mr. Conway was Vice President of Senior Vice President and Combined Insurance from 1980 to Senior Investment Officer 1984. Following other employment, Mr. Conway rejoined the Registrant in 1990 as Senior Vice President of Combined Insurance and was elected to his current position in 1991. He also serves as Director or Officer of certain of the Registrant's subsidiaries. - 7 - PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS. The Registrant's $1.00 par value common shares ("Common Shares") are traded on the New York, Chicago and London stock exchanges. The Registrant hereby incorporates by reference the "Dividends paid per share" and "Price range" data on page 52 of the Annual Report. The Registrant had approximately 13,300 holders of record of its Common Shares as of February 23, 2000. The Registrant hereby incorporates by reference note 9 of the Notes to Consolidated Financial Statements on page 40 of the Annual Report. ITEM 6. SELECTED FINANCIAL DATA. The Registrant hereby incorporates by reference the "Selected Financial Data" table on page 52 of the Annual Report. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. The Registrant hereby incorporates by reference "Financial and Operations Highlights - Management's Discussion and Analysis" on pages 18 through 24 and "Information Concerning Forward-Looking Statements" on page 54 of the Annual Report. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. The Registrant hereby incorporates by reference "Market Risk Exposure" on pages 23 and 24 of the Annual Report. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. The Registrant hereby incorporates by reference the following statements, notes and data from the Annual Report. Page(s) ------- Consolidated Financial Statements ..................... 25 - 29 Notes to Consolidated Financial Statements ............ 30 - 50 Report of Ernst & Young LLP, Independent Auditors ..... 51 Quarterly Financial Data .............................. 53 ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. Not Applicable. - 8 - PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT. The Registrant hereby incorporates by reference the information on pages 3, 6 and 7 of the Proxy Statement For The Annual Meeting of the Stockholders on April 18, 2000, of the Registrant ("Proxy Statement") concerning the following Directors of the Registrant, each of whom also serves as an executive officer of the Registrant as defined in Rule 16a-1(f): Patrick G. Ryan, Michael D. O'Halleran and Raymond I. Skilling. Information concerning additional executive officers of the Registrant is contained in Part I hereof, pursuant to General Instruction G(3) and Instruction 3 to Item 401(b) of Regulation S-K. The Registrant also hereby incorporates by reference the information on pages 10 through 12 of the Proxy Statement. ITEM 11. EXECUTIVE COMPENSATION. The Registrant hereby incorporates by reference the information under the headings "Executive Compensation," "Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values," "Option Grants in 1999 Fiscal Year" and "Pension Plan Table" on pages 14 through 17 of the Proxy Statement. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT. The Registrant hereby incorporates by reference the share ownership data contained on pages 2, 9 and 10 of the Proxy Statement. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS. The Registrant hereby incorporates by reference the information under the heading "Transactions With Management" on page 21 of the Proxy Statement. - 9 - PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K. (a) (1) and (2). The Registrant has incorporated by reference from the Annual Report (see Item 8) the following consolidated financial statements of the Registrant and subsidiaries:
Annual Report Page(s) ------- Consolidated Statements of Income - Years Ended December 31, 1999, 1998 and 1997 25 Consolidated Statements of Financial Position - As of December 31, 1999 and 1998 26-27 Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1999, 1998 and 1997 28 Consolidated Statements of Cash Flows - Years Ended December 31, 1999, 1998 and 1997 29 Notes to Consolidated Financial Statements 30-50 Report of Ernst & Young LLP, Independent Auditors 51
Financial statement schedules of the Registrant and consolidated subsidiaries not included in the Annual Report but filed herewith: Consolidated Financial Statement Schedules - Schedule -------- Condensed Financial Information of Registrant I Valuation and Qualifying Accounts II All other schedules for Aon Corporation and Subsidiaries have been omitted because the required information is not present in amounts sufficient to require submission of the schedules or because the information required is included in the respective financial statements or notes thereto. The following supplementary schedules have been provided for Aon Corporation and Subsidiaries as they relate to the insurance underwriting operations: Schedule -------- Summary of Investments Other than Investments in Related Parties II.1 Reinsurance II.2 Supplementary Insurance Information II.3 (A)(3). EXHIBITS (a) Second Restated Certificate of Incorporation of the Registrant - incorporated by reference to Exhibit 3(a) to the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1991 (the "1991 Form 10-K"). (b) Certificate of Amendment of the Registrant's Second Restated Certificate of Incorporation - incorporated by reference to Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q for the quarter ended March 31, 1994 (the "First Quarter 1994 Form 10Q"). (c) Bylaws of the Registrant - incorporated by reference to Exhibit (d) to the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1982 (the "1982 Form 10-K"). - 10 - (d) Indenture dated September 15, 1992 between the Registrant and Continental Bank Corporation (now known as Bank of America Illinois), as Trustee - incorporated by reference to Exhibit 4(a) to the Registrant's Current Report on Form 8-K dated September 23, 1992. (e) Resolutions establishing terms of 6.875% Notes Due 1999 and 7.40% Notes Due 2002 - incorporated by reference to Exhibits 4(d) to the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1992 (the "1992 Form 10-K"). (f) Resolutions establishing the terms of 6.70% Notes Due 2003 and 6.30% Notes Due 2004 incorporated by reference to Exhibits 4(c) and 4(d) of the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1993 (the "1993 Form 10-K"). (g) Resolutions establishing the terms of the 6.90 % Notes Due 2004. (h) Junior Subordinated Indenture dated as of January 13, 1997 between the Registrant and The Bank of New York, as trustee - incorporated by reference to Exhibit 4.1 of the Registrant's Amendment No. 1 to Registration Statement on Form S-4 No. 333-21237 dated March 27, 1997 (the "Capital Securities Registration"). (i) First Supplemental Indenture dated as of January 13, 1997 between the Registrant and the Bank of New York, as trustee - incorporated by reference to Exhibit 4.2 of the Capital Securities Registration. (j) Certificate of Trust of Aon Capital A - incorporated by reference to Exhibit 4.3 of the Capital Securities Registration. (k) Amended and Restated Trust Agreement of Aon Capital A dated as of January 13, 1997 among the Registrant, as Depositor, The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, the Administrative Trustees named therein and the holders, from time to time, of the Capital Securities - incorporated by reference to Exhibit 4.5 of the Capital Securities Registration. (l) Capital Securities Guarantee Agreement dated as of January 13, 1997 between the Registrant and the Bank of New York, as guarantee trustee - incorporated by reference to Exhibit 4.8 of the Capital Securities Registration. (m) Capital Securities Exchange and Registration Rights Agreement dated as of January 13, 1997 among the Registrant, Aon Capital A and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. - incorporated by reference to Exhibit 4.10 of the Capital Securities Registration. (n) Debenture Exchange and Registration Rights Agreement dated as of January 13, 1997 among the Registrant, Aon Capital A and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. - incorporated by reference to Exhibit 4.11 of the Capital Securities Registration. (o) Guarantee Exchange and Registration Rights Agreement dated as of January 13, 1997 among the Registrant, Aon Capital A and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. - incorporated by reference to Exhibit 4.12 of the Capital Securities Registration. (p) Certificate of Designation for the Registrant's Series C Cumulative Preferred Stock - incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated February 9, 1994. (q) Registration Rights Agreement dated November 2, 1992 by and between the Registrant and Frank B. Hall & Co., Inc. - incorporated by reference to Exhibit 4(c) to the Third Quarter 1992 Form 10-Q. - 11 - (r) Registration rights agreement by and among the Registrant and certain affiliates of Ryan Insurance Group, Inc. (including Patrick G. Ryan and Andrew J. McKenna) - incorporated by reference to Exhibit (f) to the 1982 Form 10-K. (s) Aon Corporation Outside Director Deferred Compensation Agreement by and among the Registrant and Registrant's directors who are not salaried employees of Registrant or Registrant's affiliates. (t) Amendment and Waiver Agreement dated as of November 4, 1991 among the Registrant and each of Patrick G. Ryan, Shirley Ryan, Ryan Enterprises Corporation and Harvey N. Medvin - incorporated by reference to Exhibit 10(j) to the 1991 Form 10-K. (u) Statement regarding Computation of Ratio of Earnings to Fixed Charges. (v) Statement regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. (w) Aon Corporation 1994 Amended and Restated Outside Director Stock Award Plan - incorporated by reference to Exhibit 10(b) to the First Quarter 1994 Form 10-Q. (x) Annual Report to Stockholders of the Registrant for the year ended December 31, 1999 (for information, and not to be deemed filed, except for those portions specifically incorporated by reference herein). (y) List of Subsidiaries of the Registrant. (z) Consent of Ernst & Young LLP to the incorporation by reference into Aon's Annual Report on Form 10-K of its report included in the 1999 Annual Report to Stockholders and into Aon's Registration Statement Nos. 33-27984, 33-42575, 33-59037, 333-21237, 333-50607, 333-55773 and 333-78723. (aa) Annual Report to the Securities and Exchange Commission on Form 11-K for the Aon Savings Plan for the year ended December 31, 1999 - to be filed by amendment as provided in Rule 15d- 21(b). (ab) Executive Compensation Plans and Arrangements: (A) Aon Stock Option Plan (as amended and restated through 1997) - incorporated by reference to Exhibit 10 (a) to the Registrant's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the Quarter ended March 31, 1997 (the "First Quarter 1997 Form 10-Q"). (B) First Amendment to the Aon Stock Option Plan as Amended and Restated Through 1997- incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended March 31, 1999 (the "First Quarter 1999 Form 10-Q"). (C) Aon Stock Award Plan (as amended and restated through 1997) - incorporated by reference to Exhibit 10(b) to the First Quarter 1997 Form 10-Q. (D) First Amendment to the Aon Stock Award Plan as Amended and Restated Through 1997- incorporated by reference to Exhibit 10(b) to the First Quarter 1999 Form 10-Q. - 12 - (E) Aon Corporation 1995 Senior Officer Incentive Compensation Plan incorporated by reference to Exhibit 10(p) to the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1995 (the "1995 Form 10-K"). (F) Aon Deferred Compensation Plan and First Amendment to the Aon Deferred Compensation Plan - incorporated by reference to Exhibit 10(q) of the 1995 Form 10-K. (G) 1999 Aon Deferred Compensation Plan. (H) Employment Agreement dated June 1, 1993 by and among the Registrant, Aon Risk Services, Inc. and Michael D. O'Halleran, incorporated by reference to Exhibit 10(p) to the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998. (I) Aon Severance Plan - incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report to the Securities and Exchange Commission and Form 10-Q for the quarter ended June 30, 1997. (ac) Asset Purchase Agreement dated July 24, 1992 between the Registrant and Frank B. Hall & Co. Inc. - incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10- Q for the period ended June 30, 1992. (ad) Stock Purchase Agreement by and among the Registrant, Combined Insurance Company of America, Union Fidelity Life Insurance Company and General Electric Capital Corporation dated as of November 11, 1995 - incorporated by reference to Exhibit 10(s) of the 1995 Form 10-K. (ae) Stock Purchase Agreement by and among the Registrant; Combined Insurance Company of America; The Life Insurance Company of Virginia; Forth Financial Resources, Ltd.; Newco Properties, Inc.; and General Electric Capital Corporation dated as of December 22, 1995 - incorporated by reference to Exhibit 10(t) of the 1995 Form 10-K. (af) Agreement and Plan of Merger among the Registrant; Subsidiary Corporation, Inc. ("Purchaser"); and Alexander & Alexander Services Inc. ("A&A") dated as of December 11, 1996 - incorporated by reference to Exhibit (c)(1) of the Registrant's Tender Offer Statement on Schedule 14D-1 filed by the Registrant with the Securities and Exchange Commission ("SEC") on December 16, 1996 (the "Schedule 14D-1"). (ag) First Amendment to Agreement and Plan of Merger, dated as of January 7, 1997, among the Registrant, Purchaser and A&A - incorporated by reference to Exhibit (c)(3) to the Schedule 14D-1 filed by the Registrant with the SEC on January 9, 1997. (b) Reports on Form 8-K. The Registrant filed no Current Reports on Form 8-K during the last quarter of the Registrant's year ended December 31, 1999. - 13 - SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 17th day of March, 2000. Aon Corporation By: /s/ PATRICK G. RYAN ------------------- Patrick G. Ryan, Chairman and Chief Executive Officer Pursuant to the requirements of the Securities Exchange Act of 1934, this Report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. SIGNATURE TITLE DATE --------- ----- ---- /s/ PATRICK G. RYAN Chairman, Chief Executive March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Officer and Director Patrick G. Ryan (Principal Executive Officer) /s/DANIEL T. CARROLL Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Daniel T. Carroll /s/FRANKLIN A. COLE Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Franklin A. Cole /s/EDGAR D. JANNOTTA Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Edgar D. Jannotta /s/LESTER B. KNIGHT Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Lester B. Knight /s/PERRY J. LEWIS Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Perry J. Lewis /s/ANDREW J. McKENNA Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Andrew J. McKenna /s/NEWTON N. MINOW Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Newton N. Minow - 14 - SIGNATURE TITLE DATE --------- ----- ---- /s/RICHARD C. NOTEBAERT Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Richard C. Notebaert /s/MICHAEL D. O'HALLERAN Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Michael D. O'Halleran /s/DONALD S. PERKINS Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Donald S. Perkins /s/JOHN W. ROGERS, JR. Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- John W. Rogers, Jr. /s/GEORGE A. SCHAEFER Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- George A. Schaefer /s/RAYMOND I. SKILLING Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Raymond I. Skilling /s/FRED L. TURNER Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Fred L. Turner /s/ARNOLD R. WEBER Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Arnold R. Weber /s/CAROLYN Y. WOO Director March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- Carolyn Y. Woo /s/HARVEY N. MEDVIN Executive Vice President March 17, 2000 - - - - - - - - - - - - - - - - - ---------------------------- and Chief Financial Harvey N. Medvin Officer (Principal Financial and Accounting Officer) - 15 -
SCHEDULE I Aon Corporation (Parent Company) CONDENSED STATEMENTS OF FINANCIAL POSITION As of December 31 ------------------------ (millions) 1999 1998 ----------- ----------- ASSETS Investments in subsidiaries ........................ $ 5,585 $ 5,305 Notes receivable - subsidiaries .................... 447 239 Cash and cash equivalents .......................... 17 6 Other assets ....................................... 123 84 ----------- ----------- Total Assets ................................... $ 6,172 $ 5,634 =========== =========== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES Short-term borrowings .............................. $ 823 $ 436 6.3% long-term debt securities ..................... 100 100 7.4% long-term debt securities ..................... 100 100 6.875% long-term debt securities.................... - 100 6.9% long-term debt securities ..................... 250 - 6.7% long-term debt securities ..................... 150 150 Subordinated debt .................................. 800 800 Notes payable - subsidiaries ....................... 622 588 Notes payable - other .............................. 70 70 Debt guarantee of employee stock ownership plan .... - 17 Accrued expenses and other liabilities ............. 156 206 ----------- ----------- TOTAL LIABILITIES .............................. 3,071 2,567 ----------- ----------- Redeemable Preferred Stock ........................ 50 50 STOCKHOLDERS' EQUITY Common stock ....................................... 259 172 Paid-in additional capital ......................... 525 450 Accumulated other comprehensive loss ............... (309) (116) Retained earnings .................................. 2,905 2,782 Less treasury stock at cost ........................ (90) (58) Less deferred compensation ......................... (239) (213) ----------- ----------- TOTAL STOCKHOLDERS' EQUITY ..................... 3,051 3,017 ----------- ----------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ..... $ 6,172 $ 5,634 =========== =========== See notes to condensed financial statements.
- 16 -
SCHEDULE I (Continued) Aon Corporation (Parent Company) CONDENSED STATEMENTS OF INCOME Years Ended December 31 ---------------------------- (millions) 1999 1998 1997 -------- -------- -------- REVENUE Dividends from subsidiaries ........................ $ 467 $ 351 $ 180 Other investment income ............................ 20 69 51 -------- -------- -------- TOTAL REVENUE ................................. 487 420 231 -------- -------- -------- EXPENSES Operating and administrative ....................... 13 20 6 Interest - subsidiaries ............................ 96 94 85 Interest - other ................................... 85 76 62 -------- -------- -------- TOTAL EXPENSES ................................ 194 190 153 -------- -------- -------- INCOME BEFORE INCOME TAXES AND EQUITY (DEFICIT) IN UNDISTRIBUTED INCOME OF SUBSIDIARIES ................ 293 230 78 Income tax benefit ................................. 70 54 43 -------- -------- -------- 363 284 121 EQUITY (DEFICIT) IN UNDISTRIBUTED INCOME OF SUBSIDIARIES.. (11) 257 178 -------- -------- -------- NET INCOME ......................................... $ 352 $ 541 $ 299 ======== ======== ======== - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------- See notes to condensed financial statements.
- 17 -
SCHEDULE I (Continued) Aon Corporation (Parent Company) CONDENSED STATEMENTS OF CASH FLOWS Years Ended December 31 ------------------------------ (millions) 1999 1998 1997 -------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES ............................ $ 287 $ 445 $ 124 CASH FLOWS FROM INVESTING ACTIVITIES: Investments in subsidiaries ............................... (363) (93) (1,355) Notes receivables from subsidiaries ....................... (208) (16) (135) -------- --------- --------- CASH USED BY INVESTING ACTIVITIES .................... (571) (109) (1,490) -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Treasury stock transactions - net ......................... (66) (18) 21 Issuance (repayment) of short-term borrowings - net ....... 387 (328) 542 Issuance of company-obligated mandatorily redeemable preferred capital securities of subsidiary trust .. - - 800 Issuance of notes payable and long-term debt .............. 284 200 114 Repayment of long-term debt ............................... (100) - - Retirement of preferred stock ............................. - - (136) Cash dividends to stockholders ............................ (210) (194) (182) -------- --------- --------- CASH PROVIDED (USED) BY FINANCING ACTIVITIES ......... 295 (340) 1,159 -------- --------- --------- INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ................ 11 (4) (207) CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .................. 6 10 217 -------- --------- --------- CASH AND CASH EQUIVALENTS AT END OF YEAR ........................ $ 17 $ 6 $ 10 ======== ========= ========= See notes to condensed financial statements.
- 18 - SCHEDULE I (Continued) Aon Corporation (Parent Company) NOTES TO CONDENSED FINANCIAL STATEMENTS (1) See notes to consolidated financial statements incorporated by reference from the Annual Report. (2) Generally, the net assets of Aon's insurance subsidiaries available for transfer to the parent company are limited to the amounts that the insurance subsidiaries' statutory net assets exceed minimum statutory capital requirements; however, payments of the amounts as dividends in excess of $170 million may be subject to approval by regulatory authorities. (3) Subsidiary Guarantees --------------------- In 1998, Aon guaranteed a committed bank credit facility under which certain European subsidiaries can borrow up to EUR 400 million. At December 31, 1999, loans of EUR 347 million ($351 million) were outstanding under this facility. An indirect wholly-owned subsidiary of Aon Corporation manages various investment portfolios, totaling $297 million at December 31, 1999, held in a collateral trust for the benefit of certain unaffiliated entities and is obligated to produce specified investment returns for those portfolios. Aon Corporation has unconditionally guaranteed the obligations of this subsidiary. (4) During 1998, Aon Corporation (Parent Company) reclassified $523 million of notes receivables-subsidiaries to investments in subsidiaries related to its brokerage operations. - 19 -
SCHEDULE II Aon CORPORATION and SUBSIDIARIES VALUATION AND QUALIFYING ACCOUNTS Years Ended December 31, 1999, 1998 and 1997 (MILLIONS) ADDITIONS ---------------------------- CHARGED/ BALANCE AT CHARGED TO (CREDITED) BALANCE BEGINNING COST AND TO OTHER DEDUCTIONS AT END DESCRIPTION OF YEAR EXPENSES ACCOUNTS (1) OF YEAR - - - - - - - - - - - - - - - - - -------------------------------------------------------- ------------- ------------- ------------- ------------- YEAR ENDED DECEMBER 31, 1999 ---------------------------- Reserve for losses (2) (deducted from other long-term investments) $ 9 $ - $ (9) $ - $ - Allowance for doubtful accounts (3) (deducted from insurance brokerage and consulting receivables) 93 12 (3) (14) 88 Allowance for doubtful accounts (deducted from premiums and other) 6 1 - (1) 6 YEAR ENDED DECEMBER 31, 1998 ---------------------------- Reserve for losses (2) (deducted from other long-term investments) $ 9 $ - $ - $ - $ 9 Allowance for doubtful accounts (3) (deducted from insurance brokerage and consulting receivables) 81 20 (5) (3) 93 Allowance for doubtful accounts (deducted from premiums and other) 5 1 - - 6 YEAR ENDED DECEMBER 31, 1997 ---------------------------- Reserve for losses (2) (deducted from other long-term investments) $ 5 $ - $ 4 $ - $ 9 Allowance for doubtful accounts (3) (deducted from insurance brokerage and consulting receivables) 60 9 27 (15) 81 Allowance for doubtful accounts (deducted from premiums and other) 3 2 - - 5 (1) Amounts deemed to be uncollectible. (2) Amounts shown in additions charged/(credited) to other accounts represent (income) losses on disposals. (3) Amounts shown in additions charged/(credited) to other accounts represent reserves related to acquired business and foreign exchange.
- 20 -
SCHEDULE II.1 Aon Corporation and Subsidiaries CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER THAN INVESTMENTS IN RELATED PARTIES AS OF DECEMBER 31, 1999 Amount Shown in Statement Amortized Fair of Financial (millions) Cost or Cost Value Position ------------ ------------ ------------ FIXED MATURITIES - AVAILABLE FOR SALE: US government and agencies ................... $ 170 $ 160 $ 160 States and political subdivisions ............ 8 7 7 Debt securities of foreign governments not classified as loans ................. 755 750 750 Corporate securities ......................... 1,530 1,450 1,450 Public utilities ............................. 47 45 45 Mortgage-backed securities ................... 44 43 43 Other fixed maturities ....................... 43 42 42 ------------ ------------ ------------ TOTAL FIXED MATURITIES .................. 2,597 2,497 2,497 ------------ ------------ ------------ EQUITY SECURITIES - AVAILABLE FOR SALE: Common stocks: Public utilities ......................... 2 1 1 Banks, trusts and insurance companies .... 151 149 149 Industrial, miscellaneous and all other .. 125 103 103 Non-redeemable preferred stocks .............. 384 321 321 ------------ ------------ ------------ TOTAL EQUITY SECURITIES ................. 662 574 574 ------------ ------------ ------------ Mortgage loans on real estate .................... 4 * 4 * Real estate - net of depreciation ................ 10 * 10 * Policy loans ..................................... 65 * 65 * Other long-term investments ...................... 672 * 672 * Short-term investments ........................... 2,362 2,362 ------------ ------------ TOTAL INVESTMENTS ....................... $ 6,372 $ 6,184 ------------ ------------ * These investment categories are combined and are shown as other investments in the Statement of Financial Position.
- 21 -
SCHEDULE II.2 Aon Corporation and Subsidiaries REINSURANCE Y e a r E n d e d D e c e m b e r 3 1 , 1 9 9 9 -------------------------------------------------------------------------------------- Ceded to Assumed Percentage of (millions) Gross other from other amount amount companies companies Net amount assumed to net -------------------------------------------------------------------------------------- LIFE INSURANCE IN FORCE ............ $ 14,444 $ 15,902 $ 7,567 $ 6,109 124% =============== ================ ================ =============== ================ PREMIUMS Life Insurance ................. $ 227 $ 93 $ 2 $ 136 2% A&H Insurance .................. 1,167 257 91 1,001 9% Specialty Property & Casualty .. 860 274 85 671 13% --------------- ---------------- ---------------- --------------- ---------------- TOTAL PREMIUMS ............... $ 2,254 $ 624 $ 178 $ 1,808 10% =============== ================ ================ =============== ================ Y e a r E n d e d D e c e m b e r 3 1 , 1 9 9 8 -------------------------------------------------------------------------------------- Ceded to Assumed Percentage of Gross other from other amount amount companies companies Net amount assumed to net -------------------------------------------------------------------------------------- LIFE INSURANCE IN FORCE ............ $ 10,653 $ 9,813 $ 5,510 $ 6,350 87% =============== ================ ================ =============== ================ PREMIUMS Life Insurance ................. $ 235 $ 103 $ 7 $ 139 5% A&H Insurance .................. 1,134 235 46 945 5% Specialty Property & Casualty .. 734 241 96 589 16% --------------- ---------------- ---------------- --------------- ---------------- TOTAL PREMIUMS ............... $ 2,103 $ 579 $ 149 $ 1,673 9% =============== ================ ================ =============== ================ Y e a r E n d e d D e c e m b e r 3 1 , 1 9 9 7 -------------------------------------------------------------------------------------- Ceded to Assumed Percentage of Gross other from other amount amount companies companies Net amount assumed to net -------------------------------------------------------------------------------------- LIFE INSURANCE IN FORCE ............ $ 10,438 $ 12,515 $ 8,823 $ 6,746 131% =============== ================ ================ =============== ================ PREMIUMS Life Insurance ................. $ 214 $ 154 $ 86 $ 146 59% A&H Insurance .................. 1,073 278 140 935 15% Specialty Property & Casualty .. 634 178 72 528 14% --------------- ---------------- ---------------- --------------- ---------------- TOTAL PREMIUMS ............... $ 1,921 $ 610 $ 298 $ 1,609 19% =============== ================ ================ =============== ================
- 22 -
SCHEDULE II.3 Aon Corporation and Subsidiaries SUPPLEMENTARY INSURANCE INFORMATION Future policy benefits Unearned Deferred losses, premiums policy claims and other Net acquistion and loss policyholders' Premium investment (millions) costs expenses funds revenue income(1) ----------- ------------ ----------- ------------ ----------- YEAR ENDED DECEMBER 31, 1999 - - - - - - - - - - - - - - - - - ---------------------------- Insurance brokerage and other services $ - $ - $ - $ - $ 159 Consulting - - - - 3 Insurance underwriting 636 1,769 3,219 1,808 251 Corporate and other - - - - 164 ----------- ------------ ----------- ------------ ----------- TOTAL $ 636 $ 1,769 $ 3,219 $ 1,808 $ 577 =========== ============ =========== ============ =========== YEAR ENDED DECEMBER 31, 1998 - - - - - - - - - - - - - - - - - ---------------------------- Insurance brokerage and other services $ - $ - $ - $ - $ 194 Consulting - - - - 6 Insurance underwriting 573 1,765 3,058 1,673 240 Corporate and other - - - - 150 ----------- ------------ ----------- ------------ ----------- TOTAL $ 573 $ 1,765 $ 3,058 $ 1,673 $ 590 =========== ============ =========== ============ =========== YEAR ENDED DECEMBER 31, 1997 - - - - - - - - - - - - - - - - - ---------------------------- Insurance brokerage and other services $ - $ - $ - $ - $ 163 Consulting - - - - 6 Insurance underwriting 549 1,752 2,698 1,609 214 Corporate and other - - - - 117 ----------- ------------ ----------- ------------ ----------- TOTAL $ 549 $ 1,752 $ 2,698 $ 1,609 $ 500 =========== ============ =========== ============ =========== Benefits Amortization claims, of deferred Commissions, losses and policy Other fees settlement acquisition operating Premiums (millions) and other expenses costs expenses written(2) ----------- ------------ ----------- ------------ ----------- YEAR ENDED DECEMBER 31, 1999 - - - - - - - - - - - - - - - - - ---------------------------- Insurance brokerage and other services $ 3,985 $ - $ - $ 3,651 $ - Consulting 653 - - 698 - Insurance underwriting 47 973 247 596 1,787 Corporate and other - - - 270 - ----------- ------------ ----------- ------------ ----------- TOTAL $ 4,685 $ 973 $ 247 $ 5,215 $ 1,787 =========== ============ =========== ============ =========== YEAR ENDED DECEMBER 31, 1998 - - - - - - - - - - - - - - - - - ---------------------------- Insurance brokerage and other services $ 3,588 $ - $ - $ 3,119 $ - Consulting 609 - - 547 - Insurance underwriting 33 896 216 551 1,668 Corporate and other - - - 233 - ----------- ------------ ----------- ------------ ----------- TOTAL $ 4,230 $ 896 $ 216 $ 4,450 $ 1,668 =========== ============ =========== ============ =========== YEAR ENDED DECEMBER 31, 1997 - - - - - - - - - - - - - - - - - ---------------------------- Insurance brokerage and other services $ 3,058 $ - $ - $ 2,917 $ - Consulting 547 - - 508 - Insurance underwriting 35 842 208 530 1,596 Corporate and other 2 - - 204 - ----------- ------------ ----------- ------------ ----------- TOTAL $ 3,642 $ 842 $ 208 $ 4,159 $ 1,596 =========== ============ =========== ============ =========== (1) The above results reflect allocations of investment income and certain expense elements considered reasonable under the circumstances. Results include income (loss) on disposals of investments. (2) Net of reinsurance ceded.
- 23 - Cross Reference Sheet, Pursuant to General Instruction G(4) Item in Form 10-K Incorporated by Reference to - - - - - - - - - - - - - - - - - ----------------- ---------------------------- PART I - - - - - - - - - - - - - - - - - ------ Item 1. Business Annual Report to Stockholders of the Registrant for the Year 1999 ("Annual Report") pages 8 through 17, 19 through 21, and pages 35, 49 and 50. Item 3. Legal Proceedings Annual Report pages 47 and 48 (note 13 of Notes to Consolidated Financial Statements). PART II - - - - - - - - - - - - - - - - - ------- Item 5. Market for the Registrant's Annual Report page 40 (note 9 of Common Stock and Related Notes to Consolidated Financial Security Holder Matters Statements) and page 52 ("Dividends paid per share" and "Price range"). Item 6. Selected Financial Data Annual Report page 52. Item 7. Management's Discussion Annual Report pages 18 through and Analysis of Financial 24 and page 54 ( "Information Condition and Results of Concerning Forward-Looking Operations Statements"). Item 7A. Quantitative and Qualitative Annual Report pages 23 and 24 Disclosures about Market Risk ("Market Risk Exposure"). Item 8. Financial Statements and Annual Report pages 25 through 50 Supplementary Data and 53. PART III - - - - - - - - - - - - - - - - - -------- Item 10. Directors and Executive Proxy Statement For Annual Meeting Officers of the Registrant of Stockholders on April 18, 2000 of the Registrant ("Proxy Statement") pages 3, 6, 7, and 10 through 12. Item 11. Executive Compensation Proxy Statement pages 14 through 17. Item 12. Security Ownership of Proxy Statement pages 2, 9 and 10. Certain Beneficial Owners and Management Item 13. Certain Relationships and Proxy Statement page 21 Related Transactions ("Transactions With Management"). PART IV - - - - - - - - - - - - - - - - - ------- Item 14. Exhibits, Financial Statement Annual Report pages 25 through 50. Schedules, And Reports on Form 8-K - 24 - EXHIBIT INDEX EXHIBIT NUMBER PAGE NUMBER OF REGULATION SEQUENTIALLY S-K, ITEM 601 NUMBERED COPY - - - - - - - - - - - - - - - - - ------------- ------------- (3) Articles of incorporation and bylaws: (a) Second Restated Certificate of Incorporation of the Registrant - incorporated by reference to Exhibit 3(a) to the 1991 Form 10-K. (b) Certificate of Amendment of the Registrant's Second Restated Certificate of Incorporation - incorporated by reference to Exhibit 3 to the First Quarter 1994 Form 10-Q. (c) Bylaws of the Registrant - incorporated by reference to Exhibit (d) to the 1982 Form 10-K. (d) Certificate of Designation for the Registrant's Series C Cumulative Preferred Stock - incorporated by reference to Exhibit 4.1 to the Registrant's Current Report on Form 8-K dated February 9, 1994. (4) Instruments defining the rights of security holders, including indentures: (a) Indenture dated September 15, 1992 between the Registrant and Continental Bank Corporation (now known as Bank of America Illinois), as Trustee - incorporated by reference to Exhibit 4(a) of the Registrant's Current Report on Form 8-K dated September 23, 1992. (b) Resolutions establishing terms of 6.875% Notes Due 1999 and 7.40% Notes Due 2002 - incorporated by reference to Exhibit 4(d) to the 1992 Form 10-K. (c) Resolutions establishing the terms of 6.70% Notes Due 2003 incorporated by reference to Exhibit 4(c) to the 1993 Form 10-K. (d) Resolutions establishing the terms of 6.30% Notes Due 2004 incorporated by reference to Exhibit 4(d) to the 1993 Form 10-K. (e) Resolutions establishing the terms of 6.90% Notes due 2004. (f) Junior Subordinated Indenture dated as of January 13, 1997 between the Registrant and The Bank of New York, as trustee - incorporated by reference to Exhibit 4.1 of the Registrant's Amendment No. 1 to Registration Statement on Form S-4 No. 333-21237 dated March 27, 1997 (the "Capital Securities Registration"). (g) First Supplemental Indenture dated as of January 13, 1997 between the Registrant and the Bank of New York, as trustee - incorporated by reference to Exhibit 4.2 of the Capital Securities Registration. (h) Certificate of Trust of Aon Capital A - incorporated by reference to Exhibit 4.3 of the Capital Securities Registration. - 25 - EXHIBIT INDEX EXHIBIT NUMBER PAGE NUMBER OF REGULATION SEQUENTIALLY S-K, ITEM 601 NUMBERED COPY - - - - - - - - - - - - - - - - - ------------- ------------- (i) Amended and Restated Trust Agreement of Aon Capital A dated as of January 13, 1997 among the Registrant, as Depositor, The Bank of New York, as Property Trustee, The Bank of New York (Delaware), as Delaware Trustee, the Administrative Trustees named therein and the holders, from time to time, of the Capital Securities - incorporated by reference to Exhibit 4.5 of the Capital Securities Registration. (j) Capital Securities Guarantee Agreement dated as of January 13, 1997 between the Registrant and the Bank of New York, as guarantee trustee - incorporated by reference to Exhibit 4.8 of the Capital Securities Registration. (k) Capital Securities Exchange and Registration Rights Agreement dated as of January 13, 1997 among the Registrant, Aon Capital A and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. - incorporated by reference to Exhibit 4.10 of the Capital Securities Registration. (l) Debenture Exchange and Registration Rights Agreement dated as of January 13, 1997 among the Registrant, Aon Capital A and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. - incorporated by reference to Exhibit 4.11 of the Capital Securities Registration. (m) Guarantee Exchange and Registration Rights Agreement dated as of January 13, 1997 among the Registrant, Aon Capital A and Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. - incorporated by reference to Exhibit 4.12 of the Capital Securities Registration. (10) Material Contracts: (a) Aon Stock Option Plan (as amended and restated through 1997) - incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended March 31, 1997 (the "First Quarter 1997 Form 10-Q"). (b) First Amendment to the Aon Stock Option Plan as Amended and Restated Through 1997 - incorporated by reference to Exhibit 10(a) to the Registrant's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended March 31, 1999 (the "First Quarter 1999 Form 10-Q"). (c) Registration Rights Agreement by and among the Registrant and certain affiliates of Ryan Insurance Group, Inc. (Including Patrick G. Ryan and Andrew J. McKenna) - incorporated by reference to Exhibit (f) to the 1982 Form 10-K. (d) Aon Corporation Outside Director Deferred Compensation Agreement by and among Registrant and Registrant's directors who are not salaried employees of Registrant or Registrant's affiliates. - 26 - EXHIBIT INDEX EXHIBIT NUMBER PAGE NUMBER OF REGULATION SEQUENTIALLY S-K, ITEM 601 NUMBERED COPY - - - - - - - - - - - - - - - - - ------------- ------------- (e) Aon Stock Award Plan (as amended and restated through 1997) - incorporated by reference to Exhibit 10(b) to the First Quarter 1997 Form 10-Q. (f) First Amendment to the Aon Stock Award Plan as Amended and Restated Through 1997 - incorporated by reference to exhibit 10(b) to the First Quarter 1999 Form 10-Q. (g) Amendment and Waiver Agreement dated as of November 4, 1991 among the Registrant and each of Patrick G. Ryan, Shirley Ryan, Ryan Enterprises Corporation and Harvey N. Medvin - incorporated by reference to Exhibit 10(j) to the 1991 Form 10-K. (h) Registration Rights Agreement dated November 2, 1992 by and between the Registrant and Frank B. Hall & Co., Inc. - incorporated by reference to Exhibit 4(c) to the Third Quarter 1992 Form 10-Q. (i) Aon Corporation 1994 Amended and Restated Outside Director Stock Award Plan - incorporated by reference to Exhibit 10(b) to the First Quarter 1994 Form 10-Q. (j) Aon Corporation 1995 Senior Officer Incentive Compensation Plan - incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K. (k) Aon Deferred Compensation Plan and First Amendment to the Aon Deferred Compensation Plan - incorporated by reference to Exhibit 10(q) to the 1995 Form 10-K. (l) 1999 Aon Deferred Compensation Plan. (m) Aon Severance Plan - incorporated by reference to Exhibit 10 to the Registrant's Quarterly Report to the Securities and Exchange Commission on Form 10-Q for the quarter ended June 30, 1997. (n) Asset Purchase Agreement dated July 24, 1992 between the Registrant and Frank B. Hall & Co. Inc. - incorporated by reference to Exhibit 10(c) to the Registrant's Quarterly Report on Form 10-Q for the period ended June 30, 1992. (o) Stock Purchase Agreement by and among the Registrant, Combined Insurance Company of America, Union Fidelity Life Insurance Company and General Electric Capital Corporation dated as of November 11, 1995 - incorporated by reference to Exhibit 10(s) of the 1995 Form 10-K. (p) Stock Purchase Agreement by and among the Registrant; Combined Insurance Company of America; The Life Insurance Company of Virginia; Forth Financial Resources, Ltd.; Newco Properties, Inc.; and General Electric Capital Corporation dated as of December 22, 1995 - incorporated by reference to Exhibit 10(t) to the 1995 Form 10-K. - 27 - EXHIBIT INDEX EXHIBIT NUMBER PAGE NUMBER OF REGULATION SEQUENTIALLY S-K, ITEM 601 NUMBERED COPY - - - - - - - - - - - - - - - - - ------------- ------------- (q) Agreement and Plan of Merger among the Registrant, Purchaser and A&A dated as of December 11, 1996 - incorporated by reference to Exhibit (c)(1) to the Registrant's Schedule 14D-1 filed with the SEC on December 16, 1996. (r) First Amendment to Agreement and Plan of Merger dated as of January 7, 1997 among the Registrant, Purchaser and A&A - incorporated by reference to Exhibit (c)(3) to Schedule 14D-1 filed by the Registrant with the SEC on January 9, 1997. (s) Employment Agreement dated June 1, 1993 by and among the Registrant, Aon Risk Services, Inc. and Michael D. O'Halleran, incorporated by reference to Exhibit 10(p) to the Registrant's Annual Report to the Securities and Exchange Commission on Form 10-K for the year ended December 31, 1998. (12) Statements regarding Computation of Ratios. (a) Statement regarding Computation of Ratio of Earnings to Fixed Charges. (b) Statement regarding Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends. (13) Annual Report to Stockholders of the Registrant for the year ended December 31, 1999. (21) List of subsidiaries of the Registrant. (23) Consent of Ernst & Young LLP to the incorporation by reference into Aon's Annual Report on Form 10-K of their report included in the 1999 Annual Report to Stockholders and into Aon's Registration Statement Nos. 33-27984, 33-42575, 33-59037, 333-21237, 333-50607, 333-55773 and 333-78723. (99) Annual Report to the Securities and Exchange Commission on Form 11-K for the Aon Savings Plan for the year ended December 31, 1999 - to be filed by amendment as provided in Rule 15d-21(b). - 28 - EX-4 2 RESOLUTIONS ESTABLISHING THE TERMS ON NOTES EXHIBIT 4(e) Resolutions Establishing the terms of 6.9% Notes due 2004. WHEREAS, the Board of Directors of the Company previously authorized and approved, pursuant to resolutions duly adopted on April 16, 1999 (the "Resolutions"), the issuance of debt securities and capital stock of the Company (the "Securities") in such amounts, with such terms, in such manner and at such price in one or more series as the special committee (the "Special Committee") established in the Resolutions may from time to time determine, provided that the aggregate amount of the Securities to be so issued does not exceed $500,000,000; WHEREAS, the Board of Directors empowered the Special Committee pursuant to the Resolutions with all the powers and authority of the full Board of Directors to take all actions relating to the creation, issuance and sale of the Securities including in the case of debt securities, but not limited to, determining or approving (1) the type of security or securities; (2) the title or titles thereof; (3) the aggregate principal amount and denominations thereof; (4) the maturity or maturities thereof; (5) the interest rate or rates (which may be fixed or variable) to be borne thereby; (6) the form of subordination, if any; (7) any conversion rate; (8) any optional or mandatory redemption provisions in respect thereof, including sinking fund provisions; (9) any affirmative and negative covenants to be imposed on the Company in respect thereof; (10) any events of default in respect thereof; (11) any rights of defeasance in respect thereof; and (12) any and all other terms, conditions and provisions in respect thereof; and WHEREAS, this Special Committee believes it is in the best interest of the Company to create debt securities as set forth in the following resolutions under an Indenture dated as of September 15, 1992 (the "Indenture"), between the Company and The Bank of New York, as successor trustee to Continental Bank National Association (the "Trustee"). RESOLVED, that the Company hereby establishes a series of the Company's debt securities to be issued under the Indenture, such debt securities to have the following title and terms (all capitalized terms used herein which are defined in the Indenture are used as defined therein): 1. The title of the issue of the debt securities shall be "6.90% Notes Due 2004" (the "Notes"); 2. The aggregate principal amount of the Notes which may be authenticated and delivered under the Indenture (except for Notes authenticated and delivered upon registration or transfer of, or in exchange for, or in lieu of, other 6.90% Notes pursuant to Sections 2.05, 2.06, 2.07 and 3.03 of the Indenture) shall be, and is hereby limited to, $250,000,000; 3. The date on which the principal of the Notes shall be payable shall be July 1, 2004; 4. The Notes shall bear interest at the rate of 6.90% per annum. Interest on the Notes shall accrue from June 29, 1999, or from the most recent Interest Payment Date to which interest has been paid or provided for. Accrued interest on the Notes shall be payable on January 1 and July 1 in each year, to the persons in whose names the Notes are registered at the close of business on the preceding December 15 and June 15, respectively; 5. The Place of Payment for the Notes shall be the office or agency of the Trustee maintained for that purpose in the City of Chicago and in the Borough of Manhattan, the City of New York; and 6. The Notes shall not be subject to redemption prior to maturity and will not be entitled to any sinking fund. FURTHER RESOLVED, that the Notes shall be issued only in registered form without coupons; FURTHER RESOLVED, the purchase price to be paid to the Company for the sale of the Notes to the "Underwriters" (as defined below) shall be 99.27% of the principal amount of the Notes, and the initial offering price to the public of the Notes shall be 99.87% of the principal amount of the Notes, with no accrued interest payable on the date of delivery; FURTHER RESOLVED, that the form of the Notes shall be substantially in the form attached to this consent action; FURTHER RESOLVED, that the Notes shall be sold, under a firm commitment underwriting, to the Underwriters (the "Underwriters") identified in the Underwriting Agreement (the "Underwriting Agreement") to be executed between the Company and Morgan Stanley & Co. Incorporated and Aon Capital Markets as the Underwriters named therein; FURTHER RESOLVED, that the Chairman and Chief Executive Officer, the President and Chief Operating Officer, and any Executive Vice President of the Company (either one acting alone) be, and each hereby is, authorized, in the name and on behalf of the Company, to execute and deliver the Underwriting Agreement providing for the sale of the Notes therein to the Underwriters substantially in the form distributed to each of the undersigned prior hereto, with full power and authority to make such changes or additions thereto as any of them may approve, such approval to be conclusively evidenced by the execution thereof; and - 2 - FURTHER RESOLVED, that there be issued under the Indenture, and delivered and sold under the Underwriting Agreement as executed (against receipt by the Company of payment as therein provided), the Notes, and the Chairman and Chief Executive Officer, the President and Chief Operating Officer and any Executive Vice President (either one acting alone) be, and each hereby is, authorized, on behalf of the Company, to execute the Notes (by manual or facsimile signatures), under its corporate seal reproduced thereon attested (by manual or facsimile signatures) by the Corporate Secretary or any Assistant Secretary and to deliver the Notes to the Trustee; and the Trustee be, and hereby is, authorized and directed thereupon to authenticate and deliver the Notes in accordance with the provisions of Section 2.03 of the Indenture, the Notes when authenticated to be delivered by the Trustee upon the order of the Chairman and Chief Executive Officer, the President and Chief Operating Officer or any Executive Vice President as and when the conditions with respect to the authentication and delivery thereof under the Indenture have been complied with. - 3 - EX-10 3 OUTSIDE DIRECTORS DEFERRED COMPENSATION AGREEMENT EXHIBIT 10(d) AON CORPORATION OUTSIDE DIRECTORS DEFERRED COMPENSATION' AGREEMENT This Deferred Compensation Agreement is entered into by and between Aon Corporation, a Delaware corporation (the "Company"), and the "Director" named on the Election Form, which is hereby incorporated as part of this agreement. WITNESSETH WHEREAS, the Director is expected to be nominated for election as a Director of the Company at the next annual meeting of stockholders of the Company (the "Annual Meeting") and desires, beginning with the date of the Annual Meeting and for as long as the Director serves in that capacity or until the Director desires to terminate or amend this agreement, to defer in the manner hereinafter set forth all or a portion of the fees to which he or she may become entitled for serving as a Director of the Company, including fees to which he or she may become entitled for serving as a member of any committee of the Board of Directors (collectively, "Director's Fees"); and WHEREAS, the Company is agreeable to such deferrals, subject to the terms and conditions set forth herein. NOW THEREFORE, in consideration of the Director's services for the Company and other good and valuable consideration, the parties hereto agree as follows: 1. DIRECTOR'S FEE DEFERRAL ----------------------- The Director hereby irrevocably elects, beginning with the Annual Meeting, to defer the percent of the Director's Fees to which he or she may become entitled with respect to his or her services as a Director (or committee member) as the Director has specified on the Election Form. 1. With respect to a Director's election to defer any portion of Director's Fees, an account (the "Aon Common Stock Account") will be credited with such additions as the Director has elected to defer to such account. For purposes of crediting Director's Fees deferred amounts shall be assumed to have been invested in Aon Common Stock. The amount of shares so credited will be determined by dividing the deferred amount by the fair market value of Aon Common Stock on the New York Stock Exchange for the day such Director's Fees would have been payable to the Director had it not been deferred. The "Fair Market Value" on any day is the average of the highest and lowest price at which the stock was sold on the New York Stock Exchange that day. As of the date any dividend is paid to holders of shares of Aon Common Stock, the Aon Common Stock Account shall be credited with a number of additional shares, including fractions thereof, of Aon Common Stock that could have been purchased, with the amount which would have been payable as dividends, on such date with regard to the number of shares, and fractions thereof, credited to the Aon Common Stock Account, assuming the purchase price per share is equal to the Fair Market Value as of the payment date. 2. With respect to a Director's election to defer any portion of Director's Fees, and account (the "Aon General Account") will be credited with such additions as the Director has elected to defer to such account. For purposes of computing such addition, deferred amounts shall be credited as of the day such Director's Fees would have been payable to the Director had it not been deferred, and such deferrals shall be credited with interest, compounded semiannually, at the annual rate determined as of January 1 and July 1 of each year by averaging the one-year Treasury Bill yield as published monthly by the Federal Reserve Bank of St. Louis on a bank discount basis through the secondary market for the last six months immediately prior thereto. 2. PAYMENT OF DEFERRED AMOUNTS --------------------------- Amounts in cash equal to the value(s) of the Director's Aon General Account, as determined above, shall be payable to the Director as specified on the Election Form. Distributions from the Aon Common Stock Account may be made in cash, in Aon Common Stock, or in a combination of cash and Aon Common Stock. 3. BENEFICIARY OF DEFERRED AMOUNTS ------------------------------- Any amounts payable upon death of the Director pursuant to Section 2 shall be paid to the beneficiary designated in writing by the Director provided such writing has been delivered to the Company prior to the Director's death. If no beneficiary is so designated, payment will be made to the Director's estate. The Director may change the designated beneficiary by filing with the Company a new beneficiary designation. 4. MISCELLANEOUS ------------- 1. Nothing contained in this Agreement shall be construed as conferring upon the Director the right to continue to be associated with the Company in any capacity. 2. The Company's obligation to make payments of deferred compensation shall be the general obligation of the Company and such payments shall be made from the general assets of the Company. The Director's interests hereunder shall not be assignable and any purported assignment or transfer shall be void. 3. During the month prior to any annual meeting the Director may change the percent of fees deferred, the amount in the Aon Common Stock Account or the amount in the Aon General Account by filing with the Company a new Election Form. - 2 - 4. In the event of recapitalization, stock split, stock dividend, combination or exchange of shares merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or shares of the Company, the Board of Directors of the Company may make such equitable adjustments to prevent dilution or enlargement of rights, as it may deem appropriate, in the number and class of shares so credited. 5. This agreement shall be construed in accordance with and governed by the laws of the State of Illinois. - 3 - EX-10 4 THE 1999 AON DEFERRED COMPENSATION PLAN Exhibit 10(l) THE 1999 Aon DEFERRED COMPENSATION PLAN 1. PURPOSE The name of this plan is the 1999 Aon Deferred Compensation Plan (the "Plan"). Its purpose is to provide certain select management or highly compensated employees of Aon Corporation and its subsidiaries (the "Company") with the opportunity to defer amounts earned as an employee. The Plan shall be effective as of January 1, 1999. 2. ADMINISTRATION The Plan shall be administered by the Organization and Compensation Committee (the "Committee") of Aon Corporation's Board of Directors (the "Board"). The Committee shall have the authority to adopt rules and regulations for carrying out the Plan, to delegate its administrative responsibilities, as it shall, from time to time, deem advisable, and to interpret, construe, and implement the provisions thereof. Any decision or interpretation of any provision of the Plan adopted by the Committee shall be final and conclusive. Furthermore, the Committee may obtain such advice or assistance, as it deems appropriate from persons not serving on the Committee. 3. ELIGIBILITY Any staff employee of the Company who received wages or compensation as reported on Box 1 of IRS Form W-2 of $125,000 or more in the prior calendar year or whose rate of annual base pay in the current calendar year is $125,000 or more shall be eligible to participate in the Plan subject to the requirements of Section 3 hereof. In addition, other select management of highly compensated employees may be eligible to participate at the option of the Committee. Every eligible employee shall become a participant after making an election to participate (the "Participant") on such forms as required by the Committee and in accordance with Section 4. 4. ELECTIONS On or before December 31 of any year, each employee eligible to participate in the Plan shall be entitled to make an election to defer receipt of : (a) any whole percentage of bi-weekly earnings paid to an employee for his service as an employee ("Compensation"); and (b) any whole percentage of any extraordinary amount paid by the Company pursuant to but not limited to a periodic individual performance appraisal or a contractual agreement ("Bonus"). Each Participant shall also make an election as to the period of deferral and distribution in accordance with Section 6. Elections made pursuant to this Section 4 shall remain in effect until such time as they are amended by the Participant. Any amendment will take place effective with the next January 1 or earlier if permitted by the Committee. 5. DEFERRED AMOUNTS Each Participant shall have established for his or her benefit an account to which any amounts deferred shall be assumed to have been invested in Aon Common Stock and credited to the Participant's Account (the "Account"). The amount of shares so credited to the Account will be determined by dividing the deferred amount by the fair market value of Aon Common Stock on the New York Stock Exchange for the day such Compensation or Bonus would have been payable to the Participant had it not been deferred. Fair Market Value on any day is the average of the highest and lowest prices as quoted on the New York Stock Exchange, as published in The Wall Street Journal, or, if The Wall Street Journal is no longer published , such other periodical as chosen by the Committee. As of each dividend payment date, each Participant's Account shall be credited with dividends that would be paid with respect to Aon Common Stock on the dividend payment date as if the Participant owned the stock credited to his or her Account as of the record date. Dividends will be credited as if reinvested in whole or fractional shares on the dividend payment date. In the event of a recapitalization, stock split, stock dividend, combination or exchange of shares, merger, consolidation, rights offering, separation, reorganization or liquidation, or any other change in the corporate structure or shares of the Company, the Committee may make such equitable adjustments, to prevent dilution or enlargement of rights, as it may deem appropriate in the number and class of shares so credited. 6. METHOD OF DISTRIBUTION At the time the Participant elects to defer Compensation of Bonus pursuant to Section 4, the Participant shall also make an election as to the beginning date of distribution ("Elected Distribution Date") with respect to the amount of shares credited to the Accounts of the Participant and the number of annual installments, not in excess of fifteen, over which such distribution will be made. Distributions shall commence with 30 days following the date of distribution specified by the Participant. Distributions will be made in the form of Aon Common Stock with fractional shares payable in the form of cash. If the Participant terminates employment for any reason prior to the Elected Distribution Date, distributions shall commence within the 30-day period following the first business day of the first calendar year following the year in which employment terminated, and said distributions shall be made in the same number of annual installments as had been elected by the Participant. If any Participant dies before receiving all amounts credited to such Participant's Accounts, the undistributed amounts shall be distributed to the Participant's beneficiary or beneficiaries in accordance with the last effective beneficiary designation form filed by the Participant with the Company. Such undistributed amounts will be distributed in the same manner and at the same time as had been elected by the Participant prior to such Participant's death. If a Participant has failed to designate a beneficiary any shares distributable hereunder shall be distributed to the estate. The Committee may in its sole discretion determine that a distribution shall be made over a shorter or longer period or in more frequent installments, or commence on an earlier or later date, or any or all of the above. 7. TAXES The Committee may, in its discretion and subject to such rules as it may adopt, permit a Participant to pay all or a portion of such taxes arising in connection with a distribution pursuant to Section 6 by electing to have the Company withhold shares of Common Stock otherwise distributable having a Fair Market Value equal to all or any portion of such tax to be satisfied in this manner. 8. IMPACT ON OTHER BENEFITS The amount of each Participant's Compensation or Bonus which the Participant elects to defer under the Plan shall be deemed compensation for the purpose of calculating the amount of a Participant's benefits or contributions under all retirement and welfare benefit plans sponsored by the Company, except to the extent not permitted under such retirement or welfare benefit plan and except to the extent not permitted under the Internal Revenue Code. 9. PARTICIPANT'S RIGHTS Nothing in the Plan shall confer on a Participant any right to continue in the employ of the Company or in any way affect the Company's right to terminate the Participant's employment at any time without prior notice or for any or no reason. All amounts deferred or otherwise held for the account of a Participant under the Plan shall remain the sole property of the Company. With respect to such amounts, the Participant is merely a general creditor, and any obligation of the Company hereunder is purely contractual and shall not be funded or secured in any way. 10. NONALIENABILITY AND NONTRANSFERABILITY No amounts, whether deferred or distributable, shall be subject in any manner to anticipation, alienation, sale, transfer, assignment, pledge, encumbrance, charge, garnishment, execution, or levy of any kind, whether voluntary or involuntary, including any liability which is for alimony or other payments for the support of a spouse or former spouse. 11. AMENDMENT AND TERMINATION The Board reserves the right to amend, modify or terminate the Plan at any time, subject to any applicable rule or regulation. 12. NOTICES All notices to the Company hereunder shall be delivered to the attention of: Robert D. Sloan Aon Corporation 123 North Wacker Drive, 9th Floor Chicago, IL 60606 Such notice shall be deemed given as of the date of delivery or, if delivery is made by mail, as of the date shown on the postmark or the receipt for registration or certification. 13. CONTROLLING LAW Except to the extent superseded by federal law, the laws of Illinois shall be controlling in all matters relating to the Plan. 14. SEVERABILITY Whenever possible, each provision of the Plan shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of the Plan shall be held to be prohibited by or invalid under applicable law, then (a) such provision shall be deemed amended, and to have contained from the outset such language as shall be necessary to, accomplish the objectives of the provision as originally written to the fullest extent permitted by law and (b) all other provisions of the Plan shall remain in full force and effect. 15. LIABILITY No member of the Board and no employee of the Company shall be liable for any act or action hereunder whether by omission or commission, by any other member or employee or by any agent to whom duties in connection with the administration of the Plan have been delegated or, except in circumstances involving his or her bad faith, gross negligence or fraud, of anything done or admitted to be done by him or herself. 16. SUCCESSORS The provisions of the Plan shall bind and inure to the benefit of the Company and its successors and assigns. The term "successors" as used herein shall include any corporation or other business entity which shall by merger, consolidation, purchase, or otherwise, acquire all or substantially all of the business and assets of the Company and successors of any such corporation or other business entity. EX-12 5 COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
Exhibit 12(a) Aon Corporation and Consolidated Subsidiaries Combined With Unconsolidated Subsidiaries Computation of Ratio of Earnings to Fixed Charges Years Ended December 31, ----------------------------------------------------- (millions except ratios) 1999 1998 1997 1996 1995 -------- -------- -------- ------- -------- Income from continuing operations before provision for income taxes (1) $ 635 $ 931 $ 542 $ 446 $ 458 ADD BACK FIXED CHARGES: Interest on indebtedness 105 87 70 45 56 Interest on ESOP 1 2 3 4 5 Portion of rents representative of interest factor 49 51 44 29 21 -------- -------- -------- ------- -------- INCOME AS ADJUSTED $ 790 $ 1,071 $ 659 $ 524 $ 540 ======== ======== ======== ======= ======== FIXED CHARGES: Interest on indebtedness $ 105 $ 87 $ 70 $ 45 $ 56 Interest on ESOP 1 2 3 4 5 Portion of rents representative of interest factor 49 51 44 29 21 -------- -------- -------- ------- -------- TOTAL FIXED CHARGES $ 155 $ 140 $ 117 $ 78 $ 82 ======== ======== ======== ======= ======== RATIO OF EARNINGS TO FIXED CHARGES 5.1 7.6 5.6 6.7 6.6 ======== ======== ======== ======= ======== (1) Income from continuing operations before provision for income taxes and minority interest includes special charges of $313 million, $172 million and $90 million for the years ended December 31, 1999, 1997 and 1996, respectively.
EX-12 6 COMP. OF RATIO OF EARNINGS TO COMB. FIXED CHARGES
Exhibit 12(b) Aon Corporation and Consolidated Subsidiaries Combined With Unconsolidated Subsidiaries Computation of Ratio of Earnings to Combined Fixed Charges and Preferred Stock Dividends Years Ended December 31, -------------------------------------------------- (millions except ratios) 1999 1998 1997 1996 1995 ------- -------- ------- -------- -------- Income from continuing operations before provision for income taxes (1) $ 635 $ 931 $ 542 $ 446 $ 458 ADD BACK FIXED CHARGES: Interest on indebtedness 105 87 70 45 56 Interest on ESOP 1 2 3 4 5 Portion of rents representative of interest factor 49 51 44 29 21 ------- -------- ------- -------- -------- INCOME AS ADJUSTED $ 790 $1,071 $ 659 $ 524 $ 540 ======= ======== ======= ======== ======== Fixed charges and preferred stock dividends: Interest on indebtedness $ 105 $ 87 $ 70 $ 45 $ 56 Preferred stock dividends 70 70 82 29 38 ------- -------- ------- -------- -------- INTEREST AND DIVIDENDS 175 157 152 74 94 Interest on ESOP 1 2 3 4 5 Portion of rents representative of interest factor 49 51 44 29 21 ------- -------- ------- -------- -------- TOTAL FIXED CHARGES AND PREFERRED STOCK DIVIDENDS $ 225 $ 210 $ 199 $ 107 $ 120 ======= ======== ======= ======== ======== RATIO OF EARNINGS TO COMBINED FIXED CHARGES AND PREFERRED STOCK DIVIDENDS (2) 3.5 5.1 3.3 4.9 4.5 ======= ======== ======= ======== ======== (1) Income from continuing operations before provision for income taxes and minority interest includes special charges of $313 million, $172 million and $90 million for the years ended December 31, 1999, 1997 and 1996, respectively. (2) Included in total fixed charges and preferred stock dividends are $66 million for the years ended December 31, 1999 and 1998 and $64 million for the year ended December 31, 1997, of pretax distributions on the 8.205% mandatorily redeemable preferred capital securities which are classified as "minority interest" on the consolidated statements of income.
EX-13 7 AON ANNUAL REPORT *** PICTURE OMITTED *** WELCOME TO THE NEW WORLD OF RISK The old world of risk was a fairly orderly place. Things caught fire, people were injured, products failed. Customers understood those kinds of risk and how to manage them. That was the old world of risk. Traditional property risk has been joined by the risks of a global marketplace where barriers are falling, the rules are changing and your toughest competitor might be the one that did not exist yesterday. The Internet makes any business vulnerable to the next big idea. Reinvention is an everyday event. Catastrophe can include the theft of ideas. Priceless intellectual capital can simply walk out the door. The value chain is only as strong as the weakest global interconnection. Alliances create uneasy marriages that blur the lines between partner and predator. Welcome to the new world of risk-financial, human, technological, organizational and physical. Merely handling insurance transactions is not enough in this new world. It takes an advocate. - 8 - Aon has been building an organization that can help clients deal with the new world of risk. We are a leader in risk management advice, brokerage services, human resource consulting and consumer insurance. That work started with a vision. Key parts of the vision are worldwide distribution, dedicated client focus and the highest quality professional services. We also have redefined and expanded the role of an intermediary - from a provider of products, to our current position as an advocate for our clients in risk management and protection. No organization is better positioned to deliver the kind of services that clients in virtually every type of business need. Our advantage centers on a strong presence in all the key channels of distribution. Our ability to reach diverse kinds of clients means we can focus our marketing, making certain that both our services and products align with identified needs. Because we know the clients, we know the issues - which means that we can offer higher quality service and a selection of the best and most relevant products. It also allows us to form stronger client relationships. For Aon, our broad distribution channels mean opportunity. It is said that the best way to have a good idea is to have a lot of ideas. That is what unique perspectives on risk allow us to do. From the physical risk of a building, to the financial risk of a new venture, to the risk of losing key talent -- and beyond -- we try to see risk from all angles. The solutions we provide can apply to many clients. A one-size-fits-all approach? No, just the opposite. Our diverse lines of business and wide experience allow us to custom-fit the solution to the risk - even if it is so new that it takes an experienced specialist to see it. - 9 - *** PICTURE OMITTED *** - 10 - *** PICTURE OMITTED *** DEVELOPING UNIQUE SOLUTIONS The ocean is never constant -- one minute tranquil, the next threatening. Business conditions can change as quickly and dramatically as the sea. Aon has the solutions to help companies navigate the risks and opportunities. - 11 - UNIQUE SOLUTIONS AROUND THE WORLD New risks demand new solutions. We provide them through a global network of 550 offices in 120 countries. We have hundreds of insurance and risk management products, deep expertise in a range of industries and the dedication to provide the best available advice and execution. *** PICTURE OMITTED *** It is a formidable line-up. But it is not enough. We are realigning our operations around the need -- and the opportunity -- to focus all of our people, facilities, products and experience on client solutions around the world. By combining strengths and creating a more integrated platform for global services, we are developing a total solution that is stronger, more flexible and more creative than anything our individual companies could provide alone. We can draw the best thinking and the most relevant experience from any point in our organization, and quickly put them to work as an advocate for our clients. - 12 - ONE Aon The expertise of our employees and our global presence provide our clients with the broadest and most efficient access to capital and risk management solutions, so they can focus on the things that will drive their businesses forward. No matter what or where the client's needs are, through our expertise in insurance brokerage and related services, consulting and insurance underwriting, Aon is able to harness the best thinking in the industry to build risk management solutions in every corner of the world. From traditional insurance coverage, to uncovering risks in mergers, to ensuring that companies retain their best employees, Aon is able to help clients stay focused on their core operations. Among the businesses that comprise the "One Aon" that we bring to clients are: Aon Risk Services, one of the world's fastest growing insurance brokers, helps clients finance and transfer risk in ways that actually free up capital and remove liabilities from the balance sheet. These services span from develoing traditional property and casualty coverages, to creating new forms of intellectual property protection, to building directors and officers solutions for Internet companies preparing their initial public offering. Aon Re Worldwide, the largest reinsurance intermediary, risk transfer and financing solutions to risk-bearing entities worldwide (insurance companies, risk retention groups, etc.). Services range from traditional reinsurance placement, to the design of creative, holistic products which utilize our sophisticated analytical and catastrophe modeling expertise. Throuqh its product and industry specialization, Aon Group Limited, headquartered in the United Kingdom, is a major contributor to Aon Re's leadership position in every major reinsurance market. Aon Capital Markets is among the world leaders in securitizing catastrophic risk. It provides our clients access to capital beyond traditional insurance and reinsurance markets. This group is at the forefront of developing risk transfer securities (CatBonds), contingent financing securities (CatEPuts) and risk transfer swaps. Aon Services Group is comprised of market-leading wholesalers and specialty brokerage that enable Aon to service independent insurance agents, professional and affinity groups, individual consumers and insurance carriers. Alternative Market Operations is a leader in specialty underwriting solutions and custom-designed products and services. Aon Consulting Worldwide is a leading human resource consulting and benefits provider that helps maximize human resource productivity. Services range from creating compensation and benefits programs for multi-national firms, to developing hiring and retention strategies to attract and keep a company's best employees, to building change management programs for clients undergoing mergers. Combined Insurance Company of America is a leader in offering supplemental life, health and accident coverage. It also has opened a significant new channel of distribution by offering benefits through employer programs. This helps employers provide more cost efficient benefits for employees, and in turn, increase retention. Virginia Surety Company and London General Insurance Company offer comprehensive extended warranty and consumer service programs. FOCUSED ON CLIENT NEEDS To always ensure that we are acting in the best interest of our clients, we continue to make changes to our organization. First, we revamped our compensation system in order to foster greater knowledge sharing. Second, we created global account teams to bring together the right capabilities for each engagement. Third, we continue to invest heavily in technology. This is already enabling our organization to act more efficiently, and it provides our clients greater access to their data in ways that help them make smarter business decisions. By continuing to enhance our interdependent culture, we are better able to help our clients anticipate their risks and uncover new opportunities. - 13 - *** PICTURE OMITTED *** UNCOVERING OPPORTUNITIES - 14 - *** PICTURE OMITTED *** There is a universe of opportunity waiting for companies fast enough and agile enough to explore it. But the opportunities aren't always obvious, and making the most of them means confronting new risks in different ways. Aon combines deep experience, global resources and creative solutions to enable clients to take maximum advantage of opportunities. - 15 - A UNIVERSE WAITING FOR EXPLORATION An airline industry customer needed a new source of capital. We found a way to collateralize used jet engines to leverage existing assets. A Middle-Eastern country wanted to build a toll road, but their sources of financing worried about disruption by terrorists. We assessed the risk, put a value on it, and placed it in insurance markets. The contruction went forward. Different examples, but one clear point. Understanding risk does more than provide protection. It creates opportunity. It removes barriers that often stand in the way of growth. Aon understands the relationship between risk and opportunity. We have the experience, products, expertise -- and creativity -- to handle the risk, which means our clients can focus on the business of growth and profits. *** PICTURE OMITTED *** At Aon, there is no unit called the Opportunity Division. There is no Senior Vice President of Opportunity. Rather, we all help companies see and exploit opportunites. We combine organizations, protections and deep lines of business experience to become an advisor, consultant and advocate for our clients. - 16 - With the coordination and focus of global account management every Aon unit can -- and will -- be a part of that process. For example, one of the barriers to opportunity in e-commerce is protection of intellectual property. Patent licensing revenues are expected to exceed $500 billion by 2005 - up from $100 billion in 1998. When your asset is an idea or a body of knowledge, opportunity demands a new kind of protection. A new risk transfer product developed by Aon will, for the first time, allow companies to secure blanket protection to recover damages or enforce rights for patents, trademarks, copyrights and other intellectual property assets. Often, opportunity demands thinking outside the boundaries of insurance. Aon Capital Markets is a leader in creating opportunity through insurance-linked securities. We also provide advisory services to clients who need risk financing that goes beyond the protection of typical insurance or reinsurance services. Opportunity often lies in the ability to change - quickly. Aon Consulting is a comprehensive human resource consulting firm. In addition to benefits, retirement and other human resource services, Aon Consulting can help companies deal with accelerated, potentially disruptive, changes. A few examples, but they illustrate new and important dimensions in the work we do for clients. We have the organization the information technology, the distribution channels and the focus to create unique opportunities. - 17 - FINANCIAL AND OPERATIONS HIGHLIGHTS MANAGEMENT'S DISCUSSION AND ANALYSIS THIS ANNUAL REPORT CONTAINS FORWARD-LOOKING STATEMENTS AS THAT TERM IS DEFINED IN THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. SEE "INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS" ON PAGE 54 OF THIS ANNUAL REPORT. CONSOLIDATED RESULTS GENERAL On March 19, 1999, the Board of Directors authorized a three-for-two stock split, payable in the form of a stock dividend, of Aon's $1.00 par value common stock. All references to share data in the accompanying management's discussion and analysis and financial statements reflect the three-for-two stock split. In the following discussion, the references to per share data are on a dilutive basis. SPECIAL CHARGES In first quarter 1999, Aon recorded special charges of $163 million ($102 million after-tax or $0.39 per share). These charges included provisions for restructuring in the brokerage and other services and consulting segments of $120 million (see note 3). Also, in the consulting segment, charges of $43 million were recorded in first quarter 1999 to reflect amounts required to compensate customers who switched out of company pension plans in the U.K. based upon advice offered by financial advisors of current Aon subsidiaries. This advice was given prior to Aon's purchase of these companies (see note 13). In fourth quarter 1999, Aon recorded special charges of $150 million ($93 million after-tax or $0.35 per share). These charges reflect an additional $78 million related to the pension payments described above mainly due to changes in U.K. government requirements and $72 million for Unicover and other litigation matters (see note 13). In first quarter 1997, Aon recorded special charges of $145 million ($91 million after-tax or $0.36 per share), primarily related to management's commitment to a formal plan of restructuring Aon's brokerage operations as a result of the acquisition of Alexander and Alexander Services, Inc. (A&A) (see note 3). In second quarter 1997, Aon recorded special charges of $27 million ($17 million after-tax or $0.07 per share) to recognize investment losses incurred at A&A before Aon acquired A&A. REVENUE AND INCOME BEFORE INCOME TAX CONSOLIDATED RESULTS FOR 1999 COMPARED TO 1998 For purposes of the following consolidated results discussions, certain prior period information has been reclassified to conform to the current year presentation. Total revenues amounted to $7.1 billion, an increase of 9% in 1999. This increase was largely attributable to the following: growth in brokerage commissions and fees resulting from business combination activity, slower premium rate declines, growth in insurance premiums resulting from new business and internal growth in the operating segments. Overall, foreign exchange and interest rate reductions, the absence of Unicover revenues in fourth quarter 1999 and lower corporate investment income on equity securities negatively impacted revenue growth. U.S. revenues increased 11% in 1999 compared to 1998 primarily due to increased new business, acquisitions and slower premium rate declines that benefit insurance brokerage commissions. Insurance brokerage commission revenue is a percentage of total premiums placed. If the rate of pricing decline slows on underlying premiums, commission revenue is benefited. European revenue increased 8% to $2.2 billion and Rest of World revenue of $746 million increased 3% in 1999 primarily due to acquisitions and new business. Approximately 30% of 1999 income before income tax is derived from operations outside the U.S. Brokerage commissions and fees increased 11% to $4.6 billion reflecting growth from business combination activity, internal growth, increased new business and slower premium rate declines. Premiums and other revenue is primarily related to insurance underwriting operations and includes premiums earned and other income of $1.9 billion, an increase of 9% in 1999. Extended warranty premiums earned increased $83 million or 15%, primarily reflecting continued growth related to appliance and electronics warranty products. Direct sales premiums earned increased $44 million or 4%, reflecting continued growth from historic levels of accident and health revenues. Specialty and other revenue increased $28 million or 11%, primarily due to the acquisition of an auto credit book of business in 1999. Investment income of $577 million, which includes income on disposals and related expenses decreased 2% for the year. The primary factors contributing to this decrease are a reduction in short-term interest rates mostly outside of the U.S. and lower levels of income from equity securities. Partially offsetting the investment income decline was income on disposal of tax-exempt bonds (with proceeds reinvested in foreign source income bonds for tax planning purposes) and higher levels of income on disposals of certain private equity investments. During 1999, investments in limited partnerships and private equities increased. Limited partnerships and private equity investments do not have fixed returns and consequently exhibit - 18 - greater variability in investment income. See "Investment Operations." General expenses increased 17% for the year. The increase reflects the inclusion of 1999 pretax special charges of $313 million. General expenses, excluding the 1999 special charges, increased over prior year primarily due to the inclusion of expenses associated with the integration of new businesses in 1999, as well as expenses related to new initiatives, increased levels of technology spending in 1999 and a branding campaign. In addition, due to the early retirement program in 1999 and significant changes in interest rates, Aon revalued its domestic and U.K. pension plans in 1999 (see note 10). The revaluation resulted in a reduction of pension expense. Restructuring liabilities for recent acquisitions and 1999 special charges have been reduced by payments as planned. A 9% increase in benefits to policyholders when compared to 1998 was consistent with growth in related premiums earned and reflected no unusual claims activity. The run-off of certain specialty liability programs is now substantially complete. Interest expense and amortization of intangibles increased 21% and 17%, respectively, largely as a result of acquisitions. References to income before income tax are before minority interest related to the issuance of 8.205% mandatorily redeemable preferred capital securities (capital securities) (see note 9). Income before income tax decreased $296 million or 32% in 1999 primarily due to the inclusion of special charges in 1999. Excluding special charges, pretax income grew only 2% or $17 million primarily reflecting costs to integrate Aon's global network, increased technology expenses and the launching of a branding campaign. Fourth quarter revenue increased 10% to $1.9 billion compared to 1998 primarily reflecting brokerage business combination activity, slower premium rate declines and additional new business. Total expenses, excluding 1999 special charges, increased 15% to $1.7 billion for the quarter as a result of acquisitions and related costs, increased technology expenses and a branding campaign. Pretax income, excluding fourth quarter 1999 special charges, decreased $49 million or 21% to $190 million. The decrease in pretax earnings before special charges reflects a decline in short-term investment income, less income on equity investments, the absence of Unicover revenues, higher levels of technology spending, lower income from certain insurance brokerage and other services businesses and higher loss ratios on home warranty claims. CONSOLIDATED RESULTS FOR 1998 COMPARED TO 1997 Total revenues amounted to $6.5 billion, an increase of 13% in 1998. Brokerage commissions and fees increased 16% to $4.2 billion, largely resulting from business combination activity. Premiums and other revenue of $1.7 billion increased 4% in 1998, reflecting continued growth primarily related to appliance and electronics warranty products and, to a lesser extent, the mechanical extended warranty line. Direct sales premiums earned increased modestly, reflecting changes in the consumer insurance market. The run-off of North American auto credit business partially offset this growth in premiums earned. Investment income of $590 million increased 18% for the year, attributable primarily to brokerage acquisitions, income from certain equity and other investment holdings, assets underlying capital accumulation products and higher levels of income on disposals. General expenses increased 7% for the year primarily due to growth in the brokerage businesses. Benefits to policyholders increased 6% when compared to 1997, reflecting a higher volume of new extended warranty and capital accumulation business. This increase was partially offset by the run-off of auto credit business as planned. Interest expense increased 24% as a result of acquisition financing. Amortization of intangibles increased slightly. Total expenses increased 7% or $353 million over 1997. Total 1998 expenses increased over prior year primarily due to investments in new business initiatives, technology and product development. Total expenses, excluding the 1997 special charges, increased 10% or $525 million over 1997. Income before income tax increased $389 million or 72% in 1998 primarily due to the inclusion of special charges in 1997. Excluding special charges, income before income tax increased 30% or $217 million, largely due to brokerage business combination activity, to the achievement of cost savings resulting from the consolidation of brokerage operations during 1998 and 1997, and to internal growth. BUSINESS SEGMENTS For purposes of the following business segments discussions, comparisons of 1999 against 1998 results exclude special charges. Also, a discussion of discontinued operations follows the Business Segments section. Aon's operating segments are identified as those for which separate financial information is available and that are evaluated on a regular basis in deciding how to allocate resources and in assessing performance. Total revenue for each of the major operating segments is presented both by product and - 19 - by geographic area in note 14. Since Aon's culture fosters interdependence among its operating units, the allocation of expenses by product and on a geographic basis is difficult to delineate. While revenue is tracked and evaluated separately by management, expenses are allocated to products within each of the business segments. In addition to revenue, Aon also measures a segment's financial performance based on business segment income before income tax. Revenues are attributed to geographic areas based on the location of the resources producing the revenues. Aon classifies its businesses into three major operating segments: Insurance Brokerage and Other Services, Consulting and Insurance Underwriting; and into one nonoperating segment, Corporate and Other (see note 14). All material intercompany revenues and expenses are eliminated in computing consolidated revenues and income before income tax. A description of operations and a review of financial performance for each of the four business segments follow. INSURANCE BROKERAGE AND OTHER SERVICES The Insurance Brokerage and Other Services segment consists principally of Aon's retail and reinsurance brokerage operations, which include specialty and wholesale activity. Total 1999 Insurance Brokerage and Other Services revenue was $4.1 billion, up 10%. Acquisitions, new business and diminishing premium rate declines accounted for the majority of this revenue growth. Overall, global insurance pricing in retail had a slightly negative impact in 1999 with selected improvement in reinsurance pricing. Excluding the impact of acquisitions and Unicover related revenue, commissions and fee revenue for brokerage core businesses grew approximately 6% in a very competitive environment. This growth was primarily due to increased new business, specialty and reinsurance operations and diminishing premium rate declines. Revenue includes investment income allocated to this operating segment. Investment income in this segment decreased $35 million in 1999 compared to prior year primarily due to reductions in short-term interest rates. See "Investment Operations." U.S. revenue of $2.1 billion in 1999 was up 14% from 1998 due to increased new business, acquisitions, diminishing premium rate declines and U.S. specialty operations. U.K. and other European revenue of $1.5 billion increased 6% from 1998, primarily due to acquisition activity, particularly in Italy, France and the U.K. and to internal growth in the U.K., Spain, The Netherlands, Finland, Ireland, Norway and Belgium. Rest of World revenue increased modestly in 1999 primarily due to new initiatives. Insurance Brokerage and Other Services segment results were impacted positively by acquisitions, in particular the Nikols Group acquisition in 1999 and the inclusion of Auto Insurance Specialists, Le Blanc de Nicolay and Gil y Carvajal in 1998. Retail brokerage results continued to reflect competitive property and casualty pricing although slower premium rate declines were evident. Pretax income growth, excluding 1999 special charges, was impacted by lower investment income on short-term funds, acquisition-related integration costs and increased technology costs. Pretax margins in this segment declined in 1999 reflecting the above revenue and pretax income growth discussion. CONSULTING The Consulting segment provides a range of consulting services including employee benefits, human resources, compensation and change management. In the Consulting segment, 1999 revenue increased 7% to $656 million. Acquisition activity and internal growth, both domestically and internationally, influenced revenue growth. Revenue includes investment income allocated to this operating segment. Excluding the impact of acquisitions and foreign exchange, revenue for consulting core businesses grew approximately 9% in 1999. U.S. revenue of $405 million in 1999 was up 5% from 1998 primarily from employee benefits and compensation services. U.K. and European revenue of $191 million increased 12% from 1998 primarily reflecting growth in the U.K. and The Netherlands. Rest of World revenue increased 3% primarily attributable to Canada. Total consulting pretax income increased $12 million or 18% from prior year, reflecting internal revenue growth mentioned above and pretax income margin improvements. INSURANCE UNDERWRITING Aon's Insurance Underwriting segment is comprised of direct sales life, accident and health insurance, extended warranty, specialty and other insurance products. Revenue was $2.1 billion in 1999, up 8% from 1998. There was a higher volume of new business related to appliance and electronics extended warranty products, both in the U.S. and internationally, as well as in the U.S. mechanical extended warranty products line. Direct sales continued to expand its product distribution through work-site marketing programs and the recent introduction of new product initiatives on a global basis. However, the above revenue growth is predominantly from core operations as these new initiatives continue to build momentum. Revenue includes investment income allocated to this operating segment. See "Investment Operations." - 20 - U.S. revenue of $1.5 billion was up 7% in 1999, mainly due to growth in revenues for direct sales and the mechanical extended warranty products. United Kingdom and European revenue of $464 million rose 14%, principally due to a higher volume of new business in the appliance and electronic extended warranty products. Rest of World revenue rose 7% reflecting continuing geographic expansion. Pretax income was $290 million in 1999, up 2% from $283 million last year. The completion of the profitable run-off of specialty liability business prior to 1999 negatively influenced pretax income growth this year. Pretax income growth was also negatively impacted by worksite marketing and the recent introduction of several new direct sales products. Additionally, there was a modest increase in the extended warranty loss ratio primarily due to the home warranty appliance product. Start-up costs related to new direct sales product initiatives and the modest increase in the extended warranty loss ratio partially offset the direct sales and extended warranty expense ratio improvements. Overall, benefit and expense margins in 1999 did not suggest any significant shift in operating trends. CORPORATE AND OTHER Revenue consists primarily of investment income (including income on disposals) which is not otherwise allocated to the operating segments. See "Investment Operations." Corporate operating expenses include administrative and certain information technology costs. Revenue increased 9% or $14 million in 1999 compared to prior year. Revenue growth was primarily influenced by approximately $30 million of gains on disposals of tax-exempt bonds in 1999 and higher levels of income on disposals of certain private equity investments. Private equities are principally carried at cost and usually earn little income until a disposal occurs. Lower levels of income from equity investments partially offset revenue growth in the segment. The timing of revenues from limited partnerships and private equity investments varies significantly between periods. In particular, the reported income from limited partnership investments varies with the market values of underlying publicly-traded equity investments. See "Investment Operations." The investment strategy for the corporate segment is to seek long-term total returns from public and private equities, including limited partnerships which exceed long-term security market rates. Income from these equity investments is expected to be lower in the year 2000 than it was in 1999. The loss before income tax increased $23 million over 1998. Contributing to the loss in 1999 were financing costs and goodwill amortization related to acquisitions and costs related to investments in information technology. Corporate and other expenses also included costs related to a branding campaign launched in 1999. DISCONTINUED OPERATIONS Discontinued operations are composed of certain insurance underwriting subsidiaries acquired with A&A that are currently in run-off and the indemnification by A&A of certain liabilities relating to subsidiaries sold by A&A prior to Aon's acquisition. Management believes that, based on current estimates, these discontinued operations are adequately reserved. The liability is included as a component of other liabilities on the consolidated statements of financial position. INCOME TAX AND NET INCOME Net income for 1999 was $352 million or $1.33 per share compared to $541 million or $2.07 per share in 1998. Net income for fourth quarter 1999 amounted to $13 million or $0.05 per share compared to $139 million or $0.53 per share for 1998. The decrease in 1999 net income and related per share amount is influenced primarily by 1999 after-tax special charges of $195 million ($0.74 per share) with no comparable amount in 1998. Basic net income on a per share basis was $1.35 and $2.11 in 1999 and 1998, respectively. Dividends on the redeemable preferred stock in 1999 and 1998 have been deducted from net income to compute income per share. Net income excluding special charges was $547 million or $2.07 per share in 1999 compared to $541 million or $2.07 per share in 1998. The effective income tax rate increased to 38.3% in 1999 from 37.5% in 1998 due principally to a program designed to enable Aon to fully utilize foreign tax credits by switching from tax-exempt to taxable bonds. Dilutive average shares outstanding for 1999 increased 1% when compared to 1998 primarily due to the issuance of common shares for acquisition financing and, to a lesser extent, for employee stock compensation plans. LIQUIDITY Aon's operating subsidiaries anticipate that there will be adequate liquidity to meet their needs in the foreseeable future. Aon's routine liquidity needs are primarily for servicing its debt and for the payment of dividends on stock issues and the capital securities. Dividends from Aon's subsidiaries are the primary source for meeting these requirements. After meeting its routine dividend and debt servicing requirements, Aon used a majority of the remaining dividends received throughout the year to invest in acquisitions within the operational segments of its businesses. There are certain regulatory restrictions relating to dividend capacity of insurance subsidiaries that are discussed in note 9. Insurance subsidiaries' statutory capital - 21 - and surplus at year-end 1999 again exceeded the risk-based capital target set by the National Association of Insurance Commissioners by a satisfactory level. The businesses of Aon's operating subsidiaries continue to provide substantial positive cash flow. Brokerage cash flow has been used primarily for acquisition related activities. Given Aon's fixed-maturity portfolio average life of 6.2 years, access to lines of credit and Aon's positive cash flow, Aon expects sufficient cash flow to meet both short-term and long-term cash needs. Cash flow from operations decreased $402 million from 1998 to $462 million. This decrease primarily represents the timing of the settlement of brokerage receivables and payables, income taxes and a branding campaign. Excluding changes in net brokerage insurance premiums payable and taxes, operating cash increased in 1999 over 1998. Investing activities used cash of $493 million in 1999, which was made available from financing and operating activities. Cash used for brokerage acquisition activity during 1999 was $395 million. Aon also acquired insurance underwriting blocks of business for $50 million in 1999. Financing activities in 1999 provided cash totaling $152 million. This was primarily due to the issuance of $250 million 6.9% debt securities in 1999 and offset in part by the redemption of Aon's $100 million 6.875% debt securities. Net short-term borrowing issuances of $408 million in 1999 principally reflect funds provided for general corporate purposes. The net cash withdrawn from capital accumulation product deposits and withdrawals was $130 million in 1999, primarily due to a reduction in funding agreements. Cash was used to pay dividends of $207 million on common stock and $3 million on redeemable preferred stock. Total assets increased $1.4 billion to $21.1 billion. Invested assets at December 31, 1999 decreased $268 million from year-end 1998 levels, principally reflecting declines in the market value of fixed maturities and equity securities. Insurance brokerage and consulting receivables increased $807 million in 1999 with a comparable increase in insurance premiums payable. Aon's consolidated statement of financial position contains a general expense liability of $146 million related to purchase related restructuring liabilities (see note 3). Aon anticipates that all outstanding termination benefits will be settled in 2000. The remaining items primarily reflect lease obligations and will run-off over a period up to 15 years. Aon does not anticipate that the payment for termination benefits and lease obligations will have a material impact on cash flows in subsequent periods. In addition, at December 31, 1999, Aon has general expense liabilities (see note 13) for the settlement of various contingencies regarding U.K. pension selling, Unicover related settlements and other litigation matters totaling $179 million. Aon anticipates the settlement of the liabilities relating to the U.K. pension selling to be disbursed over the next few years. A portion of the Unicover matter has been settled in January 2000 for $27 million. The remaining Unicover issues are complex and, therefore, the timing of resolution cannot be determined at this time. IMPACT OF YEAR 2000 In prior years, Aon discussed the nature and progress of its plans to become Year 2000 ready. In late 1999, Aon completed its remediation and testing of systems. As a result of those planning and implementation efforts, Aon experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. As projected, Aon's total Year 2000 remediation costs for all business units was approximately $70 million, of which approximately $27 million was expended during 1999. These costs were funded through business unit operating cash flows. Aon is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems or the products and services of third parties. Aon will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly. INVESTMENT OPERATIONS Aon invests in broad asset categories related to its diversified operations. Investments are managed with the objective of maximizing earnings while monitoring asset and liability durations and considering regulatory requirements. Aon maintains well-capitalized operating companies. The financial strength of these companies permits a diversified investment portfolio including invested cash, fixed income obligations and public and private equities. Investment characteristics mirror liability characteristics of the respective operating units. Aon's insurance brokerage and other services and consulting businesses invest fiduciary funds and operating funds in shorter-term obligations, and income derived from these investments is allocated to the revenues of those businesses. Investments underlying interest-sensitive - 22 - capital accumulation insurance products are fixed- or floating-rate fixed-maturity obligations to match the appropriate liability characteristics. Indemnity and other types of non-interest sensitive insurance liabilities are primarily supported by intermediate to long-term fixed-maturity instruments. Income from fixed-maturity investments underlying these insurance products and liabilities is allocated to revenues of the insurance underwriting segment. Invested assets and related investment income not directly required to support insurance brokerage, consulting and underwriting businesses are allocated to the corporate segment. These diversified assets, which are publicly-traded equities, as well as less liquid private equities and limited partnerships, represent a more aggressive investment strategy that provides an opportunity for greater returns with a longer-term investment horizon. Many of the limited partnerships in which Aon invests have significant holdings in publicly-traded equities. Changes in market value of these equities flow through the income of the limited partnerships. Aon's ownership share of this partnership income is included in Aon's reported corporate investment income. By comparison, changes in market value of directly-held, publicly-traded equities are recorded directly in stockholders' equity. The investment strategy employed in the corporate segment leads to greater variability in investment income than is the case of investments supporting the insurance brokerage, consulting and underwriting businesses. With a carrying value of $2.5 billion at December 31, 1999, Aon's total fixed-maturity portfolio is invested primarily in investment grade holdings (95%) and has a fair value which is 96% of amortized cost. INVESTED ASSETS (millions) As of December 31 1999 1998 - - - - - - - - - - - - - - - - - -------------------------------------------------------- Short-term investments $ 2,362 $ 2,221 Fixed maturities 2,497 3,103 Equity securities 574 768 Other* 751 360 - - - - - - - - - - - - - - - - - -------------------------------------------------------- Total invested assets $ 6,184 $ 6,452 - - - - - - - - - - - - - - - - - -------------------------------------------------------- * Limited partnerships were $465 million and $255 million as of December 31, 1999 and 1998, respectively. INVESTMENT INCOME (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Insurance brokerage and other services (primarily short-term investments) $ 159 $ 194 $ 163 Consulting 3 6 6 Insurance underwriting (primarily fixed maturities) 251 240 214 Corporate and other 164 150 117 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Total investment income $ 577 $ 590 $ 500 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- MARKET RISK EXPOSURE Aon is subject to market risk exposures of varying correlations and volatilities, including foreign exchange rate risk, interest rate risk and equity price risk. The following disclosure reflects estimates of future performance and economic conditions. Actual results may differ. Aon is subject to foreign exchange rate risk associated with translating financial statements of its foreign subsidiaries into U.S. dollars. Additionally, certain of Aon's foreign subsidiaries receive revenues in currencies that differ from the currency in which their operating expenses are denominated. Aon's primary exposures are associated with the British Pound, other European currencies, the Canadian Dollar and the Australian Dollar. Aon uses forward contracts and over-the-counter options, as well as listed foreign currency futures and options on futures to protect against adverse transaction and translation effects due to exchange rate fluctuations. The potential decrease to Aon's consolidated stockholders' equity at December 31, 1999 resulting from a hypothetical 10% adverse change in quoted year-end foreign currency exchange rates amounts to $136 million and $130 million, respectively, at December 31, 1999 and 1998. The impact to 1999 and 1998 pretax income in the event of a hypothetical 10% adverse change in the respective quoted year-end exchange rates would not be material after consideration of derivative positions. Due to the nature of Aon's businesses, operating earnings are affected by changes in international and domestic short-term interest rates. Aon hedges its net exposure in short-term interest rates on short-term investments and short-term borrowings with Eurodollar, Eurosterling, EURIBOR futures contracts, interest rate swaps and interest rate caps. A hypothetical 1% decrease in interest rates would cause a decrease, net of derivative positions, of $8 million and $16 million to 1999 and 1998 pretax income, respectively. - 23 - The valuation of Aon's fixed-maturity portfolio is subject to interest rate risk. Aon generally uses treasury options and futures and interest rate swaps to hedge the value of the fixed-maturity portfolio. A hypothetical 1% increase in long-term interest rates would decrease the fair value of the portfolio at December 31, 1999 and 1998, net of derivative positions, by approximately $121 million and $133 million, respectively. Aon has long-term notes payable and capital securities outstanding with a fair value of $1.8 billion at December 31, 1999 and 1998. Such fair value was greater than (less than) the carrying value by ($18 million) and $125 million at December 31, 1999 and 1998, respectively. A hypothetical 1% decrease in interest rates would increase the fair value by approximately 10% at December 31, 1999 and 1998. The valuation of Aon's marketable equity portfolio is subject to equity price risk. If market prices were to decrease 10%, the fair value of the equity portfolio would have a corresponding decrease, net of derivative positions, of $57 million at December 31, 1999 compared to $77 million at December 31, 1998. At December 31, 1999 and 1998, there were no outstanding derivatives hedging the price risk on the equity portfolio. The selection of the ranges of values chosen to represent changes in foreign currency exchange rates, equity market prices and interest rates should not be construed as Aon's prediction of future market events, but rather an illustration of the impact of such events. The range of changes chosen reflects Aon's view of changes, which are reasonably possible over a one-year period. In 1999, Aon addressed and implemented the system modifications necessary for full conversion to the Euro. The Euro conversion did not have a material impact on Aon's European operations. CAPITAL RESOURCES At December 31, 1999, Aon had back-up lines of credit available of $1.1 billion to support Aon's commercial paper that was $844 million at December 31, 1999. In order to achieve tax efficient financing, Aon Corporation established, in June 1998, a committed bank credit facility under which certain European subsidiaries can borrow up to a maximum of $405 million on a revolving basis. As of December 31, 1999, there were loans totaling $351 million outstanding under the facility. A total of $292 million is committed for five years and $59 million is committed for 364 days. Short-term borrowings increased $402 million in 1999 when compared to 1998 attributable to additional commercial paper issued for general corporate purposes. Notes payable increased in 1999 by $88 million when compared to year-end 1998. The principal factor influencing this increase was the issuance of $250 million 6.9% debt securities due July 2004 (see note 6). Partially offsetting the increase was the redemption of Aon's $100 million 6.875% debt securities, due October 1, 1999, which were redeemed at 100% of the principal amount plus accrued interest and the impact of foreign exchange on outstanding loans under the European bank credit facility. Aon Corporation borrows funds from and lends funds to its various subsidiaries. As of December 31, 1999, Aon Corporation held obligations to its subsidiaries of approximately $600 million. These obligations have competitive interest rates. In 1999, common stockholders' equity per share increased to $11.91, up from $11.83 in 1998. The principal factors influencing this increase were net income (which includes $195 million of after-tax special charges) and a $60 million decrease in the additional minimum pension liability related to U.K. pension plans. Offsetting this increase were net unrealized investment losses of $199 million, net foreign exchange losses of $54 million and dividends to stockholders of $210 million. Fluctuations in unrealized investment gains and losses and foreign exchange gains and losses from period to period are largely based on market conditions. - 24 - CONSOLIDATED STATEMENTS OF INCOME (millions except per share data) Years ended December 31 1999 1998 1997 ================================================================================ REVENUE Brokerage commissions and fees $ 4,639 $ 4,197 $ 3,605 Premiums and other 1,854 1,706 1,646 Investment income (note 5) 577 590 500 ------------------------ Total revenue 7,070 6,493 5,751 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- EXPENSES General expenses (notes 3 and 13) 5,214 4,457 4,176 Benefits to policyholders 973 896 842 Interest expense 105 87 70 Amortization of intangible assets 143 122 121 ------------------------ Total expenses 6,435 5,562 5,209 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- INCOME BEFORE INCOME TAX AND MINORITY INTEREST 635 931 542 Provision for income tax (note 7) 243 349 203 ------------------------ INCOME BEFORE MINORITY INTEREST 392 582 339 Minority interest, net of tax--Company-obligated mandatorily redeemable preferred capital securities (note 9) (40) (41) (40) ------------------------ NET INCOME $ 352 $ 541 $ 299 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 349 $ 538 $ 287 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- BASIC NET INCOME PER SHARE $ 1.35 $ 2.11 $ 1.14 DILUTIVE NET INCOME PER SHARE 1.33 2.07 1.12 CASH DIVIDENDS PER SHARE PAID ON COMMON STOCK $ 0.82 $ 0.73 $ 0.68 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- DILUTIVE AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 262.7 259.4 255.8 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. - 25 - CONSOLIDATED STATEMENTS OF FINANCIAL POSITION (millions) As of December 31 1999 1998 ================================================================================ ASSETS INVESTMENTS Fixed maturities--at fair value $ 2,497 $ 3,103 Equity securities--at fair value 574 768 Short-term investments 2,362 2,221 Other investments 751 360 ------------------------ Total investments 6,184 6,452 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- CASH 837 723 RECEIVABLES Insurance brokerage and consulting 6,230 5,423 Premiums and other 1,116 1,183 ------------------------ Total receivables (net of allowance for doubtful accounts: 1999--$94; 1998--$99) 7,346 6,606 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- CURRENT INCOME TAXES 73 -- DEFERRED INCOME TAXES 270 214 DEFERRED POLICY ACQUISITION COSTS 636 573 EXCESS OF COST OVER NET ASSETS PURCHASED (net of accumulated amortization: 1999--$466; 1998--$364) 3,359 3,006 OTHER INTANGIBLE ASSETS (net of accumulated amortization: 1999--$779; 1998--$738) 503 494 OTHER ASSETS 1,924 1,620 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- TOTAL ASSETS $ 21,132 $ 19,688 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. - 26 - (millions) As of December 31 1999 1998 ================================================================================ LIABILITIES AND STOCKHOLDERS' EQUITY INSURANCE PREMIUMS PAYABLE $ 7,643 $ 6,948 POLICY LIABILITIES Future policy benefits 1,005 986 Policy and contract claims 764 779 Unearned and advance premiums 2,012 1,797 Other policyholder funds 1,207 1,261 ------------------------ Total policy liabilities 4,988 4,823 GENERAL LIABILITIES General expenses 1,731 1,448 Current income taxes -- 156 Short-term borrowings 903 501 Notes payable 1,011 923 Other liabilities 955 1,022 ------------------------ TOTAL LIABILITIES 17,231 15,821 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- COMMITMENTS AND CONTINGENT LIABILITIES REDEEMABLE PREFERRED STOCK 50 50 COMPANY-OBLIGATED MANDATORILY REDEEMABLE PREFERRED CAPITAL SECURITIES OF SUBSIDIARY TRUST HOLDING SOLELY THE COMPANY'S JUNIOR SUBORDINATED DEBENTURES 800 800 STOCKHOLDERS' EQUITY Common stock--$1 par value Authorized--300 shares; issued 259 172 Paid-in additional capital 525 450 Accumulated other comprehensive loss (309) (116) Retained earnings 2,905 2,782 Treasury stock at cost (shares: 1999--2.7; 1998--2.3) (90) (58) Deferred compensation (239) (213) ------------------------ TOTAL STOCKHOLDERS' EQUITY 3,051 3,017 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 21,132 $ 19,688 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- - 27 - CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (millions) Years Ended December 31 1999 1998 1997 ================================================================================ COMMON STOCK Balance at January 1 $ 172 $ 172 $ 114 Effect of three-for-two stock split 86 -- 57 Shares issued for business combinations 1 -- 1 ----------------------- 259 172 172 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- PAID-IN ADDITIONAL CAPITAL Balance at January 1 450 377 475 Effect of three-for-two stock split (86) -- (57) Employee benefit plans 114 73 79 Business combinations 47 -- 11 Retirement and conversion of preferred stock -- -- (131) ----------------------- 525 450 377 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance at January 1 (116) 103 154 Net unrealized investment gains (losses) (199) (111) 36 Net foreign exchange losses (54) (12) (87) Net additional minimum pension liability adjustment 60 (96) -- ----------------------- Other comprehensive loss (193) (219) (51) ----------------------- (309) (116) 103 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- RETAINED EARNINGS Balance at January 1 2,782 2,463 2,357 Net income 352 541 299 Dividends to stockholders (210) (194) (180) Loss on treasury stock reissued (19) (30) (7) Adjustment for business combinations -- 2 (6) ----------------------- 2,905 2,782 2,463 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- TREASURY STOCK Balance at January 1 (58) (93) (121) Cost of shares acquired (105) (44) (12) Shares reissued at average cost 73 79 40 ----------------------- (90) (58) (93) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- DEFERRED COMPENSATION Balance at January 1 (213) (200) (151) Issuance of stock awards (73) (54) (81) Debt guarantee of employee stock ownership plan 17 16 13 Amortization of deferred compensation 30 25 19 ----------------------- (239) (213) (200) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- PREFERRED STOCK Balance at January 1 -- -- 5 Retirement and conversion of preferred stock -- -- (5) ----------------------- -- -- -- - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- STOCKHOLDERS' EQUITY AT DECEMBER 31 $ 3,051 $ 3,017 $ 2,822 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- COMPREHENSIVE INCOME NET INCOME $ 352 $ 541 $ 299 OTHER COMPREHENSIVE LOSS (NOTE 2) (193) (219) (51) ------------------------ COMPREHENSIVE INCOME $ 159 $ 322 $ 248 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. - 28 - CONSOLIDATED STATEMENTS OF CASH FLOWS (millions) Years Ended December 31 1999 1998 1997 ================================================================================ Cash Flows from Operating Activities Net income $ 352 $ 541 $ 299 Adjustments to reconcile net income to cash provided by operating activities Policy liabilities 222 28 (155) Deferred policy acquisition costs (239) (236) (164) Amortization of deferred policy acquisition costs 247 216 208 Amortization of intangible assets 143 122 121 Other amortization 25 15 14 Depreciation of property and equipment 187 131 107 Income taxes (106) 75 42 Brokerage insurance premiums payable--net (40) 220 380 Other (329) (248) (68) ----------------------- CASH PROVIDED BY OPERATING ACTIVITIES 462 864 784 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Sale of investments Fixed maturities Maturities 80 107 105 Calls and prepayments 160 108 156 Sales 1,152 2,062 2,175 Equity securities 461 2,176 1,827 Other investments 114 51 55 Purchase of investments Fixed maturities (959) (2,257) (2,767) Equity securities (385) (2,253) (1,724) Other investments (357) (141) (111) Purchase of short-term investments--net (93) (534) (31) Acquisition of subsidiaries (395) (374) (1,649) Acquired fiduciary funds from acquisitions -- -- 734 Property and equipment and other (271) (300) (146) ----------------------- CASH USED BY INVESTING ACTIVITIES (493) (1,355) (1,376) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Cash Flows from Financing Activities Treasury stock transactions--net (66) (18) 21 Issuance of short-term borrowings--net 408 80 542 Issuance of mandatorily redeemable preferred capital securities -- -- 800 Issuance of long-term debt 250 -- -- Repayment of long-term debt (100) (34) (74) Interest sensitive, annuity and investment-type contracts Deposits 444 435 373 Withdrawals (574) (137) (44) Retirement of preferred stock -- -- (136) Cash dividends to stockholders (210) (194) (182) ----------------------- CASH PROVIDED BY FINANCING ACTIVITIES 152 132 1,300 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- EFFECT OF EXCHANGE RATE CHANGES ON CASH (7) (3) (33) INCREASE (DECREASE) IN CASH 114 (362) 675 CASH AT BEGINNING OF YEAR 723 1,085 410 ----------------------- CASH AT END OF YEAR $ 837 $ 723 $ 1,085 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- See accompanying notes to consolidated financial statements. - 29 - NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1 SUMMARY OF SIGNIFICANT ACCOUNTING PRINCIPLES AND PRACTICES ================================================================================ PRINCIPLES OF CONSOLIDATION The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and include the accounts of Aon Corporation and its operating subsidiaries (Aon). These statements include informed estimates and assumptions that affect the amounts reported. Actual results could differ from the amounts reported. All material intercompany accounts and transactions have been eliminated. BROKERAGE COMMISSIONS AND FEES In general, commission income is recognized at the later of the billing or effective date of the related insurance policies. Contingent commissions, certain life insurance commissions and commissions on premiums billed directly by insurance companies are generally recognized as income when received. Commissions on premium adjustments, including policy cancellations, are recognized as they occur. Fees for claim administration services, benefit consulting, reinsurance services and other services are recognized when the services are rendered. PREMIUM REVENUE In general, for accident and health and extended warranty products, premiums collected are reported as earned in proportion to insurance protection provided over the period covered by the policies. For life products, premiums are recognized as revenue when due. For universal life-type and investment products, generally there is no requirement for payment of premium other than to maintain account values at a level sufficient to pay mortality and expense charges. Consequently, premiums for universal life-type policies and investment products are not reported as revenue, but as deposits. Policy fee revenue for universal life-type policies and investment products consists of charges for the cost of insurance, policy administration and surrenders assessed during the period. Expenses include interest credited to policy account balances and benefit claims incurred in excess of policy account balances. REINSURANCE Reinsurance premiums, commissions and expense reimbursements on reinsured business are accounted for on a basis consistent with those used in accounting for the original policies issued and the terms of the reinsurance contracts. Premiums and benefits ceded to other companies have been reported as a reduction of premium revenue and benefits. Expense reimbursements received in connection with reinsurance ceded have been accounted for as a reduction of the related policy acquisition costs or, to the extent such reimbursements exceed the related acquisition costs, as other revenue. Reinsurance receivables and prepaid reinsurance premium amounts are reported as assets. STOCK COMPENSATION PLANS Aon applies Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," and related interpretations in accounting for its stock-based compensation plans. Accordingly, no compensation expense has been recognized for its stock option plan as the exercise price of the options equaled the market price of the stock at the date of grant. Compensation expense has been recognized for the Aon Stock Award Plan based on the market price at the date of the award. INCOME TAX Deferred income tax has been provided for the effects of temporary differences between financial reporting and tax bases of assets and liabilities and has been measured using the enacted marginal tax rates and laws that are currently in effect. INCOME PER SHARE Basic income per share is computed based on the weighted-average number of common shares outstanding, excluding any dilutive effects of options, awards and convertible securities. Net income available for common stockholders is net of all preferred dividends. Dilutive income per share is computed based on the weighted-average number of common shares outstanding plus the dilutive effect of options, awards and convertible securities. The dilutive effect of options and awards is calculated under the treasury stock method using the average market price for the period. Income per share is calculated as follows: (millions except per share data) 1999 1998 1997 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Net income $ 352 $ 541 $ 299 8% preferred stock dividends -- -- (9) Redeemable preferred stock dividends (3) (3) (3) ------------------------------- Net income for dilutive and basic $ 349 $ 538 $ 287 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Basic shares outstanding 259 255 252 Common stock equivalents 4 4 4 ------------------------------- Dilutive potential common shares 263 259 256 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Dilutive net income per share $ 1.33 $ 2.07 $ 1.12 Basic net income per share $ 1.35 $ 2.11 $ 1.14 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- - 30 - A three-for-two stock split of Aon's $1.00 par value common stock was effected on May 17, 1999 with 86 million shares issued to common stockholders of record as of May 4, 1999. All references in the accompanying consolidated financial statements and notes to the number of common shares and per share amounts have been retroactively restated to reflect the stock split. INVESTMENTS Fixed-maturity securities are available for sale and are carried at fair value. The amortized cost of fixed maturities is adjusted for amortization of premiums to the first call date and the accretion of discounts to maturity that are included in investment income. Marketable equity securities, that are held directly, are carried at fair value. Unrealized gains and temporary unrealized losses on fixed maturities and equity securities are excluded from income and are recorded directly to stockholders' equity in accumulated other comprehensive loss, net of related deferred income taxes. Mortgage loans, policy loans and private equity investments are generally carried at cost or unpaid principal balance. Limited partnership investments are carried under the equity method. Many of the limited partnerships in which Aon invests have significant holdings in publicly-traded equities. Changes in market value of these equities flow through the income of the limited partnerships. Aon's ownership share of this partnership income is included in Aon's reported corporate investment income. Income or loss on disposal of any securities held in the portfolio is computed using specific costs of securities sold and reported as investment income in the consolidated financial statements. Investments that have declines in fair value below cost, which are judged to be other than temporary, are written down to estimated fair values. Reserves for certain other investments are established based on an evaluation of the respective investment portfolio and current economic conditions. Writedowns and changes in reserves are included in investment income in the consolidated statements of income. In general, Aon ceases to accrue investment income where interest or dividend payments are in arrears. Accounting policies relating to derivative financial instruments are discussed in note 12. DEFERRED POLICY ACQUISITION COSTS Costs of acquiring new and renewal insurance underwriting business, principally the excess of new commissions over renewal commissions, underwriting and sales expenses that vary with and are primarily related to the production of new business, are deferred and reported as assets. For long-duration life and health products, amortization of deferred policy acquisition costs is related to and based on the expected premium revenues of the policies. In general, such amortization is adjusted to reflect current withdrawal experience. Expected premium revenues are estimated by using the same assumptions used in estimating future policy benefits. For extended warranty and short-duration health insurance, costs of acquiring and renewing business, which are deferred, are amortized as the related premium is earned. INTANGIBLE ASSETS In general, the excess of cost over net assets purchased relating to business acquisitions is being amortized into income over periods not exceeding 40 years using the straight-line method, with a weighted-average life of 37 years. The cost of other intangible assets is being amortized over a range of 4 to 25 years, with a weighted-average life of 18 years. In the unexpected event of a significant deterioration in profitability that is expected to be recurring, Aon would assess the recoverability of its intangible assets using the undiscounted cash flow method. PROPERTY AND EQUIPMENT Property and equipment, reported in other assets, are generally depreciated using the straight-line method over their estimated useful lives. Included in this category is internal use software, which is software that is acquired, internally developed or modified solely to meet internal needs, with no plan to market externally. Costs related to directly obtaining, developing or upgrading internal use software are capitalized. These costs are generally amortized using the straight-line method over a range of 2 to 8 years. The weighted-average life of Aon's software at December 31, 1999 is 5.4 years. FAIR VALUE OF FINANCIAL INSTRUMENTS The following methods and assumptions were used to estimate fair values for financial instruments. The carrying amounts in the consolidated statements of financial position for cash and cash equivalents, including short-term investments, approximate their fair value. Fair value for fixed-maturity and equity securities is based on quoted market prices or, if they are not actively traded, on estimated values obtained from independent pricing services. Fair value of derivatives is based on quoted prices for exchange-traded instruments or the cost to terminate or offset with other contracts. - 31 - Other investments are comprised of mortgage loans, policy loans, private equity investments and limited partnerships. The fair value for mortgage loans and policy loans is estimated using discounted cash flow analyses, using interest rates currently being offered for similar loans to borrowers with similar credit ratings. It is not practical to estimate the fair value of private equity investments and limited partnerships without incurring excessive costs. Fair value for liabilities for investment-type contracts is estimated using discounted cash flow calculations based on interest rates currently being offered for similar contracts with maturities consistent with those remaining for the contracts being valued. The fair value for notes payable is based on quoted market prices for the publicly-traded portion and on estimates using discounted cash flow analyses based on current borrowing rates for similar types of borrowing arrangements for the nonpublicly-traded portion. FUTURE POLICY BENEFITS, POLICY AND CONTRACT CLAIMS AND UNEARNED PREMIUMS Future policy benefit liabilities on non-universal life and accident and health products have been provided on the net level premium method. The liabilities are calculated based on assumptions as to investment yield, mortality, morbidity and withdrawal rates that were determined at the date of issue, and provide for possible adverse deviations. Interest assumptions are graded and range from 4.5% to 7.0% at December 31, 1999. Withdrawal assumptions are based principally on insurance subsidiaries' experience and vary by plan, year of issue and duration. Policyholder liabilities on universal life and investment products are generally based on policy account values. Interest credit rates for these products range from 5.2% to 8.4%. Policy and contract claim liabilities represent estimates for reported claims, as well as provisions for losses incurred, but not yet reported. These claim liabilities are based on historical experience and are estimates of the ultimate amount to be paid when the claims are settled. Changes in the estimated liability are reflected in income as the estimates are revised. Unearned premiums generally are calculated using the pro rata method based on gross premiums. However, in the case of extended warranty products, the unearned premiums are calculated such that the premiums are earned over the period of risk in a reasonable relationship to anticipated claims. FOREIGN CURRENCY TRANSLATION In general, foreign revenues and expenses are translated at average exchange rates. Foreign assets and liabilities are translated at year-end exchange rates. Net foreign exchange gains and losses on translation are generally reported in stockholders' equity, in accumulated other comprehensive loss, net of deferred income tax. ACCOUNTING AND DISCLOSURE CHANGES In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133, "Accounting for Derivative Instruments and Hedging Activities." Statement No. 133 establishes accounting and reporting standards for derivative instruments and for hedging activities and will require Aon to recognize all derivatives on the statement of financial position at fair value. Aon has not yet determined the effect this statement will have on the consolidated financial statements. In June 1999, the FASB issued Statement No. 137 that amends the required adoption date of Statement No. 133 to all fiscal quarters of all fiscal years beginning after June 15, 2000. Early adoption is permitted as of the beginning of any quarter subsequent to the issuance of Statement No. 137. Aon has not yet decided when it will adopt Statement No. 133. In December 1999, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin (SAB) No. 101 which provides guidance for applying generally accepted accounting principles relating to the timing of revenue recognition in financial statements filed with the SEC. Any change required by the SAB must be made in the first quarter 2000 with a cumulative effect accounting change. Aon has not yet determined the effect, if any, this SAB will have on the consolidated financial statements. RECLASSIFICATION Certain amounts in prior years' consolidated financial statements have been reclassified to conform to the 1999 presentation. - 32 - 2 COMPREHENSIVE INCOME ================================================================================ The components of other comprehensive loss and the related tax effects are as follows: Amount Income Tax Amount Year ended December 31, 1999 Before (Expense) Net of (millions) Taxes Benefit Taxes - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Unrealized holding losses arising during the year $ (263) $ 92 $ (171) Less: reclassification adjustment 45 (17) 28 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Net unrealized investment losses (308) 109 (199) Net foreign exchange losses (89) 35 (54) Net additional minimum pension liability adjustment 95 (35) 60 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Total other comprehensive loss $ (302) $ 109 $ (193) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Amount Income Tax Amount Year ended December 31, 1998 Before (Expense) Net of (millions) Taxes Benefit Taxes - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Unrealized holding losses arising during the year $ (130) $ 49 $ (81) Less: reclassification adjustment 47 (17) 30 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Net unrealized investment losses (177) 66 (111) Net foreign exchange losses (18) 6 (12) Net additional minimum pension liability adjustment (155) 59 (96) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Total other comprehensive loss $ (350) $ 131 $ (219) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Amount Income Tax Amount Year ended December 31, 1997 Before (Expense) Net of (millions) Taxes Benefit Taxes - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Unrealized holding gains arising during the year $ 86 $ (32) $ 54 Less: reclassification adjustment 29 (11) 18 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Net unrealized investment gains 57 (21) 36 Net foreign exchange losses (138) 51 (87) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Total other comprehensive loss $ (81) $ 30 $ (51) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- The components of accumulated other comprehensive income (loss), net of related tax, as of December 31, 1999, 1998 and 1997 are as follows: (millions) 1999 1998 1997 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Net unrealized investment gains (losses) $ (121) $ 78 $ 189 Net foreign exchange losses (152) (98) (86) Net additional minimum pension liability (36) (96) -- - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Accumulated other comprehensive income (loss) $ (309) $ (116) $ 103 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- 3 BUSINESS COMBINATIONS ================================================================================ PURCHASE METHOD In 1999, Aon acquired The Nikols Group (the leading Italian insurance and reinsurance broker), Presidium Holdings, Inc. (a third-party insurance claims administration firm that specializes in managing all aspects of workers' compensation claims), Societe Generale d'Assurance et de Prevoganie (a leading French broker) and certain other insurance brokerage and consulting operations for approximately $395 million in cash transactions and $45 million in stock transactions accounted for on a preliminary basis by the purchase method. Aon also acquired insurance underwriting blocks of business for $50 million. The acquisitions were financed by internal funds, short-term borrowings and stock. Excess of cost over net assets purchased of approximately $500 million resulted from the 1999 acquisitions and is primarily being amortized over 40 years. In 1999, Aon consummated a plan of restructuring its operations as a result of recent business combination activity. A charge was recorded in the amount of $120 million. Total termination benefits were $67 million and related pension expense was $32 million, involving 900 positions, of which 860 terminations occurred in 1999 and 40 are planned for 2000. Benefits related to pension plans are included in Aon's total pension liability. Workforce reductions were related to a voluntary early retirement plan for employees of Aon's U.S. and Canadian operating subsidiaries, as well as the consolidation of Aon's European insurance brokerage and other services operations, primarily in the United Kingdom. The remaining charges of $21 million primarily reflect lease abandonments of $11 million relating to the consolidation of worldwide brokerage operations and asset impairments of $10 million. - 33 - The following table demonstrates the activity related to the liability for termination benefits and abandoned leases: Termination Lease (millions) Benefits Abandonments Total - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------ Expense charged in 1999 $ 67 $ 11 $ 78 Cash payments in 1999 (51) (6) (57) --------------------------------- Balance at December 31, 1999 $ 16 $ 5 $ 21 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------ In 1998, Aon acquired Le Blanc de Nicolay, Gil y Carvajal and certain other operations for approximately $400 million in transactions accounted for by the purchase method. The purchase accounting for these acquisitions was finalized in 1999. The acquisitions were financed by internal funds and short-term borrowings. Excess cost over net assets purchased of approximately $400 million resulted from the 1998 acquisitions and is being amortized over 40 years. As a result of 1998 acquisitions and the finalization of purchase accounting for the 1997 acquisition of Jauch and Hubener, Aon had established approximately $70 million of purchase accounting liabilities primarily relating to termination benefits and lease abandonments. Terminations involved 160 positions which occurred in 1998 and 1999 as planned. The following table demonstrates the activity related to the liabilities: Termination Lease (millions) Benefits Abandonments Total - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------ Initial liability $ 40 $ 30 $ 70 Cash payments in 1998 (16) (4) (20) ---------------------------------- Balance at December 31, 1998 24 26 50 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------ Cash payments in 1999 (24) (6) (30) ---------------------------------- Balance at December 31, 1999 $ -- $ 20 $ 20 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------ In 1997, Aon acquired Alexander and Alexander Services, Inc. (A&A) for $1.3 billion and the Minet Group (Minet) and Jauch & Hubener for approximately $300 million. These transactions were accounted for by the purchase method. The 1997 acquisitions were financed primarily by the issuance of capital securities (see note 9), issuance of commercial paper and internal funds. Excess of cost over net assets purchased of approximately $1.5 billion was created by the 1997 acquisitions, of which $1.2 billion was for A&A. The excess of cost over net assets purchased is primarily being amortized over 40 years. In second quarter 1997, Aon recorded pretax special charges of $27 million to recognize investment losses incurred at A&A before Aon acquired A&A. At Aon's acquisition date, the carrying value of certain securities in A&A's portfolio was overstated by the previously unrecognized investment losses. In first quarter 1997, Aon recorded pretax special charges of $145 million related to management's commitment to a formal plan of restructuring Aon's brokerage operations as a result of the acquisition of A&A. These charges, in addition to certain charges taken in 1996, constitute the "Aon Plan." The restructuring charges included costs related to termination benefits of $40 million, lease abandonments and other exit costs of $68 million and asset impairments of $37 million relating to the abandonment of systems and real estate space. Terminations involved 600 positions which occurred in 1997 and 1998 as planned. The lease abandonments amount to $54 million, are primarily located in the United Kingdom and are being paid out over several years as planned. The following table demonstrates the activity related to the Aon Plan liabilities: Lease Abandonments Termination and Other (millions) Benefits Exit Costs Total - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Balance at December 31, 1996 $ 12 $ 48 $ 60 Expense charged in 1997 40 68 108 Cash payments in 1997 (48) (10) (58) ------------------------------------ Balance at December 31, 1997 4 106 110 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Cash payments in 1998 (4) (26) (30) ------------------------------------ Balance at December 31, 1998 -- 80 80 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Cash payments in 1999 -- (24) (24) Credit to expense in 1999 -- (11) (11) ------------------------------------ Balance at December 31, 1999 $ -- $ 45 $ 45 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Also in 1997, due to management's commitment to a formal plan of restructuring the A&A and Bain Hogg (a late 1996 acquisition) brokerage operations, Aon estimated costs of $264 million which were allocated to the cost of those acquisitions (the "A&A and Bain Hogg Plan"). The costs primarily relate to termination benefits and lease abandonments. Terminations involved 2000 positions that occurred in 1997 and 1998 as planned. - 34 - The following table demonstrates the activity related to the A&A and Bain Hogg Plan liabilities: Lease Abandonments Termination and Other (millions) Benefits Exit Costs Total - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Initial liability $ 100 $ 164 $ 264 Cash payments in 1997 (65) (44) (109) ------------------------------------- Balance at December 31, 1997 35 120 155 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Cash payments in 1998 (35) (45) (80) ------------------------------------- Balance at December 31, 1998 -- 75 75 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- Cash payments in 1999 -- (28) (28) Charge to expense in 1999 -- 13 13 ------------------------------------- Balance at December 31, 1999 $ -- $ 60 $ 60 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------- The remaining liabilities at December 31, 1999 primarily relate to real estate. All of Aon's liabilities relating to acquisitions are reflected in general expense liabilities in the consolidated statements of financial position. In accordance with a 1992 purchase agreement, securities with a value of $48 million are being held in escrow. The escrowed securities will be released on a predetermined schedule through 2007. POOLING OF INTERESTS METHOD In 1998 and 1997, Aon issued 2,315,000 shares and 411,000 shares of common stock, respectively, for mergers with insurance brokerage and consulting organizations. In connection with several of the mergers, 94,000 shares issued to sellers are being held in escrow at December 31, 1999, pending the resolution of contingencies. Aon's prior period financial statements have not been restated for the mergers because the effect of the above mergers was not material. 4 DISCONTINUED OPERATIONS ================================================================================ A&A discontinued its property and casualty insurance underwriting operations in 1985, some of which were then placed into run-off, with the remainder sold in 1987. In connection with those sales, A&A provided indemnities to the purchaser for various estimated and potential liabilities, including provisions to cover future losses attributable to insurance pooling arrangements, a stop-loss reinsurance agreement and actions or omissions by various underwriting agencies previously managed by an A&A subsidiary. As of December 31, 1999, the liabilities associated with the foregoing indemnities and liabilities of insurance underwriting subsidiaries that are currently in run-off result principally from asbestos, pollution and other health hazard insurance claims and were included in other liabilities in the accompanying statement of financial position and amounted to $145 million. Such liabilities are net of reinsurance recoverables and other assets of $178 million. The insurance liabilities represent estimates of known and future claims expected to be made under occurrence-based insurance policies and reinsurance business. Those claims are expected to develop and be settled over the next 20 to 30 years. The insurance liabilities cannot be estimated using conventional actuarial reserving techniques because of, among other matters, the inadequacy of available historical experience to support such techniques and because case law and scientific standards for measuring the adequacy of site clean-up are still evolving. Therefore, independent actuaries have combined available exposure information with other relevant industry data and have used various projection techniques to estimate the insurance liabilities. Although these insurance liabilities represent a best estimate of the probable liabilities, adverse developments may occur due to the nature of the information available and the variables inherent in the estimation processes. Based on current estimates, management believes that the established liabilities of discontinued operations are sufficient. - 35 - 5 INVESTMENTS ================================================================================ The components of investment income are as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Short-term investments $ 173 $ 196 $ 178 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Fixed maturities: Interest income 195 219 210 Income on disposals 52 37 27 Losses on disposals (13) (24) (14) --------------------------- Total 234 232 223 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Equity securities: Dividend income 42 80 95 Income on disposals 18 65 52 Losses on disposals (11) (27) (32) --------------------------- Total 49 118 115 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Limited partnerships and other: Interest, dividend and other income 79 59 23 Income (losses) on disposals 48 1 (27) --------------------------- Total 127 60 (4) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Gross investment income 583 606 512 Less investment expenses 6 16 12 --------------------------- Investment income $ 577 $ 590 $ 500 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- The components of net unrealized gains (losses) are as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Fixed maturities $ (100) $ 108 $ 130 Equity securities (88) 12 167 Deferred tax credit (charge) 67 (42) (108) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Net unrealized investment gains (losses) $ (121) $ 78 $ 189 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- The pretax changes in net unrealized investment gains (losses) are as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Fixed maturities $ (208) $ (22) $ 18 Equity securities (100) (155) 39 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Total $ (308) $ (177) $ 57 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- The amortized cost and fair value of investments in fixed maturities and equity securities are as follows: Gross Gross (millions) Amortized Unrealized Unrealized Fair As of December 31, 1999 Cost Gains Losses Value - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- U.S. government and agencies $ 170 $ 1 $ (11) $ 160 States and political subdivisions 8 -- (1) 7 Foreign governments 755 14 (19) 750 Corporate securities 1,577 8 (90) 1,495 Mortgage-backed securities 44 -- (1) 43 Other fixed maturities 43 1 (2) 42 ------------------------------------------ Total fixed maturities 2,597 24 (124) 2,497 Total equity securities 662 12 (100) 574 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Total $ 3,259 $ 36 $ (224) $ 3,071 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Gross Gross (millions) Amortized Unrealized Unrealized Fair As of December 31, 1998 Cost Gains Losses Value - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- U.S. government and agencies $ 96 $ 6 $ (1) $ 101 States and political subdivisions 485 32 -- 517 Foreign governments 740 65 (4) 801 Corporate securities 1,596 54 (46) 1,604 Mortgage-backed securities 25 1 -- 26 Other fixed maturities 53 1 -- 54 ------------------------------------------ Total fixed maturities 2,995 159 (51) 3,103 Total equity securities 756 49 (37) 768 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Total $ 3,751 $ 208 $ (88) $ 3,871 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- The amortized cost and fair value of fixed maturities, by contractual maturity as of December 31, 1999, are shown on page 37. Expected maturities will differ from contractual maturities because borrowers may have the right to call or prepay obligations with or without call or prepayment penalties. - 36 - Amortized Fair (millions) Cost Value - - - - - - - - - - - - - - - - - ---------------------------------------------------------------------- Due in one year or less $ 152 $ 140 Due after one year through five years 730 729 Due after five years through ten years 841 799 Due after ten years 830 786 Mortgage-backed securities 44 43 - - - - - - - - - - - - - - - - - ---------------------------------------------------------------------- Total fixed maturities $ 2,597 $ 2,497 - - - - - - - - - - - - - - - - - ---------------------------------------------------------------------- Securities on deposit for regulatory authorities as required by law amounted to $323 million at December 31, 1999 and $274 million at December 31, 1998. As required by the bylaws of Lloyd's brokers, cash and short-term investments subject to floating charges for the benefit of insurance creditors amounted to $1.2 billion and $1.3 billion at December 31, 1999 and 1998, respectively. Aon maintains premium trust bank accounts for premiums collected from insureds but not yet remitted to insurance companies of $1.3 billion at December 31, 1999 and 1998. At December 31, 1999 and 1998, Aon had $41 million and $56 million, respectively, of non-income producing investments. 6 DEBT AND LEASE COMMITMENTS ================================================================================ NOTES PAYABLE The following is a summary of notes payable: (millions) As of December 31 1999 1998 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------- 6.9% debt securities, due July 2004 $ 250 $ -- 6.3% debt securities, due January 2004 100 100 6.7% debt securities, due June 2003 150 150 7.4% debt securities, due October 2002 100 100 6.875% debt securities, due October 1999 -- 100 Euro credit facility, due June 2003, with interest at 3.3% to 3.6% 292 343 Debt guarantee of employee stock ownership plan (ESOP) -- 17 Notes payable, due in varying installments, with interest at 4% to 10% 119 113 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------- Total notes payable $ 1,011 $ 923 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------- In May 1999, Aon filed a universal shelf registration on Form S-3 with the Securities and Exchange Commission for the issuance of $500 million of debt and equity securities. In a public offering based on the shelf registration, Aon issued $250 million of 6.9% debt securities due July 2004. The net proceeds from the sale of the 6.9% notes were used to reduce outstanding short-term commercial paper borrowings. In 1999, Aon's 6.875% debt securities, due in October 1999, were redeemed at 100% of the principal amount plus accrued interest. Interest is payable semi-annually on all debt securities. In addition, the debt securities are not redeemable by Aon prior to maturity and contain no sinking fund provisions. Maturities of notes payable are $7 million, $5 million, $103 million, $442 million and $420 million in 2000, 2001, 2002, 2003 and 2004, respectively. In 1998, Aon entered into a committed bank credit facility under which certain European subsidiaries can borrow up to EUR 400 million. At December 31, 1999, Aon had borrowed EUR 347 million ($351 million) under this facility, of which $59 million is classified as short-term borrowings and $292 million is classified as notes payable in the consolidated statements of financial position. Aon has $1.1 billion of other unused committed bank credit facilities at December 31, 1999 to support its commercial paper borrowings which were $844 million at December 31, 1999. Information related to notes payable (excluding the debt guarantee of ESOP) and short-term borrowings is as follows: Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ------------------------------------------------------------- Interest paid (millions) $ 105 $ 87 $ 70 Weighted-average interest rates-- short-term borrowings 5.4% 5.5% 5.6% - - - - - - - - - - - - - - - - - ------------------------------------------------------------- DEBT GUARANTEE OF ESOP Aon's ESOP entered into loan agreements to purchase Aon common stock. The loans were unconditionally guaranteed by Aon and therefore the unpaid balance of the loans was classified as notes payable in the accompanying consolidated statements of financial position. An equivalent amount, representing deferred compensation, was recorded as a deduction from - 37 - stockholders' equity. The ESOP paid $18 million in 1999 and 1998 and $16 million in 1997, in loan principal and interest from contributions made by Aon to the ESOP, as well as dividend proceeds of common stock held by the ESOP. The loans had an interest rate of 8.35% and matured in 1999. The remaining 1,101,000 shares were released for allocation in 1999. The following table details the shares held by the ESOP at December 31, 1998: (thousands) - - - - - - - - - - - - - - - - - ------------------------------------------ Allocated 4,860 Committed to be released 1,101 - - - - - - - - - - - - - - - - - ------------------------------------------ Total 5,961 - - - - - - - - - - - - - - - - - ------------------------------------------ LEASE COMMITMENTS Aon has noncancelable operating leases for certain office space, equipment and automobiles. Future minimum rental payments required under operating leases that have initial or remaining noncancelable lease terms in excess of one year at December 31, 1999 are: (millions) - - - - - - - - - - - - - - - - - ------------------------------------------ 2000 $ 224 2001 197 2002 176 2003 154 2004 133 Later years 727 - - - - - - - - - - - - - - - - - ------------------------------------------ Total minimum payments required $ 1,611 - - - - - - - - - - - - - - - - - ------------------------------------------ Rental expenses for all operating leases for the years ended December 31, 1999, 1998 and 1997, amounted to $198 million, $202 million and $177 million, respectively. 7 INCOME TAX ================================================================================ Aon and its principal domestic subsidiaries are included in a consolidated life-nonlife federal income tax return. Aon's foreign subsidiaries file various income tax returns in their foreign jurisdictions. Income before income taxes and the provision for income taxes consist of the following: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Income before income taxes: U.S. $ 444 $ 528 $ 353 Foreign 191 403 189 ------------------------------ Total $ 635 $ 931 $ 542 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Provision for income taxes: Current: Federal $ 201 $ 184 $ 21 Foreign 60 53 35 State 20 23 18 ------------------------------ Total current $ 281 $ 260 $ 74 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Deferred (credit): Federal $ (42) $ 2 $ 100 Foreign 7 87 24 State (3) -- 5 ------------------------------ Total deferred (38) 89 129 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Provision for income tax $ 243 $ 349 $ 203 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- During 1999, 1998 and 1997, Aon's consolidated statements of income reflect a tax benefit of $26 million, $25 million and $24 million, respectively, on the capital securities. A reconciliation of the income tax provisions based on the U.S. statutory corporate tax rate to the provisions reflected in the consolidated financial statements is as follows: Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Statutory tax rate 35.0% 35.0% 35.0% Tax-exempt investment income (1.2) (1.8) (3.1) Amortization of intangible assets relating to acquired businesses 2.8 1.9 3.3 State income taxes 1.7 1.6 2.8 Other--net -- 0.8 (0.5) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Effective tax rate 38.3% 37.5% 37.5% - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- - 38 - Significant components of Aon's deferred tax assets and liabilities are as follows: (millions) As of December 31 1999 1998 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ Deferred tax assets: Net operating loss and tax credit carryforwards $ 36 $ 82 Certain purchase accounting and special charges 58 93 Unrealized investment losses 67 -- Employee benefit plans 64 57 Unrealized foreign exchange losses 97 62 Other 156 92 ------------------- Total $ 478 $ 386 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ Deferred tax liabilities: Policy acquisition costs $ (53) $ (41) Unrealized investment gains -- (42) Other (127) (38) ------------------- Total (180) (121) - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ Valuation allowance (28) (51) - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ Net deferred tax assets $ 270 $ 214 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ There are limitations on the utilization of net operating loss and tax credit carryforwards after a change of control, consequently, there will be annual limitations on the realization of these tax assets. Accordingly, in connection with the purchase of A&A, a $56 million valuation allowance was established in 1997. The valuation allowance changed to $51 million in 1998 and $28 million in 1999 corresponding to reductions in related deferred tax assets, with no effect on income. Subsequently, recognized tax benefits for these items would reduce excess of cost over net assets purchased. Although future earnings cannot be predicted with certainty, management currently believes that realization of the net deferred tax asset after consideration of the valuation allowance is more likely than not. Prior to 1984, the life insurance companies were required to accumulate certain untaxed amounts in a memorandum "policyholders' surplus account." Under the Tax Reform Act of 1984, the "policyholders' surplus account" balances were "capped" at December 31, 1983 and the balances will be taxed only to the extent distributed to stockholders or when they exceed certain prescribed limits. As of December 31, 1999, the combined "policyholders' surplus account" of Aon's life insurance subsidiaries approximates $363 million. Aon's life insurance subsidiaries do not intend to make any taxable distributions or exceed the prescribed limits in the foreseeable future; therefore, no income tax provision has been made. However, if such taxes were assessed, the amount of taxes payable would be approximately $127 million. The amount of income taxes paid in 1999, 1998 and 1997 was $324 million, $249 million and $137 million, respectively. 8 REINSURANCE AND CLAIM RESERVES ================================================================================ Aon's insurance subsidiaries are involved in both the cession and assumption of reinsurance with other companies. Aon's reinsurance consists primarily of short-duration contracts that are entered into with numerous automobile dealerships and insurers. Aon's insurance subsidiaries remain liable to the extent that the reinsuring companies are unable to meet their obligations. A summary of reinsurance activity is as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Ceded premiums earned $ 624 $ 580 $ 609 Ceded premiums written 510 528 713 Assumed premiums earned 178 149 298 Assumed premiums written 116 133 284 Ceded benefits to policyholders 377 325 286 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Activity in the liability for policy contract claims is summarized as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Liabilities at beginning of year $ 483 $ 520 $ 535 Incurred losses: Current year 890 807 814 Prior years (39) (19) (50) ------------------------------ Total 851 788 764 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Payment of claims: Current year (618) (539) (538) Prior years (268) (286) (241) ------------------------------ Total (886) (825) (779) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Liabilities at end of year (net of reinsurance recoverables: 1999-$316, 1998-$296, 1997-$289) $ 448 $ 483 $ 520 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- - 39 - 9 REDEEMABLE PREFERRED STOCK, CAPITAL SECURITIES AND STOCKHOLDERS' EQUITY ================================================================================ REDEEMABLE PREFERRED STOCK At December 31, 1999, 1,000,000 shares of redeemable preferred stock are outstanding. Dividends are cumulative at an annual rate of $2.55 per share. The shares of redeemable preferred stock will be redeemable at the option of Aon or the holders, in whole or in part, at $50.00 per share beginning one year after the occurrence of certain future events. CAPITAL SECURITIES In January 1997, Aon created Aon Capital A, a wholly-owned statutory business trust, for the purpose of issuing mandatorily redeemable preferred capital securities (Capital Securities). The sole asset of Aon Capital A is an $824 million aggregate principal amount of Aon's 8.205% Junior Subordinated Deferrable Interest Debentures due January 1, 2027. The back-up guarantees, in the aggregate, provide a full and unconditional guarantee of the Trust's obligations under the Capital Securities. Aon Capital A issued $800 million of 8.205% capital securities in January 1997. The proceeds from the issuance of the Capital Securities were used to finance a portion of the A&A acquisition. The Capital Securities are subject to mandatory redemption on January 1, 2027 or are redeemable in whole, but not in part, at the option of Aon upon the occurrence of certain events. Interest is payable semi-annually on the Capital Securities. The Capital Securities are categorized in the consolidated statements of financial position as "Company-Obligated Mandatorily Redeemable Preferred Capital Securities of Subsidiary Trust Holding Solely the Company's Junior Subordinated Debentures." The after-tax interest incurred on the Capital Securities is reported as minority interest in the consolidated statements of income. 8% CUMULATIVE PERPETUAL PREFERRED STOCK A December 31, 1996, 5,446,000 shares of 8% cumulative perpetual preferred stock were outstanding. Dividends were cumulative at the annual rate of $2.00 per share. In November 1997, Aon purchased and retired all of the remaining outstanding shares at a total cost of $136 million. COMMON STOCK Aon repurchased 2,774,000, 1,043,000 and 303,000 shares in 1999, 1998 and 1997, respectively, of its common stock, primarily to provide shares for stock compensation plans and the conversion of preferred stock. In addition, Aon issued 1.5 million new shares of common stock in 1999 for employee benefit plans and for acquisitions. DIVIDENDS A summary of dividends incurred is as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Redeemable preferred stock $ 3 $ 3 $ 3 8% cumulative perpetual preferred stock -- -- 9 Common stock 207 191 168 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Total dividends incurred $ 210 $ 194 $ 180 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- STATUTORY CAPITAL AND SURPLUS Generally, the capital and surplus of Aon's insurance subsidiaries available for transfer to the parent company are limited to the amounts that the insurance subsidiaries' statutory capital and surplus exceed minimum statutory capital requirements; however, payments of the amounts as dividends may be subject to approval by regulatory authorities. See note 7 for possible tax effects of distributions made out of untaxed earnings. Net statutory income of the insurance subsidiaries is summarized as follows: (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Life insurance $ 101 $ 239 $ 265 Property casualty 57 62 66 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Statutory capital and surplus of the insurance subsidiaries is summarized as follows: (millions) As of December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Life insurance $ 502 $ 610 $ 724 Property casualty 411 446 438 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- - 40 - 10 EMPLOYEE BENEFITS ================================================================================ SAVINGS AND PROFIT SHARING PLANS Aon subsidiaries maintain contributory savings plans for the benefit of United States salaried and commissioned employees. Provisions made for these plans were $37 million in 1999 and $22 million in 1998 and 1997. EMPLOYEE STOCK OWNERSHIP PLAN Aon subsidiaries maintained a leveraged ESOP for the benefit of the United States salaried and certain commissioned employees. The final allocation under the leveraged ESOP was for 1998. Contributions to the ESOP amounted to $16 million and $14 million in 1998 and 1997, respectively. There were no contributions in 1999. PENSION AND OTHER POSTRETIREMENT BENEFITS Aon sponsors defined benefit, pension and postretirement health and welfare plans that provide retirement, medical and life insurance benefits. The postretirement health care plans are contributory, with retiree contributions adjusted annually; the life insurance and pension plans are noncontributory. U.S. PENSION AND OTHER BENEFIT PLANS The following tables provide a reconciliation of the changes in obligations and fair value of assets for the years ended December 31, 1999 and 1998 and a statement of the funded status as of December 31, 1999 and 1998. Pension Benefits Other Benefits (millions) 1999 1998 1999 1998 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Reconciliation of benefit obligation Obligation at beginning of period $ 756 $ 692 $ 70 $ 61 Service cost 31 32 2 1 Interest cost 55 51 5 5 Participant contributions -- -- 5 4 Plan amendments -- (8) -- -- Actuarial (gain) loss (2) (13) (8) 7 Acquisitions -- 11 -- -- Benefit payments (40) (38) (12) (8) Curtailments -- -- 7 -- Special termination benefits 32 -- -- -- Change in interest rate (100) 29 -- -- - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Obligation at end of period $ 732 $ 756 $ 69 $ 70 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Reconciliation of fair value of plan assets Fair value at beginning of period $ 904 $ 853 $ 8 $ 7 Actual return on plan assets 66 60 -- 1 Acquisitions -- 16 -- -- Employer contributions 3 13 -- -- Benefit payments (40) (38) -- -- - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Fair value at end of period $ 933 $ 904 $ 8 $ 8 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Funded status Funded status at end of period $ 201 $ 148 $ (61) $ (62) Unrecognized prior-service (6) (6) (5) (10) Unrecognized gain (169) (99) (16) (16) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Prepaid (accrued) benefit cost $ 26 $ 43 $ (82) $ (88) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Pension plan assets include 2.5 million shares of common stock issued by Aon for 1999 and 1998 on which dividends of $2 million were received in both years. - 41 - In February 1999, Aon established a limited time early retirement incentive program that provided benefits through the defined benefit pension plan. The additional cost of termination benefits applicable for 1999 resulting from the program has been included above. The following table provides the components of net periodic benefit cost (credit) for the plans for the years ended December 31, 1999, 1998 and 1997: (millions) Pension Benefits 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Service cost $ 31 $ 32 $ 32 Interest cost 55 51 46 Expected return on plan assets (89) (71) (62) Amortization of prior-service (1) (1) -- Amortization of net gain (6) -- -- - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Net periodic benefit cost (credit) $ (10) $ 11 $ 16 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- (millions) Other Benefits 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Service cost $ 2 $ 1 $ 2 Interest cost 5 5 4 Expected return on plan assets -- (1) (1) Amortization of prior-service (5) (5) (5) Amortization of net gain (1) (1) (1) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Net periodic benefit cost (credit) $ 1 $ (1) $ (1) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- The weighted-average assumptions for the measurement period for U.S. benefit obligations are shown in the following table: Pension Benefits Other Benefits 1999 1998 1999 1998 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------- Discount rate 8.0% 7.2% 8.0% 7.2% Expected return on plan assets 10.0 9.0 -- -- Rate of compensation increase 4.0 5.0 4.0 5.0 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------- ASSUMPTIONS FOR OTHER POSTRETIREMENT BENEFITS The employer's liability for future plan cost increase is limited in any year to 5% per annum. For measurement purposes in 1999, 1998 and 1997, 7.0%, 7.5% and 8.5%, respectively, annual rate of increase in the per capita cost of covered health care benefits (trend rate) adjusted for actual current year cost experience was assumed, decreasing gradually to 6% in year 2003 and remaining the same thereafter. However, with the employer funding increase cap limited to 5% per year, net employer trend rates are effectively limited to 5% per year in the future. Due to the employer funding cap, a 1% change in assumed healthcare cost trend rates has no effect on the service and interest cost components of net periodic postretirement healthcare benefit cost and on the accumulated postretirement benefit obligation for the measurement period ended in 1999. INTERNATIONAL PENSION PLANS The following tables provide a reconciliation of the changes in obligations and fair value of assets for the years ended December 31, 1999 and 1998 and a statement of the funded status as of December 31, 1999 and 1998 for material international plans, which are located in the United Kingdom and The Netherlands. International Pension (millions) 1999 1998 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Reconciliation of benefit obligation Obligation at beginning of period $ 2,147 $ 1,623 Service cost 74 61 Interest cost 127 113 Participants contributions 6 7 Benefit payments (77) (73) Change in interest rate 29 375 Foreign exchange translation (96) 41 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Obligation at end of period $ 2,210 $ 2,147 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Reconciliation of fair value of plan assets Fair value at beginning of period $ 1,976 $ 1,752 Actual return on plan assets 248 215 Employer contributions 61 33 Participants contributions 6 7 Benefit payments (77) (73) Foreign exchange translation (92) 42 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Fair value at end of period $ 2,122 $ 1,976 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Funded status Funded status at end of period $ (88) $ (171) Unrecognized prior-service 1 1 Unrecognized loss 260 430 Additional minimum pension liability (60) (155) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Prepaid benefit cost $ 113 $ 105 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- In 1999, plans with a projected benefit obligation (PBO) in excess of the fair value of plan assets had a PBO of $1.4 billion and plan assets with a fair value of $1.3 billion, and plans with an accumulated benefit obligation (ABO) in excess of the fair value of plan assets had an ABO of $480 million and plan assets with a fair value of $440 million. Also, in 1999, the prepaid - 42 - benefit cost presented in the foregoing table is comprised of plans with prepaid assets of $173 million and accrued liabilities of $60 million. The following table provides the components of net periodic benefit cost for the international plans for the measurement period ended in 1999, 1998 and 1997: (millions) 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Service cost $ 74 $ 61 $ 49 Interest cost 127 113 96 Expected return on plan assets (196) (172) (141) Amortization of net loss 8 2 -- - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Net periodic benefit cost $ 13 $ 4 $ 4 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- The weighted-average assumptions for the measurement period for the international pension benefit obligations are shown in the following table: 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Discount rate 6.0- 7.0% 6.0- 7.0% 7.0% Expected return on plan assets 7.0-10.0 7.0-10.0 7.0-10.0 Rate of compensation increase 4.0- 4.5 4.0- 4.5 4.0- 5.5 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- 11 STOCK COMPENSATION PLANS ================================================================================ STOCK AWARD PLAN Under the Aon Stock Award Plan, Aon could award up to 19,400,000 shares of common stock. At December 31, 1999, approximately 3,900,000 shares remain available for award. Generally, the award plan requires the employees to complete three continuous years of service before the award begins to vest in increments until the completion of a ten-year period of continuous employment. In general, most awarded shares are issued as they become vested. With certain limited exceptions, any break in continuous employment will cause forfeiture of all unvested awards. The compensation cost associated with each award is deferred and amortized over the period of continuous employment using the straight-line method. Aon common stock awards outstanding consist of the following: (shares in thousands) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Shares outstanding at beginning of year 9,321 9,621 7,815 Granted 2,056 1,179 2,804 Vested and exercised (1,159) (1,205) (855) Canceled (353) (274) (143) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Shares outstanding at end of year 9,865 9,321 9,621 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- STOCK OPTION PLAN Under the nonqualified Aon Stock Option Plan, options to purchase common stock were granted to certain officers and employees of Aon and its subsidiaries at 100% of market value on the date of grant. Under the plan, Aon could issue options to purchase up to 35,000,000 shares. Generally, the option plan requires employees to complete three continuous years of service before the options begin to vest in increments until the completion of a six-year period of continuous employment. A summary of Aon's stock option activity and related information consists of the following: Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Weighted- Weighted- Weighted- Average Average Average Exercise Exercise Exercise (shares in thousands) Shares Price Shares Price Shares Price - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Beginning outstanding 10,298 $ 26 9,078 $ 21 7,914 $ 17 Granted 2,417 43 2,381 43 2,469 32 Exercised (1,026) 17 (987) 15 (869) 13 Canceled (466) 28 (174) 22 (436) 19 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Ending outstanding 11,223 $ 31 10,298 $ 26 9,078 $ 21 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Exercisable at end of year 1,833 $ 17 1,262 $ 15 1,044 $ 14 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Options available for grant 4,843 6,795 9,002 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- - 43 - A summary of options outstanding and exercisable is as follows: As of December 31, 1999 (shares in thousands) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Options Outstanding Options Exercisable - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Shares Contractual Exercise Shares Exercise Prices Outstanding Life(years) Price Exercisable Price - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- $ 14.17-$ 15.09 1,423 1.3 $ 14.93 780 $ 14.92 15.22- 21.72 1,303 2.0 16.08 613 16.20 22.89- 22.89 1,614 3.2 22.89 385 22.89 23.56- 28.92 2,136 6.9 28.62 55 25.65 29.63- 42.67 530 7.9 35.70 -- -- 43.33- 43.33 2,120 8.2 43.33 -- -- 43.44- 49.29 2,097 9.2 43.56 -- -- - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- $ 14.17-$ 49.29 11,223 5.8 $ 30.51 1,833 $ 17.34 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- As of December 31, 1998 (shares in thousands) - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Options Outstanding Options Exercisable - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- Weighted- Average Weighted- Weighted- Range of Remaining Average Average Exercise Shares Contractual Exercise Shares Exercise Prices Outstanding Life(years) Price Exercisable Price - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- $ 12.71-$ 14.86 572 1.9 $ 13.91 315 $ 13.46 15.09- 15.09 1,292 2.2 15.09 446 15.09 15.22- 15.89 1,335 3.1 15.85 297 15.81 15.93- 21.72 423 1.8 16.52 204 16.56 22.89- 22.89 1,848 4.2 22.89 -- -- 23.55- 28.92 2,223 7.9 28.63 -- -- 35.06- 47.87 2,605 9.1 41.99 -- -- - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- $ 12.71-$ 47.87 10,298 5.6 $ 26.31 1,262 $ 15.09 - - - - - - - - - - - - - - - - - -------------------------------------------------------------------------------- PRO FORMA INFORMATION Pro forma information regarding net income and net income per share is required by FASB Statement No. 123, and has been determined as if Aon had accounted for employee stock options and stock awards under the fair value method. The pro forma net income and net income per share information is as follows: Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Net income (millions): As reported $ 352 $ 541 $ 299 Pro forma 341 530 292 Net income per share: Dilutive As reported 1.33 2.07 1.12 Pro forma 1.29 2.03 1.09 Basic As reported 1.35 2.11 1.14 Pro forma 1.31 2.07 1.11 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- The fair value per share of options and awards granted is estimated as $10.87 and $35.02 in 1999, $11.01 and $37.39 in 1998, and $5.98 and $27.73 in 1997, respectively, on the grant date using the Black-Scholes option pricing model with the following weighted-average assumptions: 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Dividend yield 2.0% 2.0% 2.5% Expected volatility 21% 20% 20% Risk-free interest rate 6% 6% 6% Expected term life (in years): Stock options 0.87 1.35 1.35 Stock awards 0 0 0 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- The compensation cost as generated by the Black-Scholes model, may not be indicative of the future benefit, if any, that may be received by the option holder. The pro forma information reflected above may not be representative of the amounts to be expected in future years as the fair value method of accounting contained in FASB Statement No. 123 has not been applied to options granted prior to January 1995. EMPLOYEE STOCK PURCHASE PLANS Effective July 1, 1998, Aon adopted an employee stock purchase plan, which provides for the purchase of a maximum of 7,500,000 shares of Aon's common stock by eligible U.S. employees. Under the plan, shares of Aon's common stock may be purchased at six-month intervals at 85% of the lower of the fair market value of the common stock on the first or the last day of each six-month period. No shares were issued under the plan in 1998. In 1999, 333,000 shares were purchased by employees under the plan. Approximately 320,000 shares were purchased by employees under the plan in January 2000. In 1999, Aon adopted an employee stock purchase plan which provides for the purchase of approximately 720,000 shares of Aon's common stock by eligible U.K. employees that is similar to the U.S. plan described above. No shares were issued under the plan in 1999. - 44 - 12 FINANCIAL INSTRUMENTS ================================================================================ FINANCIAL RISK MANAGEMENT Aon is exposed to market risk from changes in foreign currency exchange rates, interest rates and securities prices. To manage the volatility related to these exposures, Aon enters into various derivative transactions that have the effect of reducing these risks by creating offsetting market exposures. If Aon did not use derivative contracts, its exposure and market risk would be higher. Derivative transactions are governed by a uniform set of policies and procedures covering areas such as authorization, counterparty exposure and hedging practices. Positions are monitored using techniques such as market value and sensitivity analyses. In addition to creating market risks that offset the underlying business exposures, certain derivatives also give rise to credit risks due to possible non-performance by counterparties. The credit risk is generally limited to the fair value of those contracts that are favorable to Aon. Aon has limited its credit risk by restricting investments in derivative contracts to a diverse group of highly rated major financial institutions and by using exchange-traded instruments. Aon closely monitors the credit-worthiness of and exposure to its counterparties and considers its credit risk to be minimal. At December 31, 1999 and 1998, Aon placed securities in escrow amounting to $4 million and $8 million, respectively, relating to these derivative contracts. FOREIGN EXCHANGE RISK MANAGEMENT Certain of Aon's foreign brokerage subsidiaries, primarily in the United Kingdom, receive revenues in currencies that differ from the currency in which their operating expenses are denominated. To reduce the variability of cash flows from these operations, foreign exchange forward contracts and options are used having settlement dates that are primarily less than one year. Related gains or losses on these contracts are reflected as an adjustment to income when the currencies are exchanged to settle expense commitments. Forward contracts entered into require no up-front premium and settle at the expiration of the related contract. Prior to July 1999, Aon managed a group of foreign exchange and interest rate risks that considered the correlation among thirteen currency rates and two short-term interest rates. Aon used foreign currency listed futures and options on futures, as well as over-the-counter options, and forward contracts to manage the effects of foreign currency fluctuations on the translation of the financial statements of Aon's foreign operations. Generally, related gains and losses on these contracts were reflected as an adjustment to income when settled. For contracts designated as hedges of a net investment in foreign subsidiary, realized and unrealized gains were recorded directly to stockholders' equity as a component of net unrealized foreign exchange gains and losses. INTEREST RATE RISK MANAGEMENT Aon uses interest rate derivative contracts to manage the interest rate risk associated with assets and liabilities underlying its insurance underwriting and insurance brokerage businesses. Interest rate derivatives are also utilized to manage the company's funding and other corporate risks in the U.S. and in Europe. Interest rate swap agreements are being used to manage asset and liability durations. Prior to 1999, exchange-traded Eurodollar futures, used in conjunction with basis rate swaps, were used to manage asset liability durations related to various other crediting arrangements emanating from other insurance underwriting businesses. As of December 31, 1999 and 1998, these swap agreements had the net effect of shortening asset durations. Variable rates received on interest rate and basis rate swap agreements correlate with crediting rates paid on outstanding liabilities. The net effect of swap payments is settled periodically and reported in income. There is no settlement of underlying notional amounts. Aon also enters into interest rate swap and floor agreements and purchases exchange-traded futures and options to limit its exposure to decreasing short-term interest rates, primarily relating to brokerage fiduciary funds in the U.S., U.K. and Europe. Aon also enters into interest rate swap agreements, sells exchange-traded interest rate futures and purchases interest rate caps to limit its interest rate exposure to financing short-term receivables and to manage corporate funding risks. The net effect of swap payments is settled periodically and reported in income. There is no settlement of underlying notional amounts. Exchange-traded futures are valued and settled daily, with amounts reported in income when the contract expires. The commission paid for these futures contracts represents the cost basis of the position, until it expires or is closed. The premium that Aon pays for interest rate caps represents the cost basis of the position until it expires or is closed. - 45 - SECURITY PRICE RISK MANAGEMENT Exchange-traded treasury and equity futures and options are used primarily as a hedge against the value of Aon's available for sale fixed-maturity and equity investments. Aon also uses exchange traded equity futures and options to protect the value of its pension equity investments. Aon sells futures, purchases put options and writes call options. Exchange-traded futures and options are valued and settled daily. The premium that Aon pays for purchased options and receives for written options represents the cost basis of the option until it expires or is closed. In most cases, derivatives hedging the invested asset portfolio are hedging groups of invested assets. The sale, maturity or extinguishment of a hedged invested asset within a group would not affect the accounting method for the derivative. The accounting for a hedge would differ from the company's regular accounting practices if the hedge ceases to meet the criteria for hedge accounting. Realized gains and losses on derivatives that qualify as hedges are deferred and reported as an adjustment of the cost basis of the hedged item. Deferred gains and losses are amortized into income over the remaining life of the hedged item. Outstanding derivatives that are hedges of items carried at fair value are reflected in the financial statements at fair value with changes in the derivative fair value reported as unrealized gains and losses directly in stockholders' equity. The following criteria must be met in order for a derivative to qualify for hedge accounting. The derivative must be designated as a hedge at inception and be consistent with Aon's policy for risk management. The hedged group of invested assets must have a reliably measurable fair value and changes in fair value must have the potential to affect future earnings. Aon performs frequent analyses to measure the degree of correlation associated with its derivative programs. Aon assesses the adequacy of the correlation analyses results in determining whether the derivatives qualify for hedge accounting. Changes in the fair value of the derivative must be expected to substantially offset changes in the fair value of the designated risk being hedged. If the criteria for hedge accounting are not met, the resulting gain or loss from the hedge would be realized through the statement of operations in the current period. NOTIONAL AND OTHER DATA The following are the notional amounts of Aon's outstanding derivatives grouped by the types of risks being managed reflecting various periods of exposure: (millions) As of December 31 1999 1998 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Foreign currency management Forwards $ 65 $ 195 Futures -- 69 Call options 165 35 Interest rate and asset/liability duration management Eurodollar futures 4,455 1,730 Eurosterling options 297 -- Eurosterling futures 329 900 Treasury futures 55 15 Treasury call options 49 30 Treasury put options 35 10 Interest rate swaps--pay fixed 660 1,192 Interest rate swaps--receive fixed -- 172 Basis rate swaps--pay and receive variable 397 184 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Aon amortized into income $6 million in 1999, $1 million in 1998 and $3 million in 1997 of net deferred gains relating to derivatives. Separately deferred hedging gains or losses for derivative financial instruments accounted for as hedges of anticipated transactions were $0 at December 31, 1999 and $5 million of gains at December 31, 1998. The interest rates on Aon's outstanding swaps at December 31 are presented below: Receive Pay Pay Receive Fixed Variable Fixed Variable - - - - - - - - - - - - - - - - - ---------------------------------------------------------------------- 1999 -- 5.7-5.9% 5.3-6.6% 5.1-6.0% 1998 4.0-8.1% 3.2-8.8% 4.8-9.7% 4.3-5.7% - - - - - - - - - - - - - - - - - ---------------------------------------------------------------------- As of December 31, 1999, swaps have maturities ranging from January 2000 to July 2004. Aon receives variable rates based on the one-month commercial paper rate. - 46 - OTHER FINANCIAL INSTRUMENTS Aon has certain investment commitments to provide capital and fixed-rate loans, as well as certain forward contract purchase commitments. The investment commitments, which would be collateralized by related properties of the underlying investments, involve varying elements of credit and market risk. Investment commitments outstanding at December 31, 1999 and 1998 totaled $312 million and $283 million, respectively. Subsidiaries of Aon have entered into agreements with financial institutions, whereby the subsidiaries sold certain receivables, with limited recourse. Agreements provide for sales of receivables on a continuing basis through December 2002. As of December 31, 1999 and 1998, the maximum commitment contained in these agreements was $3.6 billion and $2.8 billion, respectively. Aon's maximum credit risk under recourse provisions of these agreements was approximately $260 million and $202 million at December 31, 1999 and 1998, respectively. In 1999, a subsidiary of Aon sold $10 million of credit protection in the form of a credit default swap and purchased similar credit protection, also in the form of a credit default swap, to offset its risk in the transaction. An Aon subsidiary issues fixed- and floating-rate Guaranteed Investment Contracts (GICS) and floating-rate funding agreements and invests the proceeds primarily in the U.S. fixed income markets. The assets backing the GICS are subject to varying elements of credit and market risk. FAIR VALUE OF FINANCIAL INSTRUMENTS Accounting standards require the disclosure of fair values for certain financial instruments. The fair value disclosures are not intended to encompass the majority of policy liabilities, various other non-financial instruments or other intangible assets related to Aon's business. Accordingly, care should be exercised in deriving conclusions about Aon's business or financial condition based on the fair value disclosures. The carrying value and fair value of certain of Aon's financial instruments are as follows: As of December 31 1999 1998 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ Carrying Fair Carrying Fair (millions) Value Value Value Value - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ Assets: Fixed maturities and equity securities $ 3,071 $ 3,071 $ 3,871 $ 3,871 Other investments 740 739 349 348 Cash, receivables and short-term investments 10,545 10,545 9,550 9,550 Derivatives* -- 3 -- (2) Liabilities: Investment type insurance contracts 1,207 1,147 1,261 1,310 Short-term borrowings, premium payables and general expenses 10,277 10,277 8,897 8,897 Notes payable 1,011 1,001 923 932 Capital securities 800 792 800 916 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------ * These exclude derivatives with a carrying value of $1 million and $(2) million and a fair value of $(1) million and $(2) million that are included in other asset categories at December 31, 1999 and 1998, respectively. 13 CONTINGENCIES ================================================================================ Aon and its subsidiaries are subject to numerous claims, tax assessments and lawsuits that arise in the ordinary course of business. The damages that may be claimed are substantial, including in many instances claims for punitive or extraordinary damages. Accruals for these items have been provided to the extent that losses are deemed probable and are estimable. In 1998, the Internal Revenue Service (IRS) proposed adjustments to the tax of certain Aon subsidiaries for the period of 1990 through 1993. Most of these adjustments should be resolved through factual substantiation of certain accounting matters. However, the IRS has contended that retro-rated extended warranty contracts do not constitute insurance for tax purposes. Accordingly, the IRS has proposed a deferral of deductions for obligations under those contracts. The effect of such deferral would be to increase the current tax obligations of certain Aon subsidiaries by approximately $74 million, $3 million, $5 million and $12 million (plus interest) in years 1990, 1991, 1992 and 1993, respectively. Aon believes that the IRS's position is without merit and inconsistent with numerous previous IRS private letter rulings. Aon has commenced an administrative appeal and intends to contest vigorously such treatment. Aon believes that if the contracts are deemed not to be insurance for tax purposes, they would be recharacterized in such a way that the increased taxes for the years in question would be far less than the proposed assessments. - 47 - In the second quarter of 1999, Allianz Life Insurance Company of North America, Inc. ("Allianz") filed an amended complaint in Minnesota adding a brokerage subsidiary of Aon as a defendant in an action which Allianz brought against three insurance carriers reinsured by Allianz. These three carriers provided certain types of workers' compensation reinsurance to a pool of insurers and to certain facilities managed by Unicover Managers, Inc. ("Unicover"), a New Jersey corporation not affiliated with Aon. Allianz alleges that the Aon subsidiary acted as an agent of the three carriers when placing reinsurance coverage on their behalf. Allianz claims that the reinsurance it issued should be rescinded or that it should be awarded damages, based on alleged fraudulent, negligent and innocent misrepresentations by the carriers, through their agents, including the Aon subsidiary defendant. Aon believes that the Aon subsidiary has meritorious defenses and the Aon subsidiary intends to vigorously defend this claim. Except for an action filed to compel Aon to produce documents to which Aon is responding, the Allianz lawsuit is the only lawsuit or arbitration relating to Unicover in which any Aon related entity is a party. However, in fourth quarter 1999 Aon recognized a pretax charge for $72 million in general expenses in its insurance brokerage and other services segment relating to Unicover and other litigation matters. Of this charge, $27 million is for a January 2000 settlement of certain Unicover related business reinsured by Reliance Group Holdings, Inc. The remaining Unicover issues are complex and, therefore, the timing of resolution cannot be determined at this time. Certain U.K. subsidiaries of Aon have been required by their regulatory body, the Personal Investment Authority (PIA), to review advice given by those subsidiaries to individuals who bought pension plans during the period from April 1988 to June 1994. These reviews have resulted in a requirement to pay compensation to clients based on guidelines issued by the PIA. In 1999, Aon charged general expenses for $121 million in the consulting segment to provide for these payments. As of December 31, 1999, Aon has $107 million remaining in general expense liabilities for these payments which are expected to be disbursed over the next few years. Aon's ultimate exposure from the private pension plan review, as presently calculated, is subject to a number of variable factors including, among others, equity markets, the rate of response to the pension review mailings, the interest rate established quarterly by the PIA for calculating compensation and the precise scope, duration and methodology of the review, including whether recent regulatory guidance will have to be applied to previously settled claims. Although the ultimate outcome of all matters referred to above cannot be ascertained and liabilities in indeterminate amounts may be imposed on Aon or its subsidiaries, on the basis of present information, availability of insurance coverages and advice received from counsel, it is the opinion of management that the disposition or ultimate determination of such claims will not have a material adverse effect on the consolidated financial position of Aon beyond amounts provided. However, it is possible that future results of operations or cash flows for any particular quarterly or annual period could be materially affected by an unfavorable resolution of these matters. - 48 - 14 SEGMENT INFORMATION ================================================================================ Aon classifies its business into three major segments based on the type of service or product, and a fourth nonoperating segment. The Insurance Brokerage and Other Services segment is comprised of retail and reinsurance brokerage operations, which include specialty and wholesale activity. The Consulting segment is Aon's employee benefit and human resource consulting organization. The Insurance Underwriting segment is comprised of direct sales life, accident and health, extended warranty, specialty and other insurance products. The Corporate and Other segment revenues consist primarily of investment income on capital. Amounts reported in the tables for the four segments, when aggregated, total to the amounts in the accompanying consolidated financial statements. Revenues are attributed to geographic areas based on the location of the resources producing the revenues. Intercompany revenues and expenses are eliminated in computing consolidated revenues and income before income tax. There are no material inter-segment amounts to be eliminated. Long-lived assets and related depreciation and amortization are not material. Selected information about Aon's operating and geographic areas of operation follows: CONSOLIDATED REVENUE BY GEOGRAPHIC AREA (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- United States $ 4,131 $ 3,736 $ 3,413 United Kingdom 1,352 1,244 1,158 Continent of Europe 841 790 439 Rest of World 746 723 741 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Total $ 7,070 $ 6,493 $ 5,751 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- INVESTMENT INCOME BY SEGMENT (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Insurance brokerage and other services (primarily short-term investments) $ 159 $ 194 $ 163 Consulting 3 6 6 Insurance underwriting (primarily fixed maturities) 251 240 214 Corporate and other 164 150 117 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Total $ 577 $ 590 $ 500 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- INSURANCE BROKERAGE AND OTHER SERVICES (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Revenue by geographic area: United States $ 2,146 $ 1,884 $ 1,670 United Kingdom 830 798 733 Continent of Europe 680 626 317 Rest of World 488 474 501 ============================================================================= Revenue by product: Retail $ 2,831 $ 2,761 $ 2,327 Reinsurance and wholesale 1,313 1,021 894 -------------------------------- Total 4,144 3,782 3,221 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Operating expenses 3,422 3,086 2,749 Amortization of intangibles 38 33 36 -------------------------------- Total expenses 3,460 3,119 2,785 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Income before income tax excluding special charges 684 663 436 Special charges 191 -- 132 -------------------------------- Income before income tax $ 493 $ 663 $ 304 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Identifiable assets at December 31 $ 9,467 $ 9,006 $ 8,382 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- CONSULTING (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Revenue by geographic area: United States $ 405 $ 387 $ 358 United Kingdom 147 134 131 Continent of Europe 44 36 18 Rest of World 60 58 46 -------------------------------- Total 656 615 553 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Operating expenses 573 544 491 Amortization of intangibles 3 3 4 -------------------------------- Total expenses 576 547 495 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Income before income tax excluding special charges 80 68 58 Special charges 122 -- 13 ------------------------------- Income (loss) before income tax $ (42) $ 68 $ 45 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Identifiable assets at December 31 $ 248 $ 150 $ 141 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- - 49 - INSURANCE UNDERWRITING (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Revenue by geographic area: United States $ 1,457 $ 1,366 $ 1,308 United Kingdom 349 290 274 Continent of Europe 115 117 102 Rest of World 185 173 174 ============================================================================= Revenue by product: Direct sales $ 1,098 $ 1,053 $ 1,035 Extended warranty 730 643 574 Specialty and other 278 250 249 -------------------------------- Total 2,106 1,946 1,858 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Benefits to policyholders 973 896 842 Operating expenses 596 551 530 Amortization of deferred acquisition costs 247 216 208 ------------------------------ Total expenses 1,816 1,663 1,580 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Income before income tax $ 290 $ 283 $ 278 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Identifiable assets at December 31 $ 5,640 $ 5,213 $ 4,936 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- CORPORATE AND OTHER (millions) Years ended December 31 1999 1998 1997 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Total revenue $ 164 $ 150 $ 119 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Operating expenses 63 60 26 Interest expense 105 87 70 Amortization of intangibles 102 86 81 ------------------------------- Total expenses 270 233 177 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Loss before income tax excluding special charges (106) (83) (58) Special charges -- -- 27 -------------------------------- Loss before income tax $ (106) $ (83) $ (85) - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- Identifiable assets at December 31 $ 5,777 $ 5,319 $ 5,232 - - - - - - - - - - - - - - - - - ----------------------------------------------------------------------------- - 50 - REPORTS BY INDEPENDENT AUDITORS AND MANAGEMENT REPORT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS BOARD OF DIRECTORS AND STOCKHOLDERS Aon CORPORATION We have audited the accompanying consolidated statements of financial position of Aon Corporation as of December 31, 1999 and 1998, and the related consolidated statements of income, stockholders' equity, and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Aon Corporation at December 31, 1999 and 1998, and the consolidated results of its operations and its cash flows for each of the three years in the period ended December 31, 1999, in conformity with accounting principles generally accepted in the United States. /s/ ERNST & YOUNG LLP --------------------- ERNST & YOUNG LLP Chicago, Illinois February 8, 2000 REPORT BY MANAGEMENT The management of Aon Corporation is responsible for the integrity and objectivity of the financial statements and other financial information in the annual report. The statements have been prepared in conformity with accounting principles generally accepted in the United States. These statements include informed estimates and judgments for those transactions not yet complete or for which the ultimate effects cannot be measured precisely. Financial information elsewhere in this report is consistent with that in the financial statements. The consolidated financial statements have been audited by our independent auditors. Their role is to render an independent professional opinion on Aon's financial statements. Management maintains a system of internal control designed to meet its responsibilities for reliable financial statements. The system is designed to provide reasonable assurance, at appropriate costs, that assets are safeguarded and that transactions are properly recorded and executed in accordance with management's authorization. Judgments are required to assess and balance the relative costs and expected benefits of those controls. It is management's opinion that its system of internal control as of December 31, 1999, was effective in providing reasonable assurance that its financial statements were free of material misstatement. In addition, management supports and maintains a professional staff of internal auditors who coordinate audit coverage with the independent auditors and conduct an extensive program of financial and operational audits. The Board of Directors selects an Audit Committee from among its members. No member of the Audit Committee is an employee of Aon. The Audit Committee is responsible for recommending appointment of the independent auditors and provides oversight relating to the review of financial information provided to stockholders and others, the systems of internal control which management and the board of directors have established and the audit process. The Audit Committee meets periodically with management, internal auditors and independent auditors to review the work of each and satisfy itself that those parties are properly discharging their responsibilities. Both the independent auditors and the internal auditors have free access to the Audit Committee, without the presence of management, to discuss the adequacy of internal control and to review the quality of financial reporting. - 51 -
SELECTED FINANCIAL DATA (millions except common stock and per share data) 1999 1998 1997 1996 1995 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA Brokerage commissions and fees $ 4,639 $ 4,197 $ 3,605 $ 1,919 $ 1,651 Premiums and other 1,854 1,706 1,646 1,577 1,473 Investment income 577 590 500 392 342 --------------------------------------------------------------------- Total revenue 7,070 6,493 5,751 3,888 3,466 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ Income from continuing operations excluding special charges $ 547 $ 541 $ 406 $ 351 $ 304 Income from continuing operations 352 541 299 292 304 Discontinued operations -- -- -- 43 99 Net income 352 541 299 335 403 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ DILUTIVE PER SHARE DATA* Income from continuing operations excluding special charges $ 2.07 $ 2.07 $ 1.55 $ 1.33 $ 1.14 Income from continuing operations 1.33 2.07 1.12 1.10 1.14 Discontinued operations -- -- -- 0.17 0.39 Net income 1.33 2.07 1.12 1.27 1.53 BASIC PER SHARE DATA* Income from continuing operations 1.35 2.11 1.14 1.11 1.15 Net income 1.35 2.11 1.14 1.29 1.55 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ BALANCE SHEET DATA ASSETS Investments $ 6,184 $ 6,452 $ 5,922 $ 5,213 $ 10,639 Brokerage and consulting receivables 6,230 5,423 5,320 3,566 2,264 Intangible assets 3,862 3,500 3,094 1,598 1,598 Other 4,856 4,313 4,355 3,346 5,235 ---------------------------------------------------------------------- Total assets $ 21,132 $ 19,688 $ 18,691 $ 13,723 $ 19,736 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ LIABILITIES AND STOCKHOLDERS' EQUITY Insurance premiums payable $ 7,643 $ 6,948 $ 6,380 $ 4,144 $ 2,723 Policy liabilities 4,988 4,823 4,450 4,360 9,556 Notes payable 1,011 923 637 521 554 General liabilities 3,589 3,127 3,552 1,815 4,179 --------------------------------------------------------------------- Total liabilities 17,231 15,821 15,019 10,840 17,012 Redeemable preferred stock 50 50 50 50 50 Capital securities 800 800 800 -- -- Stockholders' equity 3,051 3,017 2,822 2,833 2,674 ---------------------------------------------------------------------- Total liabilities and stockholders' equity $ 21,132 $ 19,688 $ 18,691 $ 13,723 $ 19,736 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK DATA* Dividends paid per share $ 0.82 $ 0.73 $ 0.68 $ 0.63 $ 0.59 Stockholders' equity per share 11.91 11.83 11.20 10.81 10.12 Price range 46 2/3 - 50 3/8 - 39 1/4 - 28 3/4 - 22 9/16 - 26 1/16 32 3/16 26 13/16 21 1/16 13 15/16 Market price at year-end 40.000 36.917 39.083 27.583 22.167 Common stockholders 13,757 12,294 12,698 13,030 13,520 Shares outstanding (in millions) 256.1 255.0 252.0 249.6 243.6 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ * Per share and common stock data have been restated to reflect the 1999 three-for-two stock split.
- 52 -
QUARTERLY FINANCIAL DATA (millions except common stock and per share data) 1Q 2Q 3Q 4Q 1999 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ Income Statement Data Brokerage commissions and fees $ 1,112 $ 1,143 $ 1,127 $ 1,257 $ 4,639 Premiums and other 437 441 475 501 1,854 Investment income 150 139 168 120 577 --------------------------------------------------------------------- Total revenue 1,699 1,723 1,770 1,878 7,070 --------------------------------------------------------------------- Net income excluding special charges 152 151 138 106 547 Net income 50 151 138 13 352 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ DILUTIVE PER SHARE DATA* Net income excluding special charges $ 0.58 $ 0.57 $ 0.52 $ 0.40 $ 2.07 Net income 0.19 0.57 0.52 0.05 1.33 BASIC NET INCOME PER SHARE* 0.19 0.58 0.53 0.05 1.35 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK DATA* Dividends paid per share $ 0.19 $ 0.21 $ 0.21 $ 0.21 $ 0.82 Stockholders' equity per share 11.27 12.17 12.30 11.91 11.91 Price range 45 1/3 - 46 2/3 - 43 1/8 - 41 11/16 - 46 2/3 - 32 11/16 39 13/16 29 1/16 26 1/16 26 1/16 Shares outstanding (in millions) 256.2 256.2 256.6 256.1 256.1 Average monthly trading volume (in millions) 8.7 9.1 9.6 17.6 11.2 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------
(millions except common stock and per share data) 1Q 2Q 3Q 4Q 1998 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ INCOME STATEMENT DATA Brokerage commissions and fees $ 996 $ 1,060 $ 1,023 $ 1,118 $ 4,197 Premiums and other 417 423 431 435 1,706 Investment income 148 140 153 149 590 --------------------------------------------------------------------- Total revenue 1,561 1,623 1,607 1,702 6,493 --------------------------------------------------------------------- Net income 138 140 124 139 541 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ DILUTIVE NET INCOME PER SHARE* $ 0.53 $ 0.54 $ 0.47 $ 0.53 $ 2.07 BASIC NET INCOME PER SHARE* 0.55 0.55 0.48 0.54 2.11 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ COMMON STOCK DATA* Dividends paid per share $ 0.17 $ 0.19 $ 0.19 $ 0.19 $ 0.73 Stockholders' equity per share 11.40 11.94 11.75 11.83 11.83 Price range 44 2/3 - 48 1/6 - 50 3/8 - 42 3/4 - 50 3/8 - 36 1/12 41 39 1/4 32 3/16 32 3/16 Shares outstanding (in millions) 253.1 253.4 255.2 255.0 255.0 Average monthly trading volume (in millions) 6.6 7.7 8.6 12.0 8.7 - - - - - - - - - - - - - - - - - ------------------------------------------------------------------------------------------------------------------------------ * Per share and common stock data have been restated to reflect the 1999 three-for-two stock split.
- 53 - INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS This annual report contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors such as general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, downward commercial property and casualty premium pressures, the competitive environment and the actual cost of resolution of contingent liabilities. Further information concerning the company and its business, including factors that potentially could materially affect the company's financial results are contained in the company's filings with the Securities and Exchange Commission. STRUCTURE OF OPERATING BUSINESSES Aon Corporation is a holding company. Its separate subsidiary corporations conduct operations. References herein to "Aon" usually relate to such subsidiaries, individually or in the aggregate, but on occasion may relate to Aon Corporation. Express references to "Aon Corporation" relate to the holding company. Operating businesses are principally involved in insurance brokerage, consulting and insurance underwriting; however, references in this annual report are not intended to be a complete or inclusive list of our businesses. - 54 - EX-21 8 AON CORPORATION SUBSIDIARIES Exhibit 21
Aon Corporation and its Subsidiaries (as of December 31, 1999) Aon Corporation Delaware 120524 Canada Inc. Canada 1e Katharinastrase 29 Vermogensverwaltungsges mbH Germany 2e Katharinastrase 29 Vermogensverwaltungsges mbH Germany A Morel & Cie Sa France A&A (UK) Limited United Kingdom A. J. Norcott & Company (Holdings) Limited United Kingdom A. J. Norcott & Partners (Northern) Limited United Kingdom A. J. Norcott & Partners (Scotland) Limited United Kingdom A. J. Norcott & Partners Limited United Kingdom A. J. Norcott Benefit Consultants Limited United Kingdom A.G.Y.C. Corretores de Seguros Ltda. Portugal A.H. Laseur B.V. Netherlands A.H.E. Alexander Howden de Espana S.A. Spain A.H.G. Far East Ltd. Hong Kong A.H.O.H. (Bermuda) Limited Bermuda A/S Assurance Norway AA & JG Denison & Company Ltd. United Kingdom AARE Corporation New York ABS Insurance Agency Ltd. United Kingdom Acedale Co. Ltd. Hong Kong ACGMGA Corp. Texas ACN 004 192 394 Australia ACN 006 278 226 Australia ACN 008 497 318 Australia ACN 051 158 984 Australia ACN 075 486 243 Australia ACP Insurance Agency, Inc. Texas Administradora Centurion Ltda Colombia Admiseg SA Argentina Adviser 151 Limited United Kingdom Affinity Insurance Services of Washington, Inc. Washington Affinity Insurance Services, Inc. Pennsylvania Agencia Interoceanica de Subscripcion y Administracion S. A. Mexico AGISA, S.A. Mexico Agostini Insurance Brokers Ltd. Trinidad Agricola Training Limited United Kingdom Agricola Underwriting Limited United Kingdom Agricola Underwriting Management Limited New Zealand Agricola Underwriting Management Pty Ltd. Australia Agricultural Risk Management (Pacific) Ltd New Zealand Agricultural Risk Management Argentina S.A. Argentina Agricultural Risk Management Chile Chile - 1 - Agricultural Risk Management North America, Inc. Kansas Agricultural Risk Management Pty. Ltd. Australia Agricultural Risk Management, Limited United Kingdom Agte Gebruder GmbH Germany Aidec Ciskei (Pty) Ltd. South Africa Aidec Gazankulu (Pty) Limited South Africa Aidec Kangwane (Pty) Limited South Africa Aidec Kwandebele (Pty) Limited South Africa Aidec Lebowa (Pty) Limited South Africa Aidec M.I.B. North West (Pty) Limited South Africa Aidec Venda (Pty) Limited South Africa Air-Con Solution Ltd. Thailand Aircrew Underwriting Agencies Ltd. United Kingdom Airscope Insurance Services Limited United Kingdom AIS Affinity Insurance Agency of New England, Inc. Massachusetts AIS Affinity Insurance Agency, Inc. California AIS Management Corporation California Aldebaran S.R.L. Rome Italy Alexander & Alexander (C.I.) Limited Guernsey Alexander & Alexander (Hong Kong) Holdings Limited Hong Kong Alexander & Alexander (Ireland) Limited Ireland Alexander & Alexander (Isle of Man) Limited United Kingdom Alexander & Alexander (Malaysia) Sdn. Bhd. Malaysia Alexander & Alexander (Taiwan) Ltd. Taiwan Alexander & Alexander (Thailand) Ltd. Thailand Alexander & Alexander Asia Holdings Pte. Ltd. Singapore Alexander & Alexander B.V. Netherlands Alexander & Alexander Benefits Services of Louisiana Inc. Louisiana Alexander & Alexander Colombia Ltda. Colombia Alexander & Alexander Consultants S.A. France Alexander & Alexander Corretores e Consultores de Seguros Lda. Portugal Alexander & Alexander Europe GmbH Austria Alexander & Alexander Europe Ltd. United Kingdom Alexander & Alexander Far East Partners Hong Kong Alexander & Alexander Galicia, S.A. Spain Alexander & Alexander Holdings B.V. Netherlands Alexander & Alexander Insurance Benefits Services Inc. Massachusetts Alexander & Alexander Insurance Brokers - Hungary Hungary Alexander & Alexander Insurance Brokers Ltd. Poland Poland Alexander & Alexander International Inc. Maryland Alexander & Alexander Korea Inc. Korea Alexander & Alexander Limited United Kingdom Alexander & Alexander Ltd. Fiji Alexander & Alexander Ltd. New Zealand Alexander & Alexander Ltd. (Thailand) Thailand Alexander & Alexander Mexico Agente de Seguros y de Fianza S.A. de C.V. Mexico Alexander & Alexander Middle East Limited Bermuda - 2 - Alexander & Alexander of Colombia Ltda. Colombia Alexander & Alexander of Kansas, Inc. Kansas Alexander & Alexander of Missouri Inc. Missouri Alexander & Alexander of Virginia, Inc. Virginia Alexander & Alexander of Washington Inc. Washington Alexander & Alexander Pte. Ltd. Singapore Alexander & Alexander Risk Management Services, Inc. Taiwan Alexander & Alexander S.R.O. (Czech. Republic) Czech Republic Alexander & Alexander Services (India) Pvt. Ltd. India Alexander & Alexander Services Canada Inc. Canada Alexander & Alexander Services UK Limited Scotland Alexander & Alexander Sigorta Musavirlk Anomim Sirketi Turkey Alexander & Alexander Spain Correduria de Seguros, S.A. Spain Alexander & Alexander Trustee Jersey Ltd. Jersey, Channel Islands Alexander & Alexander U.K. Pension Trustees Ltd. United Kingdom Alexander & Alexander, Inc. Oklahoma Alexander & Alexander, Inc. West Virginia Alexander & Davidson de Colombia LTDA. Colombia Alexander Administration Services Ltd. Isle of Man Alexander Clay Scotland Alexander Clay Communications Limited United Kingdom Alexander Consulting Groep B.V. Netherlands Alexander Consulting Investment Services Inc. Maryland Alexander Coyle Hamilton Ltd. Ireland Alexander Financial Services Ltd. Scotland Alexander Hellas E.P.E. Greece Alexander Howden (Hellas) Ltd. Guernsey Alexander Howden (Kazakhstan) Ltd. Kazakhstan Alexander Howden Asia Pacific Ltd. United Kingdom Alexander Howden Canada Limited Canada Alexander Howden de Espana Spain Alexander Howden Del Peru S.A. Reinsurance Brokers Peru Alexander Howden Energy & Partners Scandinavia Norway Alexander Howden Far East Ptd. Ltd. Singapore Alexander Howden Financial Services Limited United Kingdom Alexander Howden Group (Asia) Pte. Ltd. Singapore Alexander Howden Group (Australia) Limited Australia Alexander Howden Group (Bermuda) Limited Bermuda Alexander Howden Holdings Limited United Kingdom Alexander Howden Insurance Services of Texas, Inc. Texas Alexander Howden International Limited United Kingdom Alexander Howden Leasing Ltd. United Kingdom Alexander Howden Limited United Kingdom Alexander Howden North America, Inc. Georgia Alexander Howden North America, Inc. Massachusetts Alexander Howden North America, Inc. New York Alexander Howden North America, Inc. Ohio - 3 - Alexander Howden North America, Inc. Texas Alexander Howden Ossa De Colombia SA Colombia Alexander Howden Previsionales y Personas Ltda. Colombia Alexander Howden Reinsurance Brokers (Australia) Ltd. Australia Alexander Howden Reinsurance Intermediaries, Inc. New York Alexander Howden UK Limited United Kingdom Alexander Howden Underwriting Limited United Kingdom Alexander Howden Y Asociados S.A. de C.V. Mexico Alexander Insurance Managers (Barbados) Ltd. Barbados Alexander Insurance Managers (Cayman) Ltd. Cayman Islands Alexander Insurance Managers (Dublin) Ltd. Ireland Alexander Insurance Managers (Guernsey) Ltd. Guernsey Alexander Insurance Managers (Holdings) Ltd. Guernsey Alexander Insurance Managers (Isle of Man) Ltd. Isle of Man Alexander Insurance Managers (Jersey) Ltd. Jersey, Channel Islands Alexander Insurance Managers (Luxembourg) S.A. Luxembourg Alexander Insurance Managers Ltd. Bermuda Alexander Insurance Managers N.V. Netherlands Alexander Lippo (Hong Kong) Ltd. Hong Kong Alexander of Texas Inc. Texas Alexander Portfolio Management Ltd. New Zealand Alexander R.M.C. Brown Partners Ltd. Australia Alexander Reinsurance Intermediaries, Inc. New York Alexander Services, Inc. Illinois Alexander Stenhouse & Partners Limited Scotland Alexander Stenhouse Belgium International Belgium Alexander Stenhouse Limited United Kingdom Alexander Stenhouse Magee Limited Ireland Alexander Stenhouse Management Services Ltd. Scotland Alexander Stenhouse Nominees Ltd. Australia Alexander Stenhouse Risk Management S.A. Spain Alexander Underwriting Agencies Limited Bermuda Alexander Underwriting Services Inc. Maryland Alexander Underwriting Services Limited United Kingdom Alexander Watkins S.A. de C.V. Mexico Alexander, Ayling, Barrios & Cia, S.A. Argentina Algemeen Asurantiekantoor van 1863 Justin van de Port bv Netherlands Allen Insurance Associates, Inc. California Alpenbeck Limited United Kingdom American Special Risk Insurance Company Delaware Anchor Reinsurance Company, Ltd. Bermuda Anchor Underwriting Managers, Ltd. Bermuda Anderson and Anderson Insurance Brokers, Inc. California Anderson and Anderson of Los Angeles Insurance Brokers, Inc. California Anderson and Anderson of Orange County Insurance Brokers, Inc. California Anderson and Anderson/Benefits Insurance Brokers, Inc. California Anderson and Anderson/D-K&S Insurance Brokers, Inc. California - 4 - Andes Global Ltd. Brit. Virgin Islands Andrea Scagliarni Assicurazione Italy Anglo-Swiss Reinsurance Brokers Ltd. Switzerland Anistics Ltd. United Kingdom ANR Engineering Limited United Kingdom Anscor Insurance Brokers Inc. Philippines Aon Hudig cv Netherlands Aon WACUS Kreditversicherungsmakler GmbH & Co. Germany Aon WACUS Verwaltungs GmbH Germany Aon (Panama) Ltd. S.A. Panama Aon Acquisition Corporation of Arkansas Arkansas Aon Acquisition Corporation of New Jersey New Jersey Aon Adjudication Services Limited United Kingdom Aon Administrative Services Corp. California Aon Advisors (U.K.) Limited United Kingdom Aon Advisors, Inc. Virginia Aon Aisa Ltd Hong Kong Aon Alexander & Alexander N.V. Belgium Aon Andueza Nikols, Corredores de Seguros S.A. Chile Aon Annuity Group, Inc. Texas Aon Antillen nv Netherland Antilles Aon Artscope Kunstversicherungsmakler GmbH Germany Aon Aruba nv Netherland Antilles Aon Asia Insurance Services bv Netherlands Aon Assurances Credit SA France Aon Aviation, Inc. Illinois Aon Bain Hogg Limited United Kingdom Aon Belgium nv Belgium Aon Benefit Services, Inc. Massachusetts Aon Benefits Insurance Brokers (Singapore) Pte. Ltd. Singapore Aon BEP Inc. Quebec Aon Boels & Begault S.A. Belgium Aon Brasil Resseguros Ltda Brazil Aon Brazil Corretores de Seguros Ltda. Brazil Aon Broker Services, Inc. Illinois Aon Broking Services S.A. Argentina Aon Canada Inc. Canada Aon Capital A Delaware Aon Capital Management, Inc. Delaware Aon Captive Management, Ltd. U.S. Virgin Islands Aon Captive Services (Nederland) bv Netherlands Aon Captive Services Antillen nv Netherland Antilles Aon Captive Services Aruba nv Netherland Antilles Aon Centurion S.A. Corredores de Seguros Colombia Aon Ceska republika spol. s.r.o. Czech Republic Aon Colombia S.A. Corredores de Seguros Colombia Aon Commercial Risks Hong Kong Ltd. Hong Kong - 5 - Aon Compensation and Benefits Limited United Kingdom Aon Conseil Assurances de Personnes SA France Aon Consulting & Insurance Services California Aon Consulting (Malaysia) Sdn Bhd. Malaysia Aon Consulting Agency, Inc. Texas Aon Consulting Belgium S.A. Belgium Aon Consulting Chile Limitada Chile Aon Consulting Consultores de Seguros Ltda. Brazil Aon Consulting Denmark A/S Denmark Aon Consulting Financial Services Limited United Kingdom Aon Consulting GmbH Germany Aon Consulting Group Limited United Kingdom Aon Consulting Hong Kong Ltd. Hong Kong Aon Consulting Inc. Canada Aon Consulting Limited United Kingdom Aon Consulting Nederland cv Netherlands Aon Consulting New Zealand Ltd. New Zealand Aon Consulting of Maryland, Inc. Maryland Aon Consulting Pty Limited Australia Aon Consulting S.A. Colombia Aon Consulting South Africa (Pty) Ltd. South Africa Aon Consulting Thailand Ltd. Thailand Aon Consulting Worldwide, Inc. Maryland Aon Consulting, Inc. Florida Aon Consulting, Inc. New Jersey Aon Consulting, Inc. New York Aon Consulting, Inc. Ohio Aon Consulting, Inc. Texas Aon Consulting, Inc. of Arizona Arizona Aon Consulting, Limited Quebec Aon Consulting, S.A. de C.V. Mexico Aon Corporation Australia Limited Australia Aon Credit Services Corporation Delaware Aon CSC Corredores de Reaseguros Limitada Chile Aon Denmark A/S Denmark Aon Direct Group Inc. Canada Aon Direct Group Small Company Life and Health Agents Illinois Aon Direct Research & Analytics Group Inc. Canada Aon Employee Risk Solutions Limited United Kingdom Aon Enterprise Insurance Services, Inc. Illinois Aon Enterprise Insurance Services, Inc. Texas Aon Entertainment Risk Services Limited United Kingdom Aon Finance Limited United Kingdom Aon Financial Planning Ltd. Australia Aon Financial Products, Inc. Delaware Aon Financial Services Group of Colorado, Inc. Colorado Aon Financial Services Group of New York, Inc. New York - 6 - Aon Financial Services Group, Inc. California Aon Financial Services Group, Inc. Illinois Aon Financial Services Group, Inc. Pennsylvania Aon Financial Services Group, Inc. Texas Aon Financial Services Limited United Kingdom Aon Finland OY Finland Aon Forfaiting Limited United Kingdom Aon France S.A. France Aon Funds Delaware Aon General Agency, Inc. Texas Aon General Consulting Ltda. Brazil Aon GGI Acquisition Corporation, Inc. Texas Aon Gil y Carvajal Flotas, SA Spain Aon Gil y Carvajal Portugal - Corretores de Seguros SA Portugal Aon Global Risk Consultants Limited United Kingdom Aon Grieg AS Norway Aon Grieg P&I AS Norway Aon Groep Nederland bv Netherlands Aon Group Corretagem, Administracao e Consultoria de Seguros Ltda UK Aon Group Limited United Kingdom Aon Group Limited de Argentina S.A. Argentina Aon Group Limited de Mexico, Intermediario de Reaseguro, S.A. de C.V. Mexico Aon Group Ltd. Peru S.A. Peru Aon Group New Zealand Ltd. New Zealand Aon Group Venezuela, Corretaje de Reaseguro, C.A. Venezuela Aon Group, Inc. Maryland Aon Hamond & Regine, Inc. New York Aon Hazard Limited United Kingdom Aon Health Services Inc. Texas Aon Healthcare Insurance Services of Arizona, Inc. Arizona Aon Healthcare Insurance Services, Inc. California Aon Hellas A.E. Greece Aon Holdings Antillen nv Netherland Antilles Aon Holdings Australia Ltd. Australia Aon Holdings Belgium nv Belgium Aon Holdings bv Netherlands Aon Holdings Denmark A/S Denmark Aon Holdings Hong Kong Limited Hong Kong Aon Holdings International BV Netherlands Aon Holdings New Zealand Ltd. New Zealand Aon Home Warranty Services, Inc. Delaware Aon Hudig Groningen bv Netherlands Aon Hudig Hengelo bv Netherlands Aon Hudig Nijmegen bv Netherlands Aon Hudig Noordwijk bv Netherlands Aon Hudig Tilburg bv Netherlands Aon Hudig Venlo bv Netherlands - 7 - Aon Hudig-Schreinemacher vof Netherlands Aon India Limited United Kingdom Aon Innovative Solutions, Inc. Missouri Aon Insurance Management Agencies (Hong Kong) Ltd. Hong Kong Aon Insurance Management Services - Virgin Islands, Inc. U.S. Virgin Islands Aon Insurance Management Services, Inc. Delaware Aon Insurance Managers (Antilles) nv Netherland Antilles Aon Insurance Managers (Bermuda) Ltd. Bermuda Aon Insurance Managers (Singapore) Pte. Ltd. Singapore Aon Insurance Managers (USA) Inc. Vermont Aon Insurance Services California Aon Insurance Services, Inc. Pennsylvania Aon Intermediaries (Bermuda) Ltd. Bermuda Aon International bv Netherlands Aon Investment Consulting Inc. Florida Aon Investment Holdings, Inc. Delaware Aon Investor Strategies, Inc. Delaware Aon Italia SpA Italy Aon Jauch & Hubener Consulting GmbH Germany Aon Jauch & Hubener GmbH Germany Aon Jauch & Hubener Holdings Gmbh Germany Aon Jauch & Hubener Privates Vorsorgemanagement GmbH Germany Aon Jauch & Hubener Versicherungsconsulting Ges. mbH Austria Aon Jauch & Hubener Verwaltungs- GmbH Germany Aon Life Agency of Texas, Inc. Texas Aon Lumley Consulting (Pty) Ltd. South Africa Aon Lumley South Africa (Pty) Ltd. South Africa Aon Magyarorszag Alkusz Kft. Hungary Aon Makelaars in Assurantien bv Netherlands Aon Malta Ltd. Malta Aon Managed Care Risk & Insurance Services, Inc. California Aon Manzitti S.p.A. Italy Aon Mibrag Versicherungsvermittlungs GmbH Germany Aon Middle East United Arab Emirates Aon Minet Ltd. New Zealand Aon Mozambique Ltd. Mozambique Aon Natural Resources Asia Ltd. Labuan Aon Nikols Adriatica Srl Italy Aon Nikols bv Netherlands Aon Nikols Chile bv Netherlands Aon Nikols Colombia Holdings SA Colombia Aon Nikols Latin America bv Netherlands Aon Nikols N.E. SpA Italy Aon Nikols NBB Srl Italy Aon Nikols Srl Italy Aon Nikols Torino Srl. Italy Aon Nominees Limited United Kingdom - 8 - Aon Ossa Ltda, Corredores de Reaseguros United Kingdom Aon Overseas Holdings Limited United Kingdom Aon OWA Insurance Services GmbH & Co. Germany Aon OWA Verwaltungs GmbH Germany Aon Partnership Limited United Kingdom Aon Pension Trustees Limited United Kingdom Aon PHI Acquisition Corporation of California California Aon Pilar Corretora E Servicos de Seguros S/C Ltda. Brazil Aon Polska sp.z.o.o. Poland Aon Previsonals y Personas Ltda, Corredores de Reaseguros y Consultores United Kingdom Aon Private Risk Management Insurance Agency, Inc. Illinois Aon Properties Limited United Kingdom Aon Pyramid International Limited United Kingdom Aon Re (Bermuda) Ltd. Bermuda Aon Re (Thailand) Ltd. Thailand Aon Re Africa (Pty) Ltd. South Africa Aon Re Aviation Limited United Kingdom Aon Re Belgium nv Belgium Aon Re Canada Inc. Canada Aon Re China Ltd. Hong Kong Aon Re Iberia SA Spain Aon Re Inc. Illinois Aon Re Latinoamericana, S.A. Mexico Aon Re Netherlands cv Netherlands Aon Re Non-Marine Limited United Kingdom Aon Re Panama, S.A. Panama Aon Re Special Risks Limited United Kingdom Aon Re UK Limited United Kingdom Aon Re Worldwide, Inc. Delaware Aon Real Estate Services, Inc. New York Aon Reed Stenhouse Inc. Canada Aon Reinsurance Brokers Asia Pte Ltd. Singapore Aon Risconcept Inc. Canada Aon Risk Consultants (Bermuda ) Ltd. Bermuda Aon Risk Consultants (Europe) Limited United Kingdom Aon Risk Consultants bv Netherlands Aon Risk Consultants, Inc. Illinois Aon Risk Management A/S Denmark Aon Risk Management Services Italia srl. Italy Aon Risk Managers, Inc. Illinois Aon Risk Resources Insurance Agency, Inc. Illinois Aon Risk Resources Limited United Kingdom Aon Risk Resources, Inc. Delaware Aon Risk Services (PNG) Pty. Ltd. Papau New Guinea Aon Risk Services (Barbados) Ltd. Barbados Aon Risk Services (Cayman) Ltd. Cayman Islands Aon Risk Services (Chile) S.A. Chile - 9 - Aon Risk Services (Europe) S.A. Luxembourg Aon Risk Services (Fiji) Ltd. Fiji Aon Risk Services (Holdings) of Latin America, Inc. Delaware Aon Risk Services (Holdings) of the Americas, Inc. Illinois Aon Risk Services (Ireland) Limited Ireland Aon Risk Services (Thailand) Ltd. Thailand Aon Risk Services (Vanuatu) Ltd. Vanuatu Aon Risk Services (Western Samoa) Ltd. American Samoa Aon Risk Services Agente de Seguros y de Fianzas, S.A. de C.V. Mexico Aon Risk Services Argentina SA Argentina Aon Risk Services Australia Ltd. Australia Aon Risk Services Canada Inc. Canada Aon Risk Services Companies, Inc. Maryland Aon Risk Services Do Brazil Corretores de Seguros Ltda. Brazil Aon Risk Services Holdings (Chile) Ltda. Chile Aon Risk Services Holdings UK Limited United Kingdom Aon Risk Services Hong Kong Ltd. Hong Kong Aon Risk Services International (Holdings) Inc. Delaware Aon Risk Services International Limited United Kingdom Aon Risk Services Japan Ltd. Japan Aon Risk Services Limited United Kingdom Aon Risk Services New Zealand Pty. Ltd. New Zealand Aon Risk Services of Missouri, Inc. Missouri Aon Risk Services of Texas, Inc. Texas Aon Risk Services Singapore (Insurance Brokers) Pte. Ltd. Singapore Aon Risk Services Solomon Islands Ltd. Solomon Islands Aon Risk Services Taiwan Ltd. Taiwan Aon Risk Services UK Limited United Kingdom Aon Risk Services, Inc. of Alabama Alabama Aon Risk Services, Inc. of Arizona Arizona Aon Risk Services, Inc. of Arkansas Arkansas Aon Risk Services, Inc. of Central California Insurance Services California Aon Risk Services, Inc. of Colorado Colorado Aon Risk Services, Inc. of Connecticut Connecticut Aon Risk Services, Inc. of Florida Florida Aon Risk Services, Inc. of Georgia Georgia Aon Risk Services, Inc. of Hawaii Hawaii Aon Risk Services, Inc. of Idaho Idaho Aon Risk Services, Inc. of Illinois Illinois Aon Risk Services, Inc. of Indiana Indiana Aon Risk Services, Inc. of Kansas Kansas Aon Risk Services, Inc. of Kentucky Kentucky Aon Risk Services, Inc. of Louisiana Louisiana Aon Risk Services, Inc. of Maryland Maryland Aon Risk Services, Inc. of Massachusetts Massachusetts Aon Risk Services, Inc. of Michigan Michigan Aon Risk Services, Inc. of Minnesota Minnesota - 10 - Aon Risk Services, Inc. of Montana Montana Aon Risk Services, Inc. of Nebraska Nebraska Aon Risk Services, Inc. of Nevada Nevada Aon Risk Services, Inc. of New Jersey New Jersey Aon Risk Services, Inc. of New Mexico New Mexico Aon Risk Services, Inc. of New York New York Aon Risk Services, Inc. of Northern California Insurance Services California Aon Risk Services, Inc. of Ohio Ohio Aon Risk Services, Inc. of Oklahoma Oklahoma Aon Risk Services, Inc. of Oregon Oregon Aon Risk Services, Inc. of Pennsylvania Pennsylvania Aon Risk Services, Inc. of Rhode Island Rhode Island Aon Risk Services, Inc. of Southern California Insurance Services California Aon Risk Services, Inc. of Tennessee Tennessee Aon Risk Services, Inc. of the Carolinas North Carolina Aon Risk Services, Inc. of Utah Utah Aon Risk Services, Inc. of Virginia Virginia Aon Risk Services, Inc. of Washington Washington Aon Risk Services, Inc. of Washington, D.C. District of Columbia Aon Risk Services, Inc. of Wisconsin Wisconsin Aon Risk Services, Inc. of Wyoming Wyoming Aon Risk Services, Inc. U.S.A. New York Aon Risk Technologies, Inc. Delaware Aon S.G.C.A. France Aon Securities Corporation New York Aon Select, Inc. Pennsylvania Aon Service Corporation Illinois Aon Services Group Limited United Kingdom Aon Services Group of Tennessee, Inc. Tennessee Aon Services Group, Inc. Delaware Aon Sigorta Brokerlik ve Musavirlik AS Turkey Aon Slovensko spol.s r.o. Slovak Republic Aon South Africa (Pty) Ltd. South Africa Aon Southern Europe b.v. Netherlands Aon Space SA France Aon Space, Inc. District of Columbia Aon Special Risk Resources Limited United Kingdom Aon Special Risk Resources, Inc. Delaware Aon Special Risks, Inc. Illinois Aon Specialty Denmark A/S Denmark Aon Specialty Re, Inc. Illinois Aon Stockholm Sweden Aon Superannuation Pty Limited Australia Aon Surety & Guarantee Limited United Kingdom Aon Sweden AB Sweden Aon Tanzania Ltd. Tanzania Aon Technical Insurance Services, Inc. Illinois - 11 - Aon Trade Credit Insurance Brokers S.r.l. Italy Aon Trade Credit Insurance Services, Inc. California Aon Trade Credit, Inc. Illinois Aon Trade Credit, Inc. New York Aon UK Holdings Limited United Kingdom Aon UK Limited United Kingdom Aon UK Trustees Limited United Kingdom Aon Underwriting Agancies (Hong Kong) Ltd. Hong Kong Aon Vietnam Vietnam Aon Warranty Group Limited (UK) United Kingdom Aon Warranty Group, Inc. Illinois Aon Warranty Korea, Inc. Korea Aon Warranty Services do Brasil Ltda. Brazil Aon Warranty Services, Inc. Illinois Aon Worldwide Resources, Inc. Illinois Aon/Albert G. Ruben Company (New York) Inc. New York Aon/Albert G. Ruben Insurance Services, Inc. California Aon/Brockinton Agency of Texas, Inc. Texas Aon/Saiz Limitada Barranquilla Corredores de Seguros Colombia Aon-Baoviet Inchcape Insurance Services Limited Vietnam Aongyc - Resseguros e Consultores de Seguros, Ltda Portugal AOPA Insurance Agency, Inc. Maryland AOPA Insurance Agency, Inc. Texas APAC (Alliance Pour l'Assurance Credit) Sarl France APM Services Limited Hong Kong Aporia Leasing Limited United Kingdom APS International Limited United Kingdom APS Life & Pensions Limited United Kingdom Argenbroker Buenos Aires Argentina ARM COVERAGE INC. New York ARS Holdings, Inc. Louisiana Artemis Securities Ltd. Guernsey Artscope Insurance Services Limited United Kingdom Artscope International Insurance Services Limited United Kingdom Ascom Nijmegen B.V. Netherlands ASCOMIN S.A. Belgium Asesores Kennedy Agente de Seguros y de Fianzas, S.A. de C.V. Mexico Asesores y Corredores De Seguros, S.A. Republica Dominica Asharo bv Netherlands Asia Area Underwriters Ltd. Hong Kong Asian American Finance Limited Bermuda Asian Reinsurance Underwriters Limited Hong Kong Assekurazkontor fur Industrie und Verkehr GmbH Germany Assidoge Srl Italy Assistance Au Management Et A La Prevention Des Risques De L'Entreprise France Associated Brokers International Zimbabwe Associated Fund Adminstrators Botswana (Pty) Limited Botswana - 12 - Associated Ins. Broker of Botswana Botswana Associates Dealer Group of Bellevue, Washington, Inc. Washington Association of Real Estate and Real Estate Related Professionals Missouri Association of Rural and Small Town Americans Missouri Assurance et Courtages Reunis pour la Gestion - ACR Gestion SAS France Assurantie Groep Langeveldt c.v. Netherlands ATJ Capital Forsakringsmakleri AB Sweden Atkins Kroll Insurance Inc. Guam Atlanta International Insurance Company New York Attorneys' Advantage Insurance Agency, Inc. Illinois AUSCO, Inc. Illinois Auto Conduit Corporation, The Delaware Auto Insurance Specialists - Bay Area, Inc. California Auto Insurance Specialists - Inland Empire, Inc. California Auto Insurance Specialists - Long Beach, Inc. California Auto Insurance Specialists - Los Angeles, Inc. California Auto Insurance Specialists - Newport, Inc. California Auto Insurance Specialists - San Gabriel Valley, Inc. California Auto Insurance Specialists - Santa Monica, Inc. California Auto Insurance Specialists - Valley, Inc. California Auto Insurance Specialists, Incorporated California Automotive Warranty Services of Florida, Inc. Florida Automotive Warranty Services, Inc. Delaware AV Agrar Versicherungsdienst GmbH Germany Ayala Aon Insurance Brokers, Inc. Philippines Ayala-Bain Insurance Company Philippines B E P International (Canada) Holding Inc. Canada B E P International Corp. New Jersey B E P International Holding Inc. Canada B E P International US Inc. Delaware B.L. Carnie Hogg Robinson Ltd. United Kingdom B.N. Shepp Associates Ltd. Alberta B.N.H. Group Ltd. United Kingdom B.V. Assurantiekantoor Langeveldt-Schroder Netherlands Bailiwick Consultancy & Management Co. Ltd. Guernsey Bain Clarkson (HK) Ltd. Hong Kong Bain Clarkson Consulting AB Sweden Bain Clarkson Forsakringskonsult AB, Stockholm Sweden Bain Clarkson Limited United Kingdom Bain Clarkson Members Underwriting Agency Ltd. United Kingdom Bain Clarkson R.B. Ltd. United Kingdom Bain Clarkson Underwriting Management Ltd. United Kingdom Bain Dawes (London) Ltd. United Kingdom Bain Dawes Services Ltd. United Kingdom Bain Hogg Australia (Holdings) Ltd. Australia Bain Hogg Australia Ltd. Australia Bain Hogg Chile S.A. Corredoros de Reasguro Chile - 13 - Bain Hogg Colombiana Ltd. Colombia Bain Hogg Group Limited United Kingdom Bain Hogg Hellas Ltd. United Kingdom Bain Hogg Holdings Limited United Kingdom Bain Hogg Insurance Management (Guernsey) Ltd. Guernsey Bain Hogg Insurance Management (Isle of Man) Ltd. Isle of Man Bain Hogg Intermediaro de Reaseguro SA de CV Mexico Bain Hogg International Holdings Ltd. United Kingdom Bain Hogg International Ltd. United Kingdom Bain Hogg Investments (Australia) Pty Ltd. Australia Bain Hogg Ltd. United Kingdom Bain Hogg Malawi Ltd. Malawi Bain Hogg Management Ltd. United Kingdom Bain Hogg Pensions Pty Ltd. Australia Bain Hogg Robinson Pty Ltd. Australia Bain Hogg Russian Insurance Brokers Ltd. Russia Bain Hogg Trustees Ltd. United Kingdom Bain Hogg Uganda Ltd. Uganda Bain Insurance Brokers Kenya Ltd. Kenya Banca Seguros Colon, S.A. Colombia Bankers Insurance Service Corp. Illinois Barros & Carrion, Inc. Puerto Rico BEC Insurance Services Limited United Kingdom Bekouw Mendes C.V. Netherlands Bekouw Mendes Reinsurance B.V. Netherlands Bekouw Mendes Risk Management B.V. Netherlands Bell Nicholson Henderson (Holdings) Ltd. United Kingdom Bell Nicholson Henderson Ltd. United Kingdom BenefitsMedia, Inc. Tennessee Benoit & Borg (Europe) Limited Ireland Berkely Agency Ltd. New York Berkely Coverage Corporation New York Berkely-ARM, Inc. New York BerkelyCare, LTD. New York BH No. 1 Ltd. United Kingdom BHR, Inc. Delaware Black Portch & Swain (Financial Services) Ltd. United Kingdom Bloemers & Co. Herverzekering bv Netherlands Blom & Van der Aa BV Netherlands Blom & Van der Aa Holding BV Netherlands Boels & Begault France S.A. France Boels & Begault Luxembourg S.a.r.l. Luxembourg Boels & Begault Vlaanderen S.A. Belgium Bonnor & Company A/S Denmark Bowes & Company, Inc., of New York New York Bowes Holdings, Inc. Illinois Bowring and Minet (Swaziland) (Pty) Ltd. Swaziland - 14 - Brennan Group, Inc., The Delaware BRIC, Inc. North Carolina Brichetto Corretora de Seguros S/C Ltda Brazil Brichetto Tecnica SA Argentina British Continental and Overseas Agencies (BCOA) SA France Broadgate Holdings Ltd. United Kingdom Brons Orobio Groep B.V. Netherlands Brons Van Lennep B.V. Netherlands Brons Van Lennep Den Haag B.V. Netherlands Bruno Sforni S.p.A. Italy Bruns Ten Brink & Co. b.v. Netherlands Bruns Ten Brink Herverzekeringen b.v. Netherlands Bryson Associates Incorporated Pennsylvania Bryson Associates Incorporated of Georgia Georgia Budapest Pension Fund Company Hungary Bureau d'Assurances Pirrotte GmbH Luxembourg Bureau d'Assurances Pirrotte GmbH & Co. KG Luxembourg Burlington Insurance Services Ltd. United Kingdom Burnie Enterprises Pty. Ltd. Papau New Guinea Business Health Services, Inc. California bv Algemeen Asurantiekantoor Schreinemacher Netherlands C A Robinson & Partners Ltd. United Kingdom C.I.C. Realty, Inc. Illinois Cabinet Joos SARL France Caleb Brett Iberica, S.A. Spain California Group Services California Cambiaso Risso & Co. (Assicuriazioni Napoli) Italy Cambiaso Risso & Co. (Assicuriazioni) Srl Italy Cambiaso Risso & Co. SA Italy Cambridge Galaher Settlements and Insurance Services, Inc. California Cambridge Professional Liability Services, Inc. Florida Cambridge Professional Liability Services, Inc. Illinois Cambridge Professional Liability Services, Inc. Pennsylvania Cambridge Settlement Services, Inc. Minnesota Camperdown 100 Limited United Kingdom Camperdown 101 Limited United Kingdom Cananwill Canada Limited Ontario Cananwill Corporation Delaware Cananwill Receivables Purchase Facility, L.L.C. Delaware Cananwill UK Limited United Kingdom Cananwill UK Limited United Kingdom Cananwill, Inc. California Cananwill, Inc. Pennsylvania CAP Managers Ltd. Bermuda Captive Assurance Partners California Carstens & Schues GmbH & Co. Germany Carstens & Schues Poland Ltd. Poland - 15 - Carstens & Schues Verwaltungs GmbH Germany Catz & Lips B.V. Netherlands CCM McGrath Berrigan Ltd. Ireland CD Benefit, Inc. Texas CECAR - Compagnie Europeene de Courtage d'Assurances et de Reassurances SAe France CECAR Deutschland GmbH Germany CECAR Inchcape Asia Ltd. Hong Kong CECAR Portugal Portugal Celinvest Amsterdam bv Netherlands Central Technica SA Spain Centris Services Limited United Kingdom Centurion, Agente de Seguros, S.A. de C.V. Mexico Chemical & Oil Insurance Brokers (Pty) Ltd. South Africa Christopher Paul Insurance Services Ltd. United Kingdom CIA Deutschland Kreditversicherungsmakler und Beratungs GmbH Germany CIA Italia S.R.L. Italy CIA Link Ltd. United Kingdom CIA Supplier Finance Ltd. United Kingdom CIA USA Holdings, Inc. Delaware CICA Superannuation Nominees Pty. Ltd. Australia CI-Erre Srl Italy Cinema Completions International, Inc. Delaware Citadel Insurance Company Texas CJP, Inc. Delaware Clarkson Bain Japan Ltd. United Kingdom Clarkson LMS Ltd. United Kingdom Clarkson Puckle Group, Ltd. United Kingdom Clarkson Puckle Holdings Ltd. United Kingdom Clarkson Puckle Ibex Ltd. United Kingdom Clarkson Puckle Ltd. United Kingdom Clarkson Puckle Overseas Holdings Ltd. United Kingdom Clay & Partners (1987) Limited United Kingdom Clay & Partners Independent Trust Corporation Ltd. United Kingdom Clay & Partners Ltd. United Kingdom Clay & Partners Pension Trustees Limited United Kingdom Claytime Ltd. United Kingdom Clinton, Curtis, Melling Ltd. Ireland CNL Nikols SA Spain Cogrup Correduria de Seguros, S.A. Spain Cogrup, S.L. Spain Cole, Booth, Potter of New Jersey, Inc. New Jersey Cole, Booth, Potter, Inc. Pennsylvania Columbia Automotive Services, Inc. Illinois Combined Insurance Company de Argentina S.A. Compania de Seguros Argentina Combined Insurance Company of America Illinois Combined Insurance Company of Europe Limited Ireland Combined Insurance Company of New Zealand Limited New Zealand - 16 - Combined Life Assurance Company Limited United Kingdom Combined Life Assurance Company of Europe Limited Ireland Combined Life Insurance Company of Australia Limited Australia Combined Life Insurance Company of New York New York Combined Seguros Brasil S.A. Brazil Combined Seguros Mexico, S.A. de C.V. Mexico Commercial and Political Risk Consultants Ltd. United Kingdom Commercial Credit Corporation United Kingdom Compagnie Franco-Belge d'Investissement et de Placement Belgium Compagnie Metropolotaine de Conseil - CMC SA France CompLogic, Inc. Rhode Island Compta Assur (SA) France Consultoria Vida y Pensiones S.A. Spain Consumer Program Administrators, Inc. Illinois Contract & Investment Recoveries Ltd. United Kingdom Control de Riesgos, S.A. Spain Control y Global Services, S.A. Spain Corks Bay & Fisher Ltd. United Kingdom Corks Bays & Fisher (Life & Pensions) Ltd. United Kingdom Corporacion Gil y Carvajal, SA Spain Corporation Long Island CA Venezuela Correduria de Seguros Gruppo Herrero, S.A. Spain CoSec 2000 Limited United Kingdom Coughlan General Insurances Limited Ireland Couparey Nominees Limited United Kingdom Cranebox Ltd. United Kingdom Credit & Political Insurance Services Ltd. United Kingdom Credit & Political Risks Reinsurance Consultants Ltd. United Kingdom Credit Indemnity & Financial Services Ltd. United Kingdom Credit Insurance Research Unit Ltd. United Kingdom CRiON nv Belgium Crotty MacRedmond Insurance Limited Ireland Custom Risk Solutions, LLC New Jersey Customer Loyalty Institute, Inc. Michigan cv 't Huys ter Merwe Netherlands CYARSA, Correduria de Reaseguros, S.A. Spain CYARSA, Portugal, Correduria de Reaseguros, Ltda. Portugal D. Hudig & Co. b.v. Netherlands DA&A Insurance Agency, Inc. Texas Dale Intermediaries Ltd. / Les Intermediaires Dale Ltee Canada Dale-Parizeau International Inc. Canada Dale-Parizeau Management Ltd. Bermuda Dealer Development Services, Ltd. United Kingdom Deanborne Limited United Kingdom Denison Pension Trustees Ltd. United Kingdom Diot Minet (France) SA France Dobson Park L. G. Limited Guernsey - 17 - Document Risk Management Limited United Kingdom Dominion Mutual Insurance Brokers Ltd. Canada Dormante Holdings Limited United Kingdom Downes & Burke (Special Risks) Ltd. United Kingdom Dreadnaught Insurance Company Limited Bermuda Duggan Insurances Limited Ireland DUO AS Norway Duoband Enterprises Ltd. United Kingdom DuPage Care Administrators, Inc. Illinois E. Lillie & Co. Limited United Kingdom Eastaf Holdings Ltd. United Kingdom ECCO Insurance Services, Inc. Texas Edward Lumley & Sons (Underwriting Agencies) Ltd. United Kingdom Elektrorisk Beheer bv Netherlands Elm Lane Limited United Kingdom Employee Benefit Communications, Inc. Florida Energy Insurance Brokers & Risk Management Consultants Ltd. United Kingdom ENTAB Insurance Services Ltd. United Kingdom Entertainment Managers Insurance Agency of New York, Inc. New York Entertainment Managers Insurance Services, Inc. Ontario ERAS (International) Ltd. United Kingdom Ernest A. Notcutt & Co. Ltd. United Kingdom Ernest A. Notcutt (Overseas) Ltd. United Kingdom Ernest Notcutt Insurance Services Ltd. United Kingdom Essar Insurance Consultants Ltd. Taiwan Essar Insurance Services Ltd. Hong Kong Europa Services Ltd. Malta Ewbar Limited United Kingdom ExcelNet (Guernsey) Ltd. Guernsey ExcelNet Ltd. United Kingdom Excess Corredores de Reaseguros SA Chile Excess Underwriters Agency, Inc. New York Excess Versicherungsagentur GmbH Germany EXKO Excess Ruckversicherungs-AG Germany EXKO Excess Versicherungsagentur GmbH Germany Expatriate Consultancy Limited, The United Kingdom Fabels-Versteeg b.v. Netherlands Far East Agency Korea Fides Alexander (A.G.) Switzerland Switzerland Figurecheck Ltd. United Kingdom Finance Assurance Conseil - FAC SA France Financial Solutions Insurance Services, Inc. Illinois Finsbury Healthcare Limited United Kingdom Firma A.J. Driessen C.V. Netherlands Forsakringsmaklarna Syd KB Sweden France Cote D'Afrique France France Fenwick Limited United Kingdom - 18 - Frank B. Hall & Co. (N.S.W.) Pty. Ltd. Australia Frank B. Hall & Co. Holdings (N.Z.) Limited New Zealand Frank B. Hall (Ireland) Limited Ireland Frank B. Hall (Reinsurance) France S.A. France Frank B. Hall (Underwriting Managers) Ltd. Bermuda Frank B. Hall (United Kingdom) Limited United Kingdom Frank B. Hall Insurance Brokers (S) Pte. Ltd. Singapore Frank B. Hall Re (Latin America) Inc. Panama FS Insurance Agency of California, Inc. California FS Insurance Agency, Inc. Ohio G&C Venezuela. S.A. Venezuela Galaher Settlements Company of New York, Inc. New York Garantie Europeene de Publication S.A. France Gardner Mountain Financial Services Ltd. United Kingdom Gardner Mountain Trustees Ltd. United Kingdom Gateway Alternatives, L.L.C. Delaware Gateway Insurance Company, Ltd. Bermuda General Service Srl Italy Gestas (1995) Inc. Canada Giesy, Greer & Gunn, Inc. Oregon Gil y Carvajal - Consultores, Lda. Portugal Gil y Carvajal Chile Ltda., Corredores de Seguros Chile Gil y Carvajal Consultores, S.A. Spain Gil y Carvajal Correduria de Seguros, SA Spain Gil y Carvajal Global Services S.A. Spain Gil y Carvajal Iberoamerica, S.A. Spain Gil y Carvajal Iberoamerica, SA Peru Gil y Carvajal S.A. Corredores de Seguros Colombia Gil y Carvajal Seguros, SA Spain Gil y Carvajal UK Ltd. United Kingdom Gil y Carvajal, S.A. Vida y Pensiones Spain Gilman Swire Willis Ltd. Hong Kong Gilroy Broome & Scrini (Trustees) Ltd. United Kingdom Global Entertainment & Media Insurance Agency, L.L.C. Illinois Go Pro Agency, Inc. of San Antonio Texas Go Pro Life Agency, Inc. of San Antonio Texas Go Pro Underwriting Managers of Virginia, Inc. Virginia Go Pro Underwriting Managers, Inc. Texas Godwins Limited United Kingdom Gotuaco del Rosario & Associates, Inc. Philippines Gras Savoye Rumania Romania Greville Baylis Parry & Associates Ltd. United Kingdom Greyfriars Marketing Services Pty Ltd. Australia Group Le Blanc de Nicolay SA France Groupement Europeen d'Assurances Generales France Growth Enterprises Ltd. Bahamas Guardrisk Insurance Company Limited South Africa - 19 - Guernsey Nominees (Pty) Limited Guernsey Gwelforth Ltd. United Kingdom H.A.R.B. Ltd. United Kingdom H.L. Puckle (Underwriting) Ltd. United Kingdom Hadenmead Limited United Kingdom Halford, Shead & Co. Limited United Kingdom Hall & Company (Overseas) Ltd. United Kingdom Hall & Company (UK) Ltd. United Kingdom Hamburger Gesellschaft zur Forderung des Versicherungswesen mbH Germany Hamburger Ruckversicherungs - Agentur GmbH Germany Hans R Schmidt Gmbh Germany Hanse Assekuranz-Vermittlungs GmbH Germany Hanseatische Assekuranz Kontor GmbH Germany Hanseatische Assekuranz Vermittlungs AG Germany Harbour Pacific Holdings Pty., Ltd. Australia Harbour Pacific Underwriting Management Pty Limited Australia Heath Hudig Langeveldt Sdn. Bhd. Malaysia Heerkens Thijsen Groep bv Netherlands Heerkens Thijssen & Co. bv Netherlands Heerkens Thijssen Caviet vof Netherlands Heiland Versicherungs-Service GmbH Germany Heli Agency Korea Hemisphere Marine & General Assurance Ltd. Bermuda HHL (Taiwan) Ltd. Taiwan HHL Reinsurance Brokers Inc. Philippines HHL Reinsurance Brokers Pte. Ltd. Singapore HHL Reinsurance Services Sdn. Bhd. Malaysia Highplain Limited United Kingdom Hobbs & Partners Ltd. United Kingdom Hogg Automotive Insurance Services Ltd. United Kingdom Hogg Group Overseas Ltd. United Kingdom Hogg Group plc United Kingdom Hogg Robinson & Gardner Mountain (Insurance) Ltd. United Kingdom Hogg Robinson (Nigeria) Unlimited Nigeria Hogg Robinson (Scotland) Ltd. Scotland Hogg Robinson Holdings (Pty) Ltd. South Africa Hogg Robinson North America, Inc. Delaware Hogg Robinson Services (Kenya) Ltd. Kenya Horwitch Insurance Agency, Inc. Illinois Howden Cover Hispanoamericana (Bermuda) Ltd. Bermuda Howden Dastur Reinsurance Brokers (Private) Ltd. India Howden Management & Data Services Ltd. United Kingdom Howden Sterling Asia Limited Hong Kong Howell King & Company Ltd. United Kingdom HRGM 1989 Ltd. United Kingdom HRGM Cargo Ltd. United Kingdom HRGM Ltd. United Kingdom - 20 - HRGM Management Services Ltd. United Kingdom HRGM Marine Ltd. United Kingdom HRS EDV Systemhaus GmbH Germany Hudig Langeveldt Pte Ltd. Singapore Hudig-Langeveldt (Pensioenbureau) bv Netherlands Hudig-Langeveldt (Reinsurance) bv Netherlands Hudig-Langeveldt Coens N.V. Belgium Hudig-Langeveldt Janson Elffers B.V. Netherlands Hudig-Langeveldt Kyoritsu Ltd. Japan Hudig-Langeveldt Makelaardij in Assurantien bv Netherlands Hudig-Langeveldt Saat B.V. Netherlands Human Relations Strategies Limited United Kingdom Huntington T. Block Insurance Agency, Inc. District of Columbia Huntington T. Block Insurance Agency, Inc. Ohio Hydrocarbon Risk Consultants Ltd. United Kingdom Ian H. Graham, Inc. California Ibex Managers Ltd. Kenya ICR-Riass Srl Italy Impact Forecasting Limited United Kingdom Impact Forecasting, L.L.C. Illinois Inchcape Continental Insurance Holdings (Eastern Europe) Ltd. Cyprus Inchcape Continental Insurance Holdings BV Netherlands Inchcape H.R. (Asia) Ltd. Hong Kong Inchcape Insurance Agencies (HK) LTd. Hong Kong Inchcape Insurance Agencies Pte Ltd. Singapore Inchcape Insurance Brokers (HK) Ltd. Hong Kong Inchcape Insurance Brokers (M) Sdn Bhd Malaysia Inchcape Insurance Holdings (HK) Ltd. Hong Kong Indemnity Insurance Services (Pty) Limited South Africa Industrie Assekuranz Gmbh Germany Inmobiliaria Ramos Rosada, S.A. de C.V. Mexico Innovative Services International Limited United Kingdom Innovative Services International, L.L.C. Delaware Insurance Administrators, Inc. Texas Insurance Brokers Service, Inc. Illinois Insurance Broking Services (Pty) Limited Guernsey Insurance Holdings Africa Ltd. Kenya Insurance Planning, Inc. Nevada Insurance Underwriters Agency, Inc. Arizona Integrated Risk Finance Limited United Kingdom Integrated Risk Finance Limited United Kingdom Integrated Risk Resources Limited United Kingdom Integrated Risk Resources Limited United Kingdom Interbroke Ltd. Switzerland Interglobe Management AG Switzerland Interims Limited United Kingdom International Aviation Brokers SA France - 21 - International Film Finance Limited Partnership United Kingdom International Industrial Insurances Limited Ireland International Insurance Brokers Ltd. Jamaica International Shipowners Mutual Insurance Association Limited Bermuda International Space Brokers Inc. Virginia Interocean (Italia) S.p.A. Italy Interocean Reinsurance Company, S.A. Panama Investment Facility Company Four One Two (Pty) Ltd. South Africa Investment Insurance International (Managers) Ltd. United Kingdom IOC Reinsurance Brokers Ltd. Canada IRBJ Disposition Company United Kingdom IRISC Claims Management Limited United Kingdom IRISC Specialty, Inc. Delaware IRM France S.A. France ISPP Purchasing Group Missouri ITA Insurance, Inc. Utah ItalCECAR S.p.A. Italy J H Minet (Insurance) Ltd. Ireland J H Minet (Inter-Gremium) AG Switzerland J H Minet Agencies Ltd. United Kingdom J H Minet Puerto Rico Inc. Puerto Rico J H Minet Reinsurance Services Limited United Kingdom J&H Risk Management Consultants GmbH Germany J&H Unison Holdings BV Netherlands J&H Vorsorgefonds Switzerland J.H. Blades & Co. (Agency), Inc. Texas J.H. Blades & Co., Inc. Texas J.H. Blades Insurance Services California J.S. Johnson & Co. Ltd. Bahamas James S. Kemper & Co. International Ltd. Bermuda Jaspers Industrie Assekuranz GmbH & Co. KG Germany Jauch & Hubener (KG) Austria Jauch & Hubener AG Switzerland Jauch & Hubener Beratungs AG Switzerland Jauch & Hubener CSFR Spol s.r.o. Slovak Republic Jauch & Hubener d.o.o. Slovak Republic Jauch & Hubener Ges. m.b.H. Austria Jauch & Hubener GmbH Austria Jauch & Hubener Kft. Hungary Jauch & Hubener Management betriebliche Versorgungen Germany Jauch & Hubener Personalvorsorgestiftung Switzerland Jauch & Hubener Reinsurance Inter. Services of North America New Jersey Jauch & Hubener Reinsurance Services Ltd. United Kingdom Jauch & Hubener Ruckversicherungs-Vermittlungsges mbH Germany Jauch & Hubener spol sro Czech Republic Jenner Fenton Slade (Special Risks) Limited United Kingdom Jenner Fenton Slade Group Limited United Kingdom - 22 - Jenner Fenton Slade Limited United Kingdom Jenner Fenton Slade Political Risks Limited United Kingdom Jenner Fenton Slade Reinsurance Services Limited United Kingdom Jenner Fenton Slade Surety and Specie Limited United Kingdom JFC Consulting, Inc. Delaware JFS (Sudamerica) SA Uruguay JFS Fenchurch Limited United Kingdom JFS Greig Fester Limited United Kingdom JML-Minet A.G. Switzerland John C. Lloyd Reinsurance Brokers Ltd. Australia John Scott Insurance Brokers Limited United Kingdom Johnson & Higgins PB Co. Thailand Johnson Rooney Welch, Inc. California Joost & Preuss GmbH Germany Joseph U. Moore, Inc. Florida Jover Prevision Correduria de Seguros Spain K & K Insurance Brokers, Inc. Canada Ontario K & K Insurance Group of Florida, Inc. Florida K & K Insurance Group, Inc. Indiana K & K Insurance Specialties, Inc. Indiana K & K of California Insurance Services, Inc. California K & K of Nevada, Inc. Nevada Karl Alt & Co. GmbH Germany Keeling Insurance Services California Keith Rayment & Associates Ltd. United Kingdom Keyaction Ltd. United Kingdom Kininmonth Limited Ireland Kroller Holdings B.V. Netherlands L & G LMX Limited United Kingdom L. & F. Longobardi SRL Italy La Societe de Courtage Meloche Alexander Inc. Canada Langeveldt de Vos b.v. Netherlands Langeveldt Groep B.V. Netherlands Laurila, Kauriala & Grig Ltd. Russia Laverack & Haines, Inc. New York LBN Asia International Reinsurance Brokers Pte Ltd. Singapore Le Blanc de Nicolay Asia Hong Kong Le Blanc de Nicolay Courtage SA France Le Blanc de Nicolay Iberica Spain Le Blanc de Nicolay Reassurances SA France Le Blanc de Nicolay Riassicurazione Italy Le Blanc de Nicolay Ruckversicherungsmakler GmbH Germany Le Blanc de Nicolay U.S., Inc. Delaware Le Blanc de Nicolay Zurich Switzerland Lescorp Limited United Kingdom Leslie & Godwin (C.I.) Limited Guernsey Leslie & Godwin (Reinsurance) Copenhagen A/S Denmark - 23 - Leslie & Godwin (Scotland) Limited Scotland Leslie & Godwin (U.K.) Limited United Kingdom Leslie & Godwin (WFG) Limited United Kingdom Leslie & Godwin Aviation Holdings Limited United Kingdom Leslie & Godwin Aviation Limited United Kingdom Leslie & Godwin Aviation Reinsurance Services Limited United Kingdom Leslie & Godwin AXL Limited United Kingdom Leslie & Godwin Financial Risks Limited United Kingdom Leslie & Godwin GmbH Germany Leslie & Godwin Group Limited United Kingdom Leslie & Godwin Insurance Brokers Ltd. Ontario Leslie & Godwin Insurance Brokers, Inc. New York Leslie & Godwin International Limited United Kingdom Leslie & Godwin Investments Limited United Kingdom Leslie & Godwin Limited United Kingdom Leslie & Godwin Marine Holdings Limited United Kingdom Leslie & Godwin Non-Marine Limited United Kingdom Leslie & Godwin Overseas Reinsurance Holdings Limited United Kingdom Leslie & Godwin Reinsurance Holdings Limited United Kingdom LIB Financial Services Ltd. United Kingdom LIB Ltd. United Kingdom Litigation Risk Management Limited United Kingdom London General Holdings Limited United Kingdom London General Insurance Company Limited United Kingdom Lowndes Lambert Insurance Limited Ireland Lumley Insurance Brokers (Pty) Ltd. South Africa Lumley JFS Limited United Kingdom Lumley Municipal & General Insurance Brokers (Natal) (Pty) Ltd. South Africa Lumley Municipal & General Insurance Brokers (Orange Free State) (Pty) Ltd. South Africa Lumley Municipal & General Insurance Brokers (Pty) Ltd. South Africa Lumley Municipal & General Insurance Brokers (Transvaal) (Pty) Ltd. South Africa Lumley Petro-Energy Insurance Brokers (Pty) Ltd. South Africa M Y A Ltda. Asesorias Integrales Colombia M Y A Salud Ltda Agentes De Medicina Prepagada Colombia M.I. B. Healthcare Services (Pty) Limited South Africa M.I.B. Aidec (Pty) Limited South Africa M.I.B. Border (Pty) Limited South Africa M.I.B. Employee Benefits (Pty) Limited South Africa M.I.B. Group (Pty) Limited South Africa M.I.B. House Investment (Pty) Limited South Africa M.I.B. Property Holdings (Pty) Limited South Africa M.I.B. Reinsurance Brokers (Namibia) (Pty) Limited Namibia M.I.B. Reinsurance Brokers (Pty) Limited South Africa MAB Insurance Services Ltd. United Kingdom MacDonagh & Boland Group Limited Ireland MacDonagh Boland Beech Hill Limited Ireland MacDonagh Boland Crotty MacRedmond Limited Ireland - 24 - MacDonagh Boland Cullen Duggan Limited Ireland MacDonagh Boland Foley Woollam Limited Ireland Macey Clifton Walters Limited United Kingdom Macey Williams Insurance Services Limited United Kingdom Macey Williams Limited United Kingdom Madison Intermediaries Pty. Limited Australia Mahamy Company plc (Aon Iran) Iran Management and Regulator Services, Inc. New York Mansell Investments Ltd. Gibraltar Mansfeld, Hubener & Partners Gmbh Germany Marinaro Dundas SA Argentina Marinaro Dundas SA Uruguay Maritime Underwriters, Ltd. Bermuda Martec Australia Pty Limited Australia Martec Finance Pty Limited Australia Martin Boyer Company, Inc. Illinois Marvyn Hughes International Ltd. United Kingdom Max Mattiessen AB Sweden MC Brokers Co. Ltd. Thailand Media/Professional Insurance Agency Limited United Kingdom Media/Professional Insurance Agency, Inc. Missouri Mediterranean Insurance Brokers Ltd. Malta Mediterranean Insurance Training Centre Malta MEIE Argentina SA Argentina MIB UK (Holdings) Ltd. United Kingdom Mibsa Investments (Namibia) (Pty) Limited Namibia Minahan Reinsurance Management Limited United Kingdom Minerva Holdings (Pvt) Limited Zimbabwe Minet (Taiwan) Ltd. Taiwan Minet a.s. Czech Republic Minet Africa Holdings Ltd. United Kingdom Minet Airport Insurance Services Ltd. United Kingdom Minet AS Norway Minet Australia Holdings Ltd. Australia Minet Australia Ltd. Australia Minet Benefit Services (International) Ltd. Guernsey Minet Botswana (Pty) Ltd. Botswana Minet Burn & Roche Pty. Ltd. Australia Minet China Ltd. Hong Kong Minet Commercial Ltd. United Kingdom Minet Consultancy Services Ltd. (Kenya) Kenya Minet Consultancy Services Ltd. (UK) United Kingdom Minet Denison Financial Services Ltd. United Kingdom Minet Denison Insurance Services Ltd. United Kingdom Minet Direct Marketing Services Ltd. United Kingdom Minet Duncan Insurance Brokers Ltd. United Kingdom Minet Employees' Trust Company Ltd. United Kingdom - 25 - Minet Europe Holdings Ltd. United Kingdom Minet Financial Services Ltd. United Kingdom Minet Firstbrokers Oy Finland Minet Group United Kingdom Minet Group Holdings United Kingdom Minet Group Services Ltd. United Kingdom Minet Holdings Guernsey Limited Guernsey Minet Holdings Inc. New York Minet Hong Kong Ltd. Hong Kong Minet ICDC Insurance Brokers Ltd. Kenya Minet Inc. (Canada) Canada Minet Ins. Brokers (Holdings) (NZ) Ltd. New Zealand Minet Ins. Brokers (Zimbabwe) (Pvt) Ltd. Zimbabwe Minet Insurance Brokers (Holdings) Ltd. United Kingdom Minet Insurance Brokers (Thailand) Ltd Thailand Minet Insurance Brokers (Uganda) Limited Uganda Minet Insurance Services (UK) Ltd. United Kingdom Minet International (Holdings) Ltd. United Kingdom Minet Kingsway (Lesotho) (Pty) Ltd. Lesotho Minet Limited Uganda Minet Limited (Bermuda) Bermuda Minet Lindgren i Helsingborg Sweden Minet Ltd. United Kingdom Minet Members Agency Holdings Ltd. United Kingdom Minet New Zealand Ltd. New Zealand Minet Nigeria Nigeria Minet Nominees Ltd. United Kingdom Minet Professional Services (Europe) Ltd. United Kingdom Minet Professional Services Ltd. (Australia) Australia Minet Professional Services Ltd. (UK) United Kingdom Minet Properties (1989) Ltd. United Kingdom Minet Properties Ltd. United Kingdom Minet RAIA Insurance Brokers Limited Hong Kong Minet Re (Bermuda) Limited Bermuda Minet Re GmbH Germany Minet Re International Ltd. United Kingdom Minet Re North America, Inc. Georgia Minet Risk Services (Barbados) Ltd. Barbados Minet Risk Services (Bermuda) Ltd. Bermuda Minet Risk Services (Guernsey) Ltd. Guernsey Minet Risk Services (Jersey) Ltd. Jersey, Channel Islands Minet Risk Services (Singapore) Ltd. Singapore Minet S.A. de C.V. Mexico Minet Singapore Pte. Ltd. Singapore Minet Trans Risk Services Ltd. United Kingdom Minet Trustees Ltd. United Kingdom Minet West Africa Ltd. United Kingdom - 26 - Minet Zambia Limited Zambia Minet Zimbabwe (Pvt) Ltd. Zimbabwe Minken Properties Ltd. Kenya MLH International Inc. Ontario Moes & Caviet Last bv Netherlands Morency, Weible & Sapa, Inc. Illinois Motorplan Limited United Kingdom Mt. Franklin General Agency Texas MTF Insurance Agency, Inc. Texas Muirfield Underwriters, Ltd. Delaware N.V. Verzekering Maatschappij Van 1890 Netherlands National Product Care Company Illinois National Transportation Adjusters, Inc. Nebraska NB Life Agents, Inc. New York Needler Heath (UK) Ltd. United Kingdom Needler Heath Dixon Ltd. United Kingdom Netherlands Construction Insurance Services Ltd United Kingdom New Co. #1 L.L.C. Delaware Nicholson Chamberlain Colls Australia Limited Australia Nicholson Chamberlain Colls Group Limited United Kingdom Nicholson Chamberlain Colls Marine Limited United Kingdom Nicholson Jenner Leslie Group Limited United Kingdom Nicholson Leslie (North America) Limited United Kingdom Nicholson Leslie Accident & Health Limited United Kingdom Nicholson Leslie Agencies Limited United Kingdom Nicholson Leslie Asia Pte Ltd Singapore Nicholson Leslie Australia Holdings Limited Australia Nicholson Leslie Aviation Limited United Kingdom Nicholson Leslie Aviation Reinsurance Brokers United Kingdom Nicholson Leslie BankAssure Limited United Kingdom Nicholson Leslie Bankscope Insurance Services Limited United Kingdom Nicholson Leslie Bankscope Marine Insurance Consultants United Kingdom Nicholson Leslie Energy Resources Limited United Kingdom Nicholson Leslie Financial Institutions Limited United Kingdom Nicholson Leslie International (Reinsurance Brokers) Limited United Kingdom Nicholson Leslie International Limited United Kingdom Nicholson Leslie Italia S.P.A. Italy Nicholson Leslie Limited United Kingdom Nicholson Leslie Management Services Limited United Kingdom Nicholson Leslie Marine Limited United Kingdom Nicholson Leslie Nederland Reinsurance brokers cv Netherlands Nicholson Leslie Non-Marine Reinsurance Brokers Limited United Kingdom Nicholson Leslie North American Reinsurance Brokers, Limited United Kingdom Nicholson Leslie Property Limited United Kingdom Nicholson Leslie Special Risks Limited United Kingdom Nicholson Stewart-Brown Limited United Kingdom Nikols Chile SA Chile - 27 - Nikols Galicia SA Spain Nikols Iberia SA Spain Nikols International Ltd. Brit. Virgin Islands Nikols Portugal Ltda Portugal Nikols SA Switzerland Nikols Segiber Ltda Portugal Nissho Iwai (Japan) Japan Nixon Constable & Company Ltd. United Kingdom Norsk Forsikringsservice AS Norway North Derbyshire Finance Company Limited, The United Kingdom Norwegian Insurance Partners A/S Norway Norwegian Insurance Partners as (Non-Marine) Norway NRC Reinsurance Company Ltd. Bermuda nv Insurance Louis Delhaize (en abrege INSURDEL) Belgium Ohio Cap Insurance Company, Inc. Bermuda OHM Insurance Agency, Inc. Ohio OHM Services of Texas, Inc. Texas Ohrinsoo Agency Korea Olarescu & B. I. Davis Asesores y Corredores de Seguros S.A. Peru Old ARS LRA Corp. Texas Old S&C of PA, Inc. Pennsylvania Olympic Financial Holding Corporation Washington Olympic Health Management Services, Inc. Washington Olympic Health Management Systems, Inc. Washington Orobio Mees Herman B.V. Netherlands OUM & Associates of New York, A Corporation New York OUM & Associates of Ohio, A Corporation Ohio OWA Hoken (UK) Limited United Kingdom OWA Insurance Services Austria Gesellschaft mbH Austria OWA Insurance Services Austria GmbH & Co. KG Austria P I Insurance Brokers (Pty) Limited South Africa P.I. Consultants Ltd. Hong Kong P.T. Alexander Lippo Indonesia Indonesia Pacific Wholesale Insurance Brokers Pty Limited Australia Paladin Reinsurance Corporation New York Pandimar Consultants, Inc. New York Paribas Assurantien B.V. Netherlands Parker Risk Management (Barbados) Ltd. Barbados Parker Risk Management (Bermuda) Ltd. Bermuda Parker Risk Management (Cayman) Ltd. Cayman Islands Parker Risk Management (Guernsey) Ltd. Guernsey Parker Risk Management (S) Pte Ltd Singapore Pat Ryan & Associates, B.V. Netherlands Paul J.F. Schultz oHG Germany PBG Pensions Beratungs-Gesellschaft mbH (Partnership) Germany Pernas HHL Insurance Brokers Sdn Bhd Malaysia Pernas HHL Reinsurance Brokers Sdn. Bhd. Malaysia - 28 - PHH Insurance Associates Corporation Maryland Pinerich Limited Ireland PL Ferrari & Co International Srl Italy Plaire SA France Poland Puckle Insurance Brokers Ltd. United Kingdom Premier Auto Finance, Inc. Delaware Premier Auto Finance, L.P. Illinois Premier Receivables Purchase Facility, LLC Delaware Prescot Insurance Holdings Ltd. United Kingdom Presidium Companies, Inc. Delaware Presidium Holdings, Inc. Delaware Presidium, Inc. Delaware Private Client Trustees Ltd. Ireland Product Care, Inc. Illinois Produgar Portugal Professional & General Ins. Company (Bermuda) Ltd. Bermuda Professional Liability Services Limited United Kingdom Professional Sports Insurance Co. Ltd. Bermuda Progressive Ideal Sdn Bhd. Malaysia Promotora Zircon S.A. de C.V. Mexico Property Owners Database Limited United Kingdom Proruck Ruckversicherungs - AG Germany PROVIA Gesselschaft fur betriebliche Risicoanalyse mbH Germany Provider Services, Ltd. Bermuda PT RNJ Ratna Nusa Jaya Indonesia PYXYS-Gestion de Flottes SA France R&M Reinsurance Intermediaries Ltd. Trinidad R.E.I. (NSW) Insurance Brokers Pty. Ltd. Australia R.E.I.A. Insurance Brokers Pty. Ltd. Australia R.G. Reis (Management Services) Ltd. United Kingdom R.G. Reis Pension Fund Trustees Ltd. United Kingdom Ralph S. Harris (Insurance) Pty. Ltd. Zimbabwe RAMRO y Asociados, S.C. Mexico Rath & Strong, Inc. Massachusetts RBH General Agencies (Canada) Inc. Quebec RDG Resource Dealer Group (Canada) Inc. Canada RDG Securities Corporation Illinois Reed Stenhouse Asia Pacific Ltd. Scotland Reed Stenhouse Europe Holdings B.V. Netherlands Reed Stenhouse Gmbh Germany Reed Stenhouse Netherlands B.V. Netherlands Reed Stenhouse Underwriting Management Ltd. Scotland REISA Insurance Brokers Pty. Ltd. Australia REIV Insurance Brokers (Pty) Ltd. Australia Reserv Corporation Pennsylvania Resource Acquisition Corporation Delaware Resource Dealer Group of Alabama, Inc. Alabama - 29 - Resource Dealer Group of Arizona Insurance Services, Inc. Arizona Resource Dealer Group of Indiana, Inc. Indiana Resource Dealer Group of Kentucky, Inc. Kentucky Resource Dealer Group of Massachusetts Insurance Agency, Inc. Massachusetts Resource Dealer Group of Mississippi, P.A. Mississippi Resource Dealer Group of Nevada, Inc. Nevada Resource Dealer Group of New Mexico, Inc. New Mexico Resource Dealer Group of Ohio Agency, Inc. Ohio Resource Dealer Group of Texas, Inc. Texas Resource Dealer Group, Inc. Illinois Resource Dealer Group, Inc. Mississippi Resource Dealer Insurance Services of California, Inc. California Resource Financial Corporation Delaware Resource Life Insurance Company Illinois Resource Training, Inc. Illinois Revasa S.p.A. Italy RHH Surety & Guarantee Limited United Kingdom RIP Services Limited Guernsey Risk Funding Services (Pty) Limited South Africa Risk Management Consultants Ltd. United Kingdom Risk Management Consultants of Canada Limited Canada RiskNet Worldwide, Inc. Oregon Risque et Finance SA France Rockford Holding, Inc. Delaware Rockford Life Insurance Company Arizona Rollins Heath (Japan) Ltd. Japan Rollins Heath Korea Co. Ltd. Korea Rollins Hudig Hall & Co. (N.S.W.) Pty. Ltd. Australia Rollins Hudig Hall (Hong Kong) Ltd. Hong Kong Rollins Hudig Hall (Nederland) Limited United Kingdom Rollins Hudig Hall (Scandinavia) A/S Norway Rollins Hudig Hall Associates B.V. Netherlands Rollins Hudig Hall Finance bv Netherlands Rollins Hudig Hall Mexico Agente De Seguros Y De Fianzas, S.A. De C.V. Mexico Rollins Hudig Hall Netherlands b.v. Netherlands Rollins Hudig Hall Services Limited United Kingdom Rollins Hudig Hall Sweden AB Sweden Rollins Hudig Hall Versicherungsmakler Gesellschaft m.b.H. Austria Ropeco Pty Ltd. Australia Rostron Hancock Ltd. United Kingdom Roundwise Limited United Kingdom Ruben Entertainment Insurance Services United Kingdom RUMEX VermogensverwaltungsGmbH Germany Ryan Insurance Group France S.A.R.L. France Ryan Warranty Services Canada, Inc. Canada Ryan Warranty Services Quebec, Inc. Ontario Rydata Limited United Kingdom - 30 - S A Credit & Insurance Brokers (Pty) Limited South Africa S W Holdings (SA) (Pty) Limited South Africa S W Insurance Brokers (Pty) Limited South Africa S. Mark Brockinton & Associates of Texas, Inc. Texas S.A.B. S.p.A. Italy Saat Van Marwijk Beheer bv Netherlands Saat Van Marwijk Noordwijk B.V. Netherlands Salud Centurion Ltda. Agente de Medicina Prepagada Colombia Sang Woon Agency Korea Santos da Cunha, Abreu & Associados, Lda. Portugal SASE France Societe Des Assures Du Sud Set France Savoy Insurance Brokers Ltd. United Kingdom Saxonbeech Ltd. United Kingdom Scarborough & Company, Inc. Delaware Sceptre Agency, Inc. Texas Schinasi Athesina Italy Schinasi Insurance Broker Italy Schinasi Veneto Italy Scottish & Commonwealth Insurance Co. Ltd. Bermuda Seascope Cargo Insurance Services Limited United Kingdom Seascope Insurance Holdings Limited United Kingdom Seascope Marine Limited United Kingdom Securities Guarantee Company Limited United Kingdom Sedgwick Brichetto Argentina SA Argentina Sedgwick Corredores de Reaseguros Ltda Colombia Sedgwick Correduria de Seguros SA Spain Seguros Inchcape Macau Lda. Macau Select Direct Limited Scotland Select Healthcare Insurance Services California Service Protection, Inc. Illinois Service Saver, Incorporated Florida ServicePlan of Florida, Inc. Florida ServicePlan, Inc. Illinois Servicios A.B.S., S.A. Mexico Servicios Inmoboliarios Guadalajara, S.C. Mexico Servicios Y Garantias Ryan S.L. Spain SGAP SA France SGL Logistica Srl Italy Sherwood Insurance Agency, Inc. of New York New York Sherwood Insurance Services California Sherwood Insurance Services of Washington, Inc. Washington SHL Pacific Regional Holdings Inc. California Shoreline Insurance Agency, Inc. Rhode Island Simco Insurance Brokers Pte Singapore SIS Services of New York, Inc. New York SLE Worldwide Australia Pty Limited Australia SLE Worldwide Limited United Kingdom - 31 - SLE Worldwide Mexico, Agente de Seguros, S.A. de C.V. Mexico SLE Worldwide, Inc. Delaware SN Re SA (Brichetto Sudamericana) Argentina Societe Centrale de Courtage d'Assurances France Societe Europeenne d'Etudes et de Courtages - SEEC SA France Sodarcan Inc. Canada Sodartec Inc. Canada Soriero & Company, Inc. Texas Sorim (1987) Ltd. United Kingdom Sorim Services (1987) Ltd. United Kingdom Sothanasiri Co. Ltd. Thailand Southern Cross Underwriting Pty. Limited Australia Special Risk Resources Insurance Agency, Inc. California Special Risk Services Limited United Kingdom Special Risk Services, Inc. New York Specialty Benefits, Inc. Indiana Spicafab Limited United Kingdom Steetley Leslie & Godwin Limited Guernsey Stenhouse (South East Asia) Pte. Ltd. Singapore Stenhouse Marketing Services (London) Ltd. United Kingdom Stenhouse Marketing Services, Inc. Delaware Sterling Life Insurance Company Arizona Stichting Employee Fund Aon Netherlands Stichting Werknemerscertificaten HLG Netherlands Structured Compensation Ltd. United Kingdom Sumner & McMillan United Kingdom Sumner & McMillan Limited (Ireland) Ireland Superannuation Fund (CICNZ) Limited New Zealand Superannuation Management Nominees Ltd. New Zealand Surety & Guarantee Consultants Limited United Kingdom Surveyors Claims Services Ltd. United Kingdom Suys & Janssens SA Belgium Swaziland Construction Insurance Brokers (Pty) Ltd. Swaziland Swaziland Corporate Risk Management (Pty) Ltd. Swaziland Swaziland Employee Benefit Consultants (Pty) Ltd. Swaziland Swaziland Insurance Brokers (Pty) Ltd. Swaziland Swaziland Reinsurance Brokers (Pty) Ltd. Swaziland Swett & Crawford California Swett & Crawford Ins. Agency of Massachusetts, Inc. Massachusetts Swett & Crawford of Arizona, Inc. Arizona Swett & Crawford of Colorado, Inc. Colorado Swett & Crawford of Connecticut, Inc. Connecticut Swett & Crawford of Hawaii, Inc. Hawaii Swett & Crawford of Idaho, Inc. Idaho Swett & Crawford of Maine, Inc. Maine Swett & Crawford of Nevada, Inc. Nevada Swett & Crawford of Ohio, Inc. Ohio - 32 - Swett & Crawford of Texas, Inc. Texas Swett Insurance Managers of California, Inc. California Swett Insurance Managers of Pennsylvania, Inc. Pennsylvania T M Insurance Brokers (Pty) Limited South Africa Tabma-Hall Insurance Services Pty. Limited Australia Tecsefin Centroamerica, S.A. Panama Tecsefin Guatemala Panama Tecsefin Salvador Panama Tecsefin, S.A. Colombia Ted Harty & Associates, Inc. Georgia Terbroker srl Italy Tethercrest Ltd. United Kingdom Texecur Versicherungs Vermittlungs GmbH Germany The Alexander Consulting Group Ltd. Canada The Alexander Consulting Group Ltd. New Zealand The Alexander Consulting Group Ltd. Scotland The Credit Insurance Association France SA France The Credit Insurance Association Ltd. United Kingdom The National Senior Membership Group Association Washington The Olympic Senior Membership Group, Inc. Washington The Swett & Crawford Group, Inc. California Tholwana MIB Pty Limited South Africa Trans Caribbean Insurance Services, Inc. American Samoa Travellers Club International Ltd. United Kingdom Trent Insurance Company Ltd. Bermuda TREV Properties Corporation Delaware TTF Insurance Services Ltd. United Kingdom Underwriters Marine Services Limited United Kingdom Underwriters Marine Services of Texas, Inc. Texas Underwriters Marine Services, Inc. Louisiana Union Centurion, S.A.de C.V. Mexico Unison Consultants Europe E.E.I.G. Belgium Unison GEIE Belgium Unison SA Belgium Unison Technical Services Belgium United Car & Van Rental Ltd. United Kingdom United Iranian Insurance Services plc Teheran Iran Uzbeksugurta Howden Lihou Republic of Uzbekistan Valex Insurance Agency, Inc. Texas Varity Risk Management Services Ltd. United Kingdom Vassal Properties (Pty) Ltd. Botswana Verband der Jauch & Hubener Unterstutzungskassen Germany Vesselforward Ltd. United Kingdom Virginia Surety Company, Inc. Illinois VOL Properties Corporation Delaware Wackerbarth Hardman (Holdings) Limited United Kingdom Wackerbarth Holdings Limited United Kingdom - 33 - Wackerbarth International Holdings Bv Netherlands WACUS Kreditversicherungsmakler GmbH Austria WACUS Magyarorszag Hitelbitzositasi Tanacsado es Kozvetito Kft. Hungary WAS Betriebsfuhrungs-GmbH Germany WAVECA CA Venezuela Wed. Jacobs & Brom bv Netherlands Wexford Underwriting Managers, Inc. Delaware Wilfredo Armstrong S.A. Argentina William Gallagher Associates of California, Inc. California William Gallagher Associates of Maryland, Inc. Maryland William Gallagher Associates of New Jersey, Inc. New Jersey Willis Corroon (PVT) Ltd. Zimbabwe Winchester Financial Services (Pty) Limited South Africa Windhock Insurance Brokers (Pty) Limited Namibia WMD Underwriting Agencies Ltd. United Kingdom World Insurance Network Ltd. Cardiff World Shipping Services Ltd Italy Worldwide Insurance Network Limited United Kingdom Worldwide Integrated Services Company Texas Wyrm Systems Pty Limited South Africa XB-Lumley Insurance Brokers (Pty) Ltd. South Africa Y&D Properties Ltd. Canada Yin Hwa Insurance Agent Co Ltd. Taiwan ZAO Aon Insurance Brokers Russia Zimbabwe Risk Managers (Pvt) Ltd. Zimbabwe
- 34 - EX-23 9 CONSENT OF INDEPENDENT AUDITORS Exhibit 23 CONSENT OF ERNST & YOUNG LLP, INDEPENDENT AUDITORS We consent to the incorporation by reference in this Annual Report (Form 10-K) of Aon Corporation of our report dated February 8, 2000, included in the 1999 Annual Report to Stockholders of Aon Corporation. Our audits also included the financial statement schedules of Aon Corporation listed in Item 14(a). These schedules are the responsibility of the Company's management. Our responsibility is to express an opinion based on our audits. In our opinion, with respect to which the date is February 8, 2000, the financial statement schedules referred to above, when considered in relation to the basic financial statements taken as a whole, present fairly in all material respects the information set forth therein. We also consent to the incorporation by reference in the Registration Statements of Aon Corporation described in the following table of our report dated February 8, 2000, with respect to the consolidated financial statements incorporated herein by reference, and our report, included in the preceding paragraph with respect to the financial statement schedules included in this Annual Report (Form 10-K) of Aon Corporation. Registration Statement ---------------------- Form Number Purpose ---- ------ ------- S-8 33-27984 Pertaining to Aon's savings plan S-8 33-42575 Pertaining to Aon's stock award plan and stock option plan S-8 33-59037 Pertaining to Aon's stock award plan and stock option plan S-4 333-21237 Offer to exchange Capital Securities of Aon Capital A S-3 333-50607 Pertaining to the registration of 369,000 shares of common stock S-8 333-55773 Pertaining to Aon's employee stock purchase plan S-3 333-78723 Pertaining to the registration of debt securities, preferred stock and common stock ERNST & YOUNG LLP Chicago, Illinois March 21, 2000 EX-27 10 FDS -- 5
5 This schedule contains summary financial information extracted from Consolidated Statements of Financial Position and Consolidated Statements of Income and is qualified in its entirety by reference to such financial statements. 1,000,000 USD 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 1.0 3,199 3,071 7,440 94 0 0 1,537 821 21,132 0 1,011 850 0 259 2,792 21,132 0 7,070 0 0 6,435 0 105 635 243 392 0 0 0 352 1.35 1.33 Includes short-term investments. Includes fixed maturities and equity securities at fair value. Not applicable based on current reporting format. Represents notes payable. Redeemable preferred stock. Includes Company-obligated Mandatorily Redeemable Preferred Capital Securities of Subsidiary Trust Holding Solely the Company's Junior Subordinated Debentures. Adjusted to reflect three-for-two stock split effective May 17, 1999. Represents total expenses.
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