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<SEC-DOCUMENT>0000948572-01-000011.txt : 20010328
<SEC-HEADER>0000948572-01-000011.hdr.sgml : 20010328
ACCESSION NUMBER: 0000948572-01-000011
CONFORMED SUBMISSION TYPE: 10-K
PUBLIC DOCUMENT COUNT: 7
CONFORMED PERIOD OF REPORT: 20001231
FILED AS OF DATE: 20010327
FILER:
COMPANY DATA:
COMPANY CONFORMED NAME: AON CORP
CENTRAL INDEX KEY: 0000315293
STANDARD INDUSTRIAL CLASSIFICATION: ACCIDENT & HEALTH INSURANCE [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: 1579555
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
</SEC-HEADER>
<DOCUMENT>
<TYPE>10-K
<SEQUENCE>1
<FILENAME>0001.txt
<DESCRIPTION>AON CORPORATION
<TEXT>
- --------------------------------------------------------------------------------
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, 2000
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 and Frankfurt.
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 21, 2001 was $7,688,275,227.
Number of shares of $1.00 par value Common Stock outstanding as of February 21,
2001 was 261,338,989.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE:
Annual Report to Stockholders of the Registrant for the Year 2000 (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 20, 2001
of the Registrant (Part III)
- --------------------------------------------------------------------------------
<PAGE>
PART I
ITEM 1. BUSINESS.
The Registrant is a holding company whose operating subsidiaries carry on
business in three distinct operating 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 Registrant acquired, among other companies and businesses, Actuarial
Sciences Associates, Inc. (ASA), an employee benefits and consulting firm, and
Horizon Consulting Group, Inc., a firm specializing in commercial policyholder
claim consulting services, in 2000. In February 2001, Aon announced that it had
entered into a definitive agreement to acquire ASI Solutions Incorporated (ASI),
a worldwide provider of human resources administration and compensation
consulting services. The transaction involves an exchange of Aon common stock
and is subject to regulatory approval and ASI shareholder approval.
The Insurance Brokerage and Other Services segment consists principally
of Aon's retail brokerage, reinsurance, wholesale and specialty brokerage and
other related services such as managing underwriting and claims and financing
services. 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 Limited; Cananwill, Inc.; and Premier
Auto Finance, Inc.
The Consulting segment provides a range of services utilizing four
practice groups: employee benefits, compensation, management consulting and
employment practices outsourcing. These services are provided by Aon
Consulting Worldwide, Inc. which is also a subsidiary of Aon Group.
Aon's Insurance Underwriting segment is comprised of supplemental life,
accident and health insurance, and extended warranty and casualty 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 casualty insurance products.
On November 2, 2000, the Registrant announced a business transformation
plan, to be undertaken from November 2000 through the next fiscal year. The
transformation plan will affect each operating segment; however, most changes
will affect the largest operating segment, Insurance Brokerage and Other
Services, and will occur in the major countries of operation, the U.S. and the
United Kingdom.
The Registrant hereby incorporates by reference "Business Transformation
Plan" on page 17 of the Annual Report to Stockholders of the Registrant for the
Year 2000 ("Annual Report"), as well as pages 6 through 15, 20 through 24, and
pages 54, 55 and 59 of the Annual Report.
COMPETITION AND INDUSTRY POSITION
(1) INSURANCE BROKERAGE AND OTHER SERVICES
Aon Group, Inc; Aon Risk Services Companies, Inc.; Aon Limited (U.K.); Aon
Holdings International bv; Aon Services Group, Inc.; Aon Re Worldwide, Inc.;
Cananwill, Inc.; and Premier Auto Finance, Inc.
Aon Group affiliated companies conduct the Registrant's brokerage and
consulting operations, and have 550 offices around the world in 120 countries.
In 2000, those companies employed nearly 40,000 professionals and support
personnel to serve the diverse needs of clients.
Aon Group's retail brokerage companies 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. Those companies provide risk management services, including
insurance placement and claims, loss control and administrative services as well
as specialty underwriting solutions and customized products and services.
They have also developed certain specialist areas such as marine, aviation,
directors and officers liability, financial institutions, construction, energy,
media and entertainment. In 2000, investments were made in professional talent,
technology, process improvement and the development of specialized products and
services to meet the evolving needs of clients. Those companies operate through
offices located in North America, Europe, Latin America, Africa, Australia and
Asia.
Aon Group's companies also address the highly specialized product
development, consulting and administrative risk management needs of professional
groups, service businesses, governments, healthcare providers and commercial
organizations. They also provides underwriting management skills, claims and
risk management expertise, and third-party administration services to insurance
companies, and insurance brokerage services for individuals. They market and
broker both the primary and reinsurance risks of these programs. For
individuals, associations and businesses, affinity products for professional
liability, life, disability income and personal lines are provided.
Aon's reinsurance brokerage activities are organized under Aon Re in the
United States and Aon Limited in the United Kingdom, constituting the largest
reinsurance broker in the world and offering reinsurance, analytical services
and alternative risk financing vehicles. The companies serve the alternative
market with reinsurance placement, alternative risk services, captive management
services and catastrophe information forecasting.
Premium-related financing services are available to clients of Aon Group
and other independent organizations through Cananwill. Certain retail automotive
organizations have also been provided a service which purchases a select amount
of their auto financing and leasing contracts from individuals and sells them to
unaffiliated parties through companies associated with Premier Auto Finance,
Inc., which then continue the management of collections on the contracts and
provide other related services. After March 27, 2001, contract purchasing by
companies associated with Premier Auto Finance, Inc. will no longer be generally
available, but service will continue on existing contracts with current clients.
(2) CONSULTING
Aon Consulting Worldwide
Aon Consulting Worldwide affiliated companies 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. The year 2000 acquisition of ASA, an employee benefits and
compensation consulting firm, increased Aon's penetration of large corporate
accounts.
Around the world, employee benefits markets continue to change as
companies look for better ways to manage their human capital costs while
expanding the choices offered to their employees. Aon Consulting, with its
expertise in employee benefits, compensation, management consulting and
employment practices outsourcing, and its access to the Registrant's other
subsidiaries, is well-positioned to serve this market. Aon Consulting
subsidiaries offer services to clients including benefit plan design and
administration; compensation consulting and surveys; employee selection and
assessment; process improvement; leadership development; performance management
tools; workforce productivity and individual and organizational change
management. Benefits issues outside the U.S. are becoming more complicated, and
Aon Holdings and Aon Consulting anticipate increased demand for their services
in these markets.
(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 Asia/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.
<PAGE>
The supplemental 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). Combined Insurance, the
Registrant's principal life and accident and health insurer, has a sales force
of several thousand career agents calling on individuals to sell a broad
spectrum of low premium accident and health products. Combined Insurance's
current product portfolio often allows policyholders the option of paying
premiums monthly through a pre-authorized check mechanism in the U.S. and on a
direct debit option in the U.K. 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. Combined Insurance has expanded its product distribution
through payroll deduction and their worksite marketing programs continue to
develop. Combined Insurance's business is conducted in the United States,
Canada, Latin America, Europe and Asia/Pacific.
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 and workers'
compensation coverage. VSC and London General are among the world's largest
underwriters of consumer extended warranties. The extended warranty products are
sold in the United States, Canada, Latin America, Europe and Asia/Pacific. The
administration of certain extended warranty products on automobiles, electronic
goods, personal computers and appliances is handled by certain operations in the
Insurance Brokerage and Other Services segment.
(4) DISCONTINUED OPERATIONS
The Registrant hereby incorporates by reference note 5 of the Notes to
Consolidated Financial Statements on page 40 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. The
NAIC revised the Accounting Practices and Procedures Manual in a process
referred to as Codification. The revised manual is effective January 1, 2001.
The domiciliary states of Aon's major insurance subsidiaries have adopted the
<PAGE>
provisions of the revised manual. The revised manual has changed, to some
extent, prescribed statutory accounting practices and will result in changes to
the accounting practices that Aon's major insurance subsidiaries use to prepare
their statutory-basis financial statements. The impact of these changes to Aon's
major insurance subsidiaries' statutory capital and surplus as of January 1,
2001 is not expected to be significant.
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 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 subsidiaries.
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 51,000 employees at the
end of 2000 of whom approximately 43,000 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 four
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.
ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 14 of the Notes to
Consolidated Financial Statements on page 53 of the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
<PAGE>
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 18, 2000 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 20, 2001. Ages shown are as of December 31, 2000.
For information concerning certain directors and executive officers of the
Registrant, see item 10 below. As of March 5, 2001, 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, 64 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.
Michael A. Conway, 53 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.
<PAGE>
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, London and Frankfurt stock exchanges. The
Registrant hereby incorporates by reference the "Dividends paid per share" and
"Price range" data on page 57 of the Annual Report.
The Registrant had approximately 13,650 holders of record of its Common
Shares as of February 21, 2001.
The Registrant hereby incorporates by reference note 10 of the Notes to
Consolidated Financial Statements on page 45 of the Annual Report.
Recent Sales of Unregistered Securities. On October 2, 2000, 3,864,824
shares of Aon common stock were issued to all of the shareholders and holders of
phantom shares of ASA Acquisition Corp. ("ASA") in connection with the
acquisition of ASA and its subsidiaries by the merger of a subsidiary of Aon
with and into ASA. The shares were issued to the shareholders of ASA by Aon in a
private offering exempt from registration pursuant to Section 4 (2) of the
Securities Act of 1933.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 57 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Registrant hereby incorporates by reference "Management's Discussion
and Analysis of Financial Condition and Results of Operations" on pages 17
through 28 and "Information Concerning Forward-Looking Statements" on page 28 of
the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant hereby incorporates by reference "Market Risk Exposure" on
pages 27 and 28 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 ....................... 29 - 33
Notes to Consolidated Financial Statements .............. 34 - 55
Report of Ernst & Young LLP, Independent Auditors ....... 56
Quarterly Financial Data ................................ 58
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
<PAGE>
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 20, 2001, 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 2000 Fiscal Year" and
"Pension Plan Table" on pages 15 through 18 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 22 of the Proxy Statement.
<PAGE>
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, 2000, 1999 and 1998 29
Consolidated Statements of Financial Position -
As of December 31, 2000 and 1999 30-31
Consolidated Statements of Stockholders' Equity -
Years Ended December 31, 2000, 1999 and 1998 32
Consolidated Statements of Cash Flows - Years
Ended December 31, 2000, 1999 and 1998 33
Notes to Consolidated Financial Statements 34-55
Report of Ernst & Young LLP, Independent Auditors 56
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").
<PAGE>
(c) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation - incorporated by reference to Exhibit
3 to the Registrant's current Form 8-K, dated May 9, 2000.
(d) Amended Bylaws of the Registrant.
(e) 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.
(f) Resolutions establishing terms of 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").
(g) 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").
(h) Resolutions establishing the terms of the 6.90% Notes Due 2004,
incorporated by reference to Exhibit 4(e) of the Registrant's Annual
Report to the Securities and Exchange Commission on Form 10-K for
the year ended December 31, 1999 (the "1999 Form 10-K").
(i) Resolutions establishing the terms of the 8.65% Notes due 2005.
(j) 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").
(k) 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.
(l) Certificate of Trust of Aon Capital A - incorporated by reference to
Exhibit 4.3 of the Capital Securities Registration.
(m) 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.
(n) 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.
(o) 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.
(p) 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.
(q) 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.
<PAGE>
(r) 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.
(s) 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.
(t) 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.
(u) 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.
(v) 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.
(w) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(x) Statement regarding Computation of Ratio of Earnings to Combined
Fixed Charges and Preferred Stock Dividends.
(y) 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.
(z) Annual Report to Stockholders of the Registrant for the year ended
December 31, 2000 (for information, and not to be deemed filed,
except for those portions specifically incorporated by reference
herein).
(aa) List of Subsidiaries of the Registrant.
(ab) 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 2000
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-59037, 333-21237, 333-50607, 333-55773,
333-78723 and 333-49300.
(ac) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 2000 - to
be filed by amendment as provided in Rule 15d- 21(b).
(ad) Executive Compensation Plans and Arrangements:
(A) Aon Stock Award Plan (as amended and restated through February
2000) - 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 June 30, 2000
(the "Second Quarter 2000 Form 10-Q").
(B) 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").
<PAGE>
(C) 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").
(D) 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.
(E) 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.
(F) 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").
(G) 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.
(H) 1999 Aon Deferred Compensation Plan incorporated by reference
to Exhibit 10(1) of the 1999 Form 10-K.
(I) 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.
(J) 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.
(ae) 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.
(af) 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.
(ag) 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.
(ah) 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").
(ai) 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.
<PAGE>
(b) REPORTS ON FORM 8-K.
During the quarter ended December 31, 2000, the Registrant filed a
Current Report on Form 8-K dated November 3, 2000 reporting its third
quarter 2000 results and announcing that the Company's board of directors
approve, in principle, a comprehensive business transformation plan.
<PAGE>
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 16th day of
March, 2001.
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
--------- ----- ----
Chairman, Chief Executive March 16, 2001
/s/ PATRICK G. RYAN Officer and Director
- ---------------------------- (Principal Executive Officer)
Patrick G. Ryan
/s/ DANIEL T. CARROLL Director March 16, 2001
- ----------------------------
Daniel T. Carroll
/s/ FRANKLIN A. COLE Director March 16, 2001
- ----------------------------
Franklin A. Cole
/s/ EDGAR D. JANNOTTA Director March 16, 2001
- ----------------------------
Edgar D. Jannotta
/s/ LESTER B. KNIGHT Director March 16, 2001
- ----------------------------
Lester B. Knight
/s/ PERRY J. LEWIS Director March 16, 2001
- ----------------------------
Perry J. Lewis
/s/ ANDREW J. McKENNA Director March 16, 2001
- ----------------------------
Andrew J. McKenna
/s/ NEWTON N. MINOW Director March 16, 2001
- ----------------------------
Newton N. Minow
/s/ ROBERT S. MORRISON Director March 16, 2001
- ----------------------------
Robert S. Morrison
<PAGE>
Signature Title Date
--------- ----- ----
/s/ RICHARD C. NOTEBAERT Director March 16, 2001
- ----------------------------
Richard C. Notebaert
/s/ MICHAEL D. O'HALLERAN Director March 16, 2001
- ----------------------------
Michael D. O'Halleran
/s/ DONALD S. PERKINS Director March 16, 2001
- ----------------------------
Donald S. Perkins
/s/ JOHN W. ROGERS, JR. Director March 16, 2001
- ----------------------------
John W. Rogers, Jr.
/s/ GEORGE A. SCHAEFER Director March 16, 2001
- ----------------------------
George A. Schaefer
/s/ RAYMOND I. SKILLING Director March 16, 2001
- ----------------------------
Raymond I. Skilling
/s/ FRED L. TURNER Director March 16, 2001
- ----------------------------
Fred L. Turner
/s/ ARNOLD R. WEBER Director March 16, 2001
- ----------------------------
Arnold R. Weber
/s/ CAROLYN Y. WOO Director March 16, 2001
- ----------------------------
Carolyn Y. Woo
/s/ HARVEY N. MEDVIN Executive Vice President March 16, 2001
- ---------------------------- and Chief Financial Officer
Harvey N. Medvin (Principal Financial and
Accounting Officer)
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Aon CORPORATION
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31
-------------------------
(millions) 2000 1999
----------- -----------
<S> <C> <C>
ASSETS
Investments in subsidiaries ............................................ $ 6,127 $ 5,585
Notes receivable - subsidiaries ........................................ 515 447
Cash and cash equivalents .............................................. 1 17
Other assets ........................................................... 111 123
----------- -----------
TOTAL ASSETS ....................................................... $ 6,754 $ 6,172
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings .................................................. $ 853 $ 823
6.3% long-term debt securities ......................................... 100 100
7.4% long-term debt securities ......................................... 100 100
8.65% long-term debt securities ........................................ 250 -
6.9% long-term debt securities ......................................... 250 250
6.7% long-term debt securities ......................................... 150 150
Subordinated debt ...................................................... 800 800
Notes payable - subsidiaries ........................................... 571 622
Notes payable - other .................................................. 70 70
Accrued expenses and other liabilities ................................. 172 156
----------- -----------
TOTAL LIABILITIES .................................................. 3,316 3,071
----------- -----------
REDEEMABLE PREFERRED STOCK ............................................. 50 50
STOCKHOLDERS' EQUITY
Common stock ........................................................... 264 259
Paid-in additional capital ............................................. 706 525
Accumulated other comprehensive loss ................................... (377) (309)
Retained earnings ...................................................... 3,127 2,905
Less treasury stock at cost ............................................ (118) (90)
Less deferred compensation ............................................. (214) (239)
----------- -----------
TOTAL STOCKHOLDERS' EQUITY ......................................... 3,388 3,051
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY ......................... $ 6,754 $ 6,172
=========== ===========
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Aon CORPORATION
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years Ended December 31
---------------------------
(millions) 2000 1999 1998
------- ------- --------
<S> <C> <C> <C>
REVENUE
Dividends from subsidiaries ...................................... $ 379 $ 467 $ 351
Other investment income .......................................... 9 20 69
------- ------- --------
Total Revenue ................................................ 388 487 420
------- ------- --------
EXPENSES
Operating and administrative ..................................... 22 13 20
Interest - subsidiaries .......................................... 103 96 94
Interest - other ................................................. 122 85 76
------- ------- --------
Total Expenses ............................................... 247 194 190
------- ------- --------
INCOME BEFORE INCOME TAXES AND EQUITY (DEFICIT) IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES .............................. 141 293 230
Income tax benefit ............................................... 95 70 54
------- ------- --------
........................................................................ 236 363 284
EQUITY (DEFICIT) IN UNDISTRIBUTED INCOME OF SUBSIDIARIES ............... 238 (11) 257
------- ------- --------
NET INCOME ....................................................... $ 474 $ 352 $ 541
======= ======= ========
</TABLE>
See notes to condensed financial statements.
<PAGE>
<TABLE>
<CAPTION>
Aon CORPORATION
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31
-------------------------------
(millions) 2000 1999 1998
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES ................................... $ 137 $ 287 $ 445
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries ...................................... (124) (363) (93)
Notes receivables from subsidiaries .............................. (40) (208) (16)
--------- --------- ---------
CASH USED BY INVESTING ACTIVITIES ........................... (164) (571) (109)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions - net ................................ (59) (66) (18)
Issuance (repayment) of short-term borrowings - net .............. 30 387 (328)
Issuance of notes payable and long-term debt ..................... 266 284 200
Repayment of notes payable and long-term debt .................... - (100) -
Cash dividends to stockholders ................................... (226) (210) (194)
--------- --------- ---------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES ................ 11 295 (340)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ....................... (16) 11 (4)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR ......................... 17 6 10
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ............................... $ 1 $ 17 $ 6
========= ========= =========
</TABLE>
See notes to condensed financial statements.
<PAGE>
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 $197 million may be subject to approval by regulatory
authorities.
(3) In 1998, Aon guaranteed a committed bank credit facility under which
certain European subsidiaries can borrow up to EUR 400 million. At
December 31, 2000, loans of EUR 279 million ($260 million) were
outstanding under this facility.
An indirect wholly-owned subsidiary of Aon Corporation manages various
investment portfolios, totaling $247 million at December 31, 2000, 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) In 2000, the Condensed Statements of Cash Flows exclude the impact of
certain non-cash transfers primarily related to notes receivable from
subsidiaries and notes payable to subsidiaries.
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II
Aon CORPORATION and SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 2000, 1999 and 1998
(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
- ------------------------------------------------------------ ---------- --------- ---------- -----------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
- ----------------------------
Allowance for doubtful accounts (3)
(deducted from insurance brokerage
and consulting receivables) $ 88 $ 19 $ (2) $ (17) $ 88
Allowance for doubtful accounts
(deducted from premiums and other) 6 - - (2) 4
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
- ------------------------------------------------------------------------------------------------------------
<FN>
(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 primarily
represent reserves related to acquired business and foreign exchange.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II.1
Aon CORPORATION and SUBSIDIARIES
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 2000
Amount Shown
in Statement
Amortized Fair of Financial
(millions) Cost or Cost Value Position
------------- ----------- -------------
<S> <C> <C> <C>
FIXED MATURITIES - AVAILABLE FOR SALE:
US government and agencies ........................ $ 189 $ 193 $ 193
States and political subdivisions ................. 8 8 8
Debt securities of foreign governments
not classified as loans ...................... 722 735 735
Corporate securities .............................. 1,368 1,307 1,307
Public utilities .................................. 39 38 38
Mortgage-backed securities ........................ 32 32 32
Other fixed maturities ............................ 24 24 24
------------ ------------ ------------
Total fixed maturities ....................... 2,382 2,337 2,337
------------ ------------ ------------
EQUITY SECURITIES - AVAILABLE FOR SALE:
Common stocks:
Public utilities .............................. 2 2 2
Banks, trusts and insurance companies ......... 95 107 107
Industrial, miscellaneous and all other ....... 100 61 61
Non-redeemable preferred stocks ................... 367 322 322
------------ ------------ ------------
Total equity securities ...................... 564 492 492
------------ ------------ ------------
Mortgage loans on real estate ......................... 3 * 3 *
Policy loans .......................................... 74 * 74 *
Other long-term investments ........................... 788 * 788 *
Short-term investments ................................ 2,325 2,325
------------ ------------
TOTAL INVESTMENTS............................. $ 6,136 $ 6,019
============ ============
<FN>
* These investment categories are combined and are shown as other
investments in the Consolidated Statements of Financial Position.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II.2
Aon CORPORATION AND SUBSIDIARIES
REINSURANCE
Year Ended December 31, 2000
----------------------------------------------------------
Ceded to Assumed Percentage of
Gross other from other Net amount
amount companies companies amount assumed to net
----------------------------------------------------------
<S> <C> <C> <C> <C> <C>
LIFE INSURANCE IN FORCE ............... $ 18,803 $ 9,442 $ 9,367 $ 18,728 50%
========= ========== ========== ========= ============
PREMIUMS
Life Insurance ....................... $ 198 $ 91 $ 37 $ 144 26%
A&H Insurance ........................ 1,209 226 106 1,089 10%
Specialty Property & Casualty ........ 965 380 88 673 13%
--------- ---------- ---------- --------- ------------
TOTAL PREMIUMS ..................... $ 2,372 $ 697 $ 231 $ 1,906 12%
========= ========== ========== ========= ============
Year Ended December 31, 1999
----------------------------------------------------------
Ceded to Assumed Percentage of
Gross other from other Net amount
amount companies companies amount assumed to net
----------------------------------------------------------
LIFE INSURANCE IN FORCE ............... $ 14,444 $ 10,023 $ 3,050 $ 7,471 41%
========= ========== ========== ========= ============
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%
========= ========== ========== ========= ============
Year Ended December 31, 1998
----------------------------------------------------------
Ceded to Assumed Percentage of
Gross other from other Net amount
amount companies companies 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%
========= ========== ========== ========= ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE II.3
Aon CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
Unearned
Deferred Future policy premiums and
policy benefits, losses, other Net
acquisition claims and loss policyholders' Premium investment
(millions) costs expenses funds revenue income (1)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
----------------------------
Insurance brokerage and other services ........ $ - $ - $ - $ - $ 186
Consulting .................................... - - - - 6
Insurance underwriting ........................ 656 1,855 3,004 1,905 245
Corporate and other ........................... - - - - 71
-------------- -------------- ------------- -------------- --------------
Total ............................... $ 656 $ 1,855 $ 3,004 $ 1,905 $ 508
============== ============== ============= ============== ==============
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
============== ============== ============= ============== ==============
</TABLE>
<TABLE>
<CAPTION>
SCHEDULE II.3
Aon CORPORATION AND SUBSIDIARIES
SUPPLEMENTARY INSURANCE INFORMATION
(Continued)
Amortization
Benefits, of deferred
claims, losses policy Other
Commissions, and settlement acquisition operating Premiums
(millions) fees and other expenses costs expenses written (2)
-------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
YEAR ENDED DECEMBER 31, 2000
----------------------------
Insurance brokerage and other services ........ $ 4,181 $ - $ - $ 3,677 $ -
Consulting .................................... 764 - - 664 -
Insurance underwriting ........................ 17 1,037 215 615 1,887
Corporate and other ........................... - - - 313 -
------------- -------------- ------------- -------------- --------------
Total ............................... $ 4,962 $ 1,037 $ 215 $ 5,269 $ 1,887
============= ============== ============= ============== ==============
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
============== ============== ============= ============== ==============
<FN>
(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.
</FN>
</TABLE>
<PAGE>
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 2000
("Annual Report") pages 6 through
15, 20 through 24, and pages 40,
54, 55 and 59.
Item 3. Legal Proceedings Annual Report page 53 (note 14 of
Notes to Consolidated Financial
Statements).
Part II
- -------
Item 5. Market for the Registrant's Annual Report page 45 (note 10 of
Common Stock and Related Security Notes to Consolidated Financial
Holder Matters Statements) and page 57 ("Dividends
paid per share" and "Price range").
Item 6. Selected Financial Data Annual Report page 57.
Item 7. Management's Discussion and Annual Report pages 17 through 28.
Analysis of Financial Condition and
Results of Operations
Item 7A. Quantitative and Annual Report pages 27 and 28
Qualitative Disclosures about ("Market Risk Exposure").
Market Risk
Item 8. Financial Statements and Annual Report pages 29 through 55
Supplementary Data and 58.
Part III
- --------
Item 10. Directors and Executive Proxy Statement For Annual Meeting
Officers of the Registrant of Stockholders on April 20, 2001
of the Registrant ("Proxy
Statement") pages 3, 6, 7, and 10
through 12.
Item 11. Executive Compensation Proxy Statement pages 15 through
18.
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 22
Related Transaction ("Transactions With Management").
Part IV
- -------
Item 14. Exhibits, Financial Annual Report pages 29 through 55.
Statement Schedules, And Reports
on Form 8-K
<PAGE>
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) Certificate of Amendement of the Registrant's Second Restated
Certificate of Incorporation - incorporated by reference to Exhibit
3 to the Registrant's current Form 8-K, dated May 9, 2000.
(d) Amended Bylaws of the Registrant
(e) 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 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
incorporated by reference to Exhibit 4(e) to the 1999 Form 10-K.
(f) Resolutions establishing the terms of 8.65% Notes due 2005.
(g) 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").
(h) 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.
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(i) Certificate of Trust of Aon Capital A - incorporated by reference to
Exhibit 4.3 of the Capital Securities Registration.
(j) 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.
(k) 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.
(l) 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.
(m) 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.
(n) 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 February
2000) - 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 June 30, 2000 (the "Second
Quarter 2000 Form 10-Q").
(b) 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").
(c) 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").
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(d) 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.
(e) 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.
(f) 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.
(g) 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.
(h) 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.
(i) 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.
(j) 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.
(k) Aon Corporation 1995 Senior Officer Incentive Compensation Plan -
incorporated by reference to Exhibit 10(p) to the 1995 Form 10-K.
(l) 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.
(m) 1999 Aon Deferred Compensation Plan incorporated by reference to
Exhibit 10(1) of the 1999 Form 10-K.
(n) 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.
(o) 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.
<PAGE>
EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(p) 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.
(q) 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.
(r) 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.
(s) 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.
(t) 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, 2000.
(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 2000 Annual
Report to Stockholders and into Aon's Registration Statement Nos.
33-27984, 33-42575, 33-59037, 333-21237, 333-50607, 333-55773, 333-78723
and 333-49300.
(99) Annual Report to the Securities and Exchange Commission on Form 11-K for
the Aon Savings Plan for the year ended December 31, 2000 - to be filed by
amendment as provided in Rule 15d-21(b).
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-3
<SEQUENCE>2
<FILENAME>0002.txt
<DESCRIPTION>AON CORPORATION EXHIBIT 3(D) BY-LAWS
<TEXT>
Exhibit 3(d)
AON CORPORATION
BY-LAWS
ARTICLE I
CORPORATE OFFICES
Section 1. Delaware registered office. The registered office of the
---------- ----------------------------
corporation in the State of Delaware shall be in the City of Wilmington, County
of New Castle.
Section 2. Other offices. The corporation may also have offices at such
--------- -------------
other places both within and without the State of Delaware as the board of
directors may from time to time determine or the business of the corporation may
require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 1. Time and place of meetings. Meetings of stockholders for any
--------- --------------------------
purpose may be held at such time and place, within or without the State of
Delaware, as shall be stated in the notice of the meeting or in a duly executed
waiver of notice thereof.
Section 2. Annual meetings. Annual meetings of stockholders, commencing
--------- ---------------
with the year 1980, shall be held on the second Thursday of April if not a legal
holiday, and if a legal holiday, then on the next secular day following at 9:30
A.M., or at such other date and time as shall be designated from time to time by
the board of directors and stated in the notice of the meeting, for the election
of directors and for the transaction of such other business as may properly be
brought before the meeting. The election of directors need not be by written
ballot unless the use of written ballot is requested by any shareholder.
Section 3. Notice of annual meeting. Written notice of the annual meeting,
--------- ------------------------
stating the place, date and hour of the meeting, shall be given to each
stockholder entitled to vote at such meeting not less than ten nor more than
sixty days (or in case a vote of stockholders on a Business Combination, as
defined in the certificate of incorporation, is one of the stated purposes of
the annual meeting, not less than twenty nor more than sixty days) before the
date of the meeting.
<PAGE>
Section 4. Stockholder list. The officer who has charge of the stock
---------- -----------------
ledger of the corporation shall prepare and make, at least ten days before every
meeting of stockholders, a complete list of the stockholders entitled to vote at
the meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open to the examination of any stockholder, for any purpose
germane to the meeting, during ordinary business hours, for a period of at least
ten days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof and may be inspected by any stockholder who is
present.
Section 5. Special meetings. Special meetings of the stockholders, for any
--------- ----------------
purpose or purposes, unless otherwise prescribed by statute, shall be called as
provided in the certificate of incorporation.
Section 6. Notice of special meeting. Written notice of a special meeting
--------- -------------------------
stating the place, date and hour of the meeting and the purpose or purposes for
which the meeting is called, shall be given to each stockholder entitled to vote
at such meeting not less than ten nor more than sixty days (or in case a vote of
stockholders on a Business Combination, as defined in the certificate of
incorporation, is one of the stated purposes of the meeting, not less than
twenty nor more than sixty days) before the date of the meeting.
Section 7. Business at special meetings. Business transacted at any
---------- ------------------------------
special meeting of stockholders shall be limited to the purposes stated in the
notice.
Section 8. Quorum. The holders of a majority of the stock issued and
--------- ------
outstanding and entitled to vote thereat, present in person or represented by
proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
certificate of incorporation. If, however, such quorum shall not be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat, present in person or represented by proxy, shall have the power to
adjourn the meeting from time to time, without notice other than announcement at
the meeting, until a quorum shall be present or represented. At such adjourned
meeting at which a quorum shall be present or represented any business may be
transacted which might have been transacted at the meeting as originally
notified. If the adjournment is for more than thirty days, or if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 9. Requisite vote. When a quorum is present at any meeting, the
--------- ---------------
vote of the holders of a majority of the stock having voting power present in
person or represented by proxy shall decide any matter brought before such
meeting, unless the question is one upon which by express statutory provision or
express provision of the certificate of incorporation
- 2 -
<PAGE>
a different vote is required, in which case such express provision shall govern
the vote needed on such matter.
Section 10. Voting. Unless otherwise provided in the certificate of
----------- ------
incorporation, each holder of common stock of the corporation shall at every
meeting of the stockholders be entitled to one vote in person or by proxy for
each share of common stock held by such stockholder, and each holder of any
series of Class A Preferred Stock and Class B Preferred Stock to which voting
rights have been granted in the certificate of incorporation or any amendment
thereto or in the resolutions of the board of directors providing for the issue
of such series shall at every meeting of the stockholders be entitled to vote to
the extent provided, in person or by proxy; but no proxy shall be voted or acted
upon after three years from its date, unless the proxy provides for a longer
period.
ARTICLE III
DIRECTORS
Section 1. Number and terms of directors. The number of directors which
--------- ------------------------------
shall constitute the whole board shall be determined as provided in the
certificate of incorporation. Except as provided in Section 2, the directors
shall be elected at each annual meeting of stockholders. Each director elected
shall hold office until his successor is elected and qualified or until his
earlier resignation or removal. Directors need not be stockholders.
Section 2. Vacancies. Vacancies and newly created directorships resulting
--------- ---------
from any increase in the authorized number of directors may be filled in the
manner provided in the certificate of incorporation. If there are no directors
in office, then an election of directors may be held in the manner provided by
statute. If, at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Court of Chancery may, upon application of any stockholder or stockholders
holding at least ten percent of the total number of the shares at the time
outstanding having the right to vote for such directors, summarily order an
election to be held by the stockholders to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in office.
Section 3. Powers of board of directors. The business and affairs of the
--------- -----------------------------
corporation shall be managed under the direction of its board of directors which
may exercise all such powers of the corporation and do all such lawful acts and
things as are not by statute or by the certificate of incorporation or by these
by-laws directed or required to be exercised or done by the stockholders.
Section 4. Place of meetings. The board of directors of the corporation
--------- -----------------
may hold meetings, both regular and special, either within or without the State
of Delaware.
- 3 -
<PAGE>
Section 5. Annual meeting of the board after annual election. The annual
--------- --------------------------------------------------
meeting of the board of directors shall be held immediately upon the adjournment
of and at the same location as the annual meeting of the stockholders, and no
notice of such meeting shall be necessary in order to legally to constitute the
meeting, provided a quorum shall be present.
Section 6. Regular meetings. Regular meetings of the board of directors
--------- -----------------
may be held without notice at such time and at such place as shall from time to
time be determined by the board.
Section 7. Special meetings. Special meetings of the board of directors
--------- -----------------
may be called by the chairman of the board or by the president and chief
executive officer on two days' notice to each director, either personally or by
mail or by telegram. Special meetings of the board of directors shall be called
by the chairman of the board, the president and chief executive or the secretary
in like manner on the written request of two directors. Such notice shall state
the time and place of the meeting but need not state the object of the meeting
except in the event that the meeting shall be called for the purpose of amending
the by-laws of the corporation.
Section 8. Quorum. Except as otherwise provided by the certificate of
--------- ------
incorporation or by statute, at all meetings of the board of directors a
majority of the directors then in office shall constitute a quorum for the
transaction of business, except that in no case shall less than one-third of the
total number of directors as determined by the certificate of incorporation and
these by-laws constitute a quorum. The act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the board
of directors. If a quorum shall not be present at any meeting of the board of
directors, the directors present thereat may adjourn the meeting from time to
time, without notice other than announcement at the meeting, until a quorum
shall be present.
Section 9. Action by written consent. Unless otherwise restricted by the
--------- -------------------------
certificate of incorporation or these by-laws, any action required or permitted
to be taken at any meeting of the board of directors or of any committee thereof
may be taken without a meeting, if all members of the board or committee, as the
case may be, consent thereto in writing, and the writing or writings are filed
with the minutes of proceedings of the board or committee.
Section 10. Committees of directors. The board of directors may by
----------- -------------------------
resolution passed by a majority of the whole board designate an executive
committee and one or more other committees, each committee to consist of one or
more directors of the corporation. The board may designate one or more directors
as alternate members of any committee who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present any meeting and not
disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the board of directors to act at the
meeting in the place of any such absent or disqualified member.
- 4 -
<PAGE>
Section 11. Powers of committees. The board of directors may authorize the
---------- --------------------
executive committee when the board of directors is not in session to exercise
all of the authority of the board of directors in the management of the business
and affairs of the corporation, except to the extent that such authority shall
be limited by statute, by the certificate of incorporation, by resolution of the
board of directors or by these by-laws. Any other committee shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation to the extent provided
in the resolution of the board of directors creating it, except as such
authority shall be limited by statute, by the certificate of incorporation or by
these by-laws. Any committee may authorize the seal of the corporation to be
affixed to all papers which may require it in order for the committee to perform
its duties. No committee shall have the power or authority in reference to
amending the certificate of incorporation, adopting an agreement of merger or
consolidation, recommending to the stockholders the sale, lease or exchange of
all or substantially all of the corporation's property and assets, recommending
to the stockholders a dissolution of the corporation or a revocation of a
dissolution, or amending the by-laws of the corporation; and, unless the
resolution or the certificate of incorporation expressly so provide, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock. Such committee or committees other than the
executive committee shall have such name or names as may be determined from time
to time by resolution adopted by the board of directors.
Section 12. Minutes of meeting. Each committee shall keep regular minutes
---------- ------------------
of its meetings and report the same to the board of directors when required.
Section 13. Compensation of directors. The board of directors shall have
---------- -------------------------
the authority to fix the compensation of directors. The directors may be paid
their expenses, if any, of attendance at each meeting of the board of directors
and may be paid a fixed sum for attendance at each meeting of the board of
directors or a stated salary as director. No such payment shall preclude any
director from serving the corporation in any other capacity and receiving
compensation therefor. Members of special or standing committees may be allowed
like compensation for attending committee meetings.
Section 14. Use of conference telephone. Members of the board of directors
---------- ---------------------------
or any committee designated by such board may participate in a meeting of such
board of committee by means of conference telephone or similar communication
equipment by means of which all persons participating in the meeting can hear
each other. Such participation shall constitute presence of the person at the
meeting.
Section 15. Conflict of interest. No director shall vote on any contract,
---------- --------------------
or arrangement, or other proposal in which he has a direct and material
financial interest.
ARTICLE IV
NOTICES
- 5 -
<PAGE>
Section 1. Method of giving notice. Whenever, under any provision of the
--------- -----------------------
statutes or of the certificate of incorporation or of these by-laws, notice is
required to be given to any director or stockholder, it shall not be construed
to mean personal notice, but such notice may be given in writing, by mail,
addressed to such director or stockholder, at his address as it appears on the
records of the corporation, with postage thereon prepaid, and such notice shall
be deemed to be given at the time when the same shall be deposited in the United
States mail. Notice to directors may also be given by telegram.
Section 2. Waiver of notice. Whenever notice is required to be given under
--------- ----------------
any provision of the statutes or of the certificate of incorporation or of these
bylaws, a written waiver of such notice, signed by the person or persons
entitled to notice, whether before or after the time stated therein, shall be
deemed equivalent to such notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
the meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened.
ARTICLE V
OFFICERS
Section 1. Offices. The board of directors at its first meeting after each
--------- -------
annual meeting of stockholders or as soon thereafter as may be convenient shall
elect the officers of the corporation. The officers shall be a chairman of the
board; a president; a chief executive officer; chief operating officer; one or
more vice presidents; a treasurer; and a secretary. The board of directors may
elect additional officers and may appoint assistant officers who shall perform
such duties as shall be delineated by the board of directors. Any offices may be
held by the same person except as otherwise provided in the certificate of
incorporation, in the by-laws, or by statute.
Section 2. Compensation of officers. The compensation of all officers and
--------- ------------------------
agents of the corporation shall be fixed by the board of directors.
Section 3. Term of office. Each officer shall hold office for one year and
--------- --------------
until his successor is chosen and qualifies or until his earlier resignation or
removal. Any officers elected or appointed by the board of directors may be
removed at any time by the affirmative vote of a majority of the board of
directors. Any vacancy occurring in any office of the corporation shall be
filled by the board of directors. The board of directors may enter into any
contract with officers with respect to terms or conditions of this service.
Section 4. Duties of officers.
--------- ------------------
- 6 -
<PAGE>
a. Chairman of the board and chief executive officer. The chairman of the
-------------------------------------------------
board and chief executive officer shall preside at all meetings of stockholders
and of the board of directors. He shall have general supervision and active
management of the corporation's operations. He shall have the authority to
execute all contracts and agreements, except where required or permitted by law
to be otherwise signed and executed and except where the signing and execution
thereof shall be expressly delegated by the board of directors to some other
officer or agent of the corporation. He shall have and perform such other duties
as may from time to time be assigned to him by the board of directors.
b. President and chief operating officer. The president and chief
-----------------------------------------
operating officer shall have the responsibility and duty to supervise the
day-to-day operations of the corporation under the direction of the chairman and
chief executive officer.
c. Chief financial officer. The chief financial officer shall be the
-------------------------
principal financial officer of the corporation and shall have such powers and
perform such duties as the chairman and chief executive officer may from time to
time prescribe.
d. Executive vice presidents, senior vice presidents and vice presidents.
----------------------------------------------------------------------
In the absence or disability of the chairman of the board and chief executive
officer and the president and chief operating officer, the executive vice
presidents (in the order designated, or in the absence of any designation, then
in the order of their election), shall perform the duties of the chairman and
chief executive officer and the president and chief operating officer, and when
so acting, shall have all the powers of and be subject to all the restrictions
upon the chairman and chief executive officer and the president and chief
operating officer. The executive vice presidents shall perform such other duties
and have such other powers as the board of directors or the chairman and chief
executive officer may from time to time prescribe. The senior vice presidents
shall perform such duties and have such powers as the board of directors, the
chairman and chief executive officer, the president and chief operating officer
or any executive vice president may from time to time prescribe. The vice
presidents shall perform such duties and have such powers as the board of
directors, the chairman and chief executive officer, the president and chief
operating officer, any executive vice president or any senior vice president may
from time to time prescribe.
e. Secretary. The secretary shall attend all meetings of the board of
---------
directors and all meetings of the stockholders and record all the proceedings of
the meetings of the stockholders and of the board of directors in books to be
kept for that purpose and shall perform like duties for the standing committees
when required. The secretary shall give, or cause to be given, notice of all
meetings of the stockholders and special meetings of the board of directors, and
shall perform such other duties as may be prescribed by the board of directors
or the chairman and chief executive officer. The secretary shall have custody of
the corporate seal of the corporation and the secretary, or an assistant
secretary, shall have authority to affix the same to any instrument requiring it
and when so affixed, it may be
- 7 -
<PAGE>
attested by the signature of the secretary or by the signature of such assistant
secretary. The board of directors may give general authority to any other
officer to affix the seal of the corporation and to attest the affixing by his
signature.
f. Treasurer. The treasurer shall have the custody of the corporate funds
---------
and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation and shall deposit all moneys
and other valuable effects in the name and to the credit of the corporation in
such depositaries as may be designated by the board of directors. The treasurer
shall disburse the funds of the corporation as may be ordered by the board of
directors, taking proper vouchers for such disbursements, and shall render to
the chief financial officer an account of all transactions as treasurer and of
the financial condition of the corporation; and the chief financial officer
shall forward this information to the board of directors, the chairman and chief
executive officer and the president and chief operating officer.
Section 5. Bond. If required by the board of directors, any officer may be
--------- ----
required to give the corporation a bond (which shall be renewed every six years)
in such sum and with such surety or sureties as shall be satisfactory to the
board of directors for the faithful performance of the duties of his office and
for the restoration to the corporation, in case of his death, resignation,
retirement or removal from office, of all books, papers, vouchers, money and
other property of whatever kind in his possession or under his control belonging
to the corporation.
ARTICLE VI
STOCK CERTIFICATES
Section 1. Right of holder to certificate. Every holder of stock in the
--------- -------------------------------
corporation shall be entitled to have a certificate, signed by, or in the name
of the corporation by, the chairman of the board, the president and chief
executive officer, or any executive vice president, senior vice president or
vice president and by the treasurer or an assistant treasurer or secretary or an
assistant secretary, certifying the number of shares owned by him in the
corporation.
Section 2. Facsimile signatures. Any of or all the signatures on the
---------- ---------------------
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed upon a certificate
shall have ceased to be such officer, transfer agent or registrar before such
certificate is issued, it may be issued by the corporation with the same effect
as if he were such officer, transfer agent or registrar at the date of issue.
Section 3. Lost certificates. The board of directors may direct a new
---------- ------------------
certificate or
- 8 -
<PAGE>
certificates to be issued in place of any certificate or certificates
theretofore issued by the corporation alleged to have been lost, stolen or
destroyed, upon the making of an affidavit of that fact by the person claiming
the certificate of stock to be lost, stolen or destroyed. When authorizing such
issue of a new certificate or certificates, the board of directors may, in its
discretion and as a condition precedent to the issuance thereof, require the
owner of such lost, stolen or destroyed certificate or certificates, or his
legal representative, to advertise the same in such manner as it shall require
or to give the corporation a bond in such sum as it may direct as indemnity
against any claim that may be made against the corporation with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 4. Transfers of stock. Upon surrender to the corporation or the
--------- ------------------
transfer agent of the corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the corporation to issue a new certificate to
the person entitled thereto, cancel the old certificate and record the
transaction upon its books.
Section 5. Record date. In order that the corporation may determine the
--------- -----------
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the board of directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such mailing, nor more than sixty days prior to any other action. A
determination of stockholders of record entitled to notice of or to vote at a
meeting of stockholders shall apply to any adjournment of the meeting; provided,
however, that the board of directors may fix a new record date for the adjourned
meeting.
Section 6. Registered stockholders. The corporation shall be entitled to
--------- ------------------------
recognize the exclusive right of a person registered on its books as the owner
of shares to receive dividends, and, to the extent entitled, to vote as such
owner and to hold liable for calls and assessments a person registered on its
books as the owner of shares, and shall not be bound to recognize any equitable
or other claim to or interest in such shares on the part of any other person,
whether or not it shall have express or other notice thereof, except as
otherwise provided by the statutes of Delaware.
ARTICLE VII
GENERAL PROVISIONS
Section 1. Dividends. Dividends upon the capital stock of the corporation,
--------- ---------
subject to the provisions of the certificate of incorporation, if any, may be
declared by the board of directors at any regular or special meeting, pursuant
to law. Dividends may be paid in cash, in property, or in shares of the capital
stock, subject to the provisions of the certificate of incorporation.
- 9 -
<PAGE>
Section 2. Reserves. Before payment of any dividend there may be set aside
--------- --------
out of any funds of the corporation available for dividends such sum or sums as
the directors may from time to time, in their absolute discretion, think proper
as a reserve or reserves to meet contingencies, or for equalizing dividends, or
for repairing or maintaining any property of the corporation, or for such other
purpose as the directors shall think conducive to the interest of the
corporation, and the directors may modify or abolish any such reserve in the
manner in which it was created.
Section 3. Signatures on checks and notes. All checks or demands for money
--------- ------------------------------
and notes of the corporation shall be signed by such officer or officers or such
other person or persons as the board of directors may from time to time
designate.
Section 4. Fiscal year. The fiscal year of the corporation shall begin on
--------- -----------
the first day of January in each year and end on the thirty-first day of
December in each year.
Section 5. Seal. The corporate seal shall have inscribed thereon the name
--------- ----
of the corporation and the words "Corporate Seal, Delaware". The seal may be
used by causing it or a facsimile thereof to be impressed or affixed or in any
other manner reproduced or otherwise.
ARTICLE VIII
AMENDMENTS
These by-laws may be altered, amended or repealed or new by-laws may be
adopted by the stockholders or by the board of directors, when such power is
conferred upon the board of directors by the certificate of incorporation, at
any regular meeting of the stockholders or of the board of directors or at any
special meeting of the stockholders or of the board of directors if notice of
such alteration, amendment, repeal or adoption of new by-laws be contained in
the notice of such special meeting.
- 10 -
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-4
<SEQUENCE>3
<FILENAME>0003.txt
<DESCRIPTION>EXHIBIT 4(F)
<TEXT>
Exhibit 4(f)
RESOLUTIONS ESTABLISHING THE TERMS OF 8.65% NOTES DUE 2005
RESOLVED, that this Board of Directors does hereby authorize and approve the
issuance and sale by the Company from time to time of (1) debt securities
consisting of notes, debentures or other unsecured evidences of indebtedness
(the "Debt Securities") and (2) preferred stock and Common Stock and associated
stock purchase rights (the "Capital Stock");
FURTHER RESOLVED, that in connection with the issuance of the Debt Securities
and Capital Stock, the Company is authorized to issue up to $500,000,000 in the
aggregate of Debt Securities and Capital Stock and if any Debt Securities are to
be issued at a discount up to such greater principal amount for which the
Company will receive in the aggregate $500,000,000 in proceeds;
FURTHER RESOLVED, that, in connection with the authorization, issuance and sale
of the Debt Securities and/or Capital Stock, a special committee of this Board
of Directors (the "Special Committee"), consisting solely of Patrick G. Ryan,
be, and it hereby is, established and authorized to exercise all of the powers
and authority of this Board of Directors with respect to the creation, issuance
and sale of the Debt Securities and the Capital Stock, including, without
limitation, the power and authority, with respect to each issue of the Debt
Securities and/or the Capital Stock, to determine or approve, as the case may
be:
(1) the form of the offering thereof whether the sale thereof shall be to or
through one or more underwriters or directly to dealers or other purchasers or
otherwise, together with the terms and conditions of sale thereof, including the
offering price thereof (which, in the case of the Debt Securities, may be at a
deep discount from their principal amount at maturity) and any discount received
by, or commission paid to, underwriters, dealers or agents;
(2) in the case of the Debt Securities, the type of security or securities, the
title or titles thereof, the aggregate principal amount and denominations
thereof, the maturity or maturities thereof, the interest rate or rates (which
may be fixed or variable) to be borne thereby, the form of subordination, if
any, any conversion rate, any optional or mandatory redemption provisions in
respect thereof, including sinking fund provisions, any affirmative and negative
covenants to be imposed on the Company in respect thereof, any events of default
in respect thereof, any rights of defeasance in respect thereof, and any and all
other terms, conditions and provisions in respect thereof;
(3) in the case of Capital Stock, the number of shares of Capital Stock to be
issued and sold, the public offering price of the Capital Stock, the discount
received by, or commission paid to, the Underwriters (as hereinafter defined)
pursuant to the Underwriting Agreement (as hereinafter defined) all other terms
governing the issuance and sale of the Capital Stock and to take any other
action which may be deemed necessary or advisable for the Company to take in
connection with the transactions contemplated by these resolutions;
<PAGE>
(4) the selection of any one or more underwriters, dealers or agents in
connection with the sale thereof and the approval of any related underwriting,
purchase or sales agency agreements; and
(5) the selection of any trustees, authenticating agents, paying agents, warrant
agents, transfer agents and registrars in connection therewith (collectively,
the "Fiduciaries" or individually, "Fiduciary"), and the approval of any related
indentures, or other agreements; and that the Special Committee be, and it
hereby is, authorized, in the name and on behalf of the Company, to take any and
all such actions and to do, or authorize to be done, all such things as the
Special Committee may deem necessary or appropriate to effectuate the purposes
and intent of the Company resolutions;
FURTHER RESOLVED, that the proper officers of the Company be, and each of them
acting alone hereby is, authorized, in the name and on behalf of the Company, to
prepare, execute and file, or cause to be prepared, executed and filed, with the
Securities and Exchange Commission (the "SEC") (1) a registration statement (the
"Universal Registration Statement") under the Securities Act of 1933, as amended
(the "Securities Act"), for the registration of the Debt Securities and the
Capital Stock (which registration may, but shall not be required to be, made
pursuant to Rule 415 under the Securities Act), and (2) to prepare, execute and
cause to be filed any amendments to the Universal Registration Statement
(whether preeffective or posteffective amendments) or supplements to the
prospectus contained therein, together with all documents required as exhibits
to the Universal Registration Statement, or any amendment or a supplement
thereto, and all certificates, letters, instruments, applications, and any other
documents which may be required to be filed with the SEC with respect to the
registration and offering of the Debt Securities and/or Capital Stock, and to
take any and all action with respect to any of the foregoing that any such
officer shall deem necessary or advisable, with the taking of such action
conclusively establishing the validity thereof;
FURTHER RESOLVED, that the proper officers of the Company be, and each of them
acting alone hereby is, authorized, in the name and on behalf of the Company, to
execute and deliver with such underwriting firm or firms as the Special
Committee approves, an underwriting agreement or underwriting agreements in form
and substance as the officer executing the same may approve, such approval to be
evidenced by such execution and delivery thereof (each such underwriting
agreement being referred to herein as an "Underwriting Agreement"), and the
officers of the Company empowered to do any and all acts which they, in their
discretion, may deem necessary or advisable to make any Underwriting Agreement
the valid and effective act and agreement of the Company;
FURTHER RESOLVED, that Harvey N. Medvin, Executive Vice President and Chief
Financial Officer of the Company, or his appointed designee, be, and hereby is,
designated as the agent for service who shall be duly authorized to receive
communications and notices from the SEC with respect to the Universal
Registration Statement and with the powers conferred upon him as agent therefor
by the Securities Act and the rules and regulations of the SEC thereunder;
FURTHER RESOLVED, that the Debt Securities may be issued under indentures, and
that the proper officers of the Company be, and each of them acting alone hereby
is, authorized, in the name and on behalf of the Company, to execute and deliver
such an indenture or indentures, and indentures
- 2 -
<PAGE>
supplemental thereto, in each case in form and substance as the officer
executing the same may approve, such approval to be evidenced by such execution
and delivery thereof (each such indenture, as may be amended by indentures
supplemental thereto, begin hereinafter referred to as an "indenture"), and to
do any and all acts which they, in their discretion, may deem necessary or
appropriate to make such indenture the valid and effective act and agreement of
the Company;
FURTHER RESOLVED, that the proper officers of the Company be, and each of them
acting alone hereby is, authorized, in the name and on behalf of the Company, to
execute and deliver such other agreements, documents, certificates and
instruments as may be required by any Fiduciary in connection with any
indenture, or as may be necessary or appropriate in connection with the issuance
and sale of the Debt Securities or the Capital Stock;
FURTHER RESOLVED, that there hereby are adopted any additional resolutions which
may be requested by any governmental authority, stock exchange, transfer agent,
registrar or other person or entity which any officer of the Company believes
necessary or appropriate to accomplish the purposes and intent of the foregoing
resolutions. The Corporate Secretary or any Assistant Secretary of the Company
is hereby authorized to certify that any such resolution has been duly adopted
by this Board of Directors;
FURTHER RESOLVED, that it is desirable and in the best interest of the Company
that the Debt Securities and Capital Stock be qualified or registered for sale
in various states, districts, territories or commonwealths of the United States;
that the proper officers of the Company be, and each of them acting alone hereby
is authorized to determine the jurisdictions in which appropriate action shall
be taken to qualify or register all or such part of the Debt Securities and
Capital Stock as such officers may deem necessary or appropriate; that such
officers be, and each of them acting alone hereby is, authorized to perform on
behalf of the Company any and all such acts as they may deem necessary or
advisable in order to comply with the applicable laws of any such jurisdictions,
and in connection therewith to execute and file all requisite papers and
documents, including, but not limited to, applications, reports, surety bonds,
irrevocable consents and appointments of attorneys for service of process; and
that the execution by such officers, or any of them, of any such paper or
document or the doing by them or any act in connection with the foregoing
matters shall conclusively establish their authority therefor from the Company
and the approval and ratification by the Company of the papers and documents so
executed and the action so taken, and any resolution of this Board of Directors
which is required or appropriate in connection therewith shall be deemed to have
been adopted by this resolution and may be so certified by the Corporate
Secretary or any Assistant Secretary of the Company;
FURTHER RESOLVED, that Debt Securities and Capital Stock shall be executed on
behalf of the Company by the Chairman and Chief Executive Officer, the President
and Chief Operating Officer or any Executive Vice President of the Company,
under its corporate seal reproduced thereon attested by the Corporate Secretary
or any Assistant Secretary of the Company, that any of such signatures or
attestations on the Debt Securities or the Capital Stock may be manual or
facsimile, that Debt Securities or Capital Stock bearing the manual or facsimile
signatures of individuals who were
- 3 -
<PAGE>
at any time the proper officers of the Company bind the Company notwithstanding
that such individuals or any of them cease to hold such offices prior to the
authentication of such Debt Securities or the delivery of such Debt Securities
or Capital Stock, that such corporate seal may be a facsimile of the corporate
seal printed, engraved or lithographed upon each Debt Security and Capital Stock
and that Debt Securities shall be in such form and of such character as shall be
set forth in the indenture or as shall otherwise be approved by the Special
Committee or an officer of the Company;
FURTHER RESOLVED, that the proper officers of the Company be, and each of them
acting alone hereby is, authorized, in the name and on behalf of the Company, to
execute and file such application or applications, and amendments and
supplements thereto, deliver all necessary documents and agreements and take
such other action as may be necessary to list any issue of Debt Securities or of
the Capital Stock on the New York Stock Exchange and/or any other stock exchange
deemed appropriate by such officers, or any one of them, and that the proper
officers be, and each of them, acting alone hereby is, authorized to appear
before any such stock exchange, and to execute such papers and agreements
(including, without limitation, indemnity agreements for the benefit of any such
exchange and others against loss resulting from reliance or facsimile signatures
of officers of the Company), as may be necessary or appropriate to conform with
the requirements of any such stock exchange and to do any and all things which
may be necessary or advisable to effectuate any such listing, specifically
including registration of Debt Securities and the Capital Stock under Section 12
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"); and
FURTHER RESOLVED, that the proper officers of the Company be, and each of them
acting alone hereby is, authorized, in the name and on behalf of the Company, to
take any and all action (including, without limitation, the payment of fees and
expenses), and to execute (by manual or facsimile signature) and deliver any and
all instruments, letters, documents, certificates, or other writings (and any
amendments or supplements thereto), under the Company's seal or otherwise, that
such officer of officers may deem necessary or advisable in order to enable the
Company to exercise its rights and to perform its obligations arising in
connection with the issuance, sale and registration of any Debt Securities or
Capital Stock under the Securities Act and under the securities or Blue Sky laws
of various jurisdictions, the listing of the Debt Securities and the Capital
Stock on any exchange, the registration of the Debt Securities and the Capital
Stock under the Exchange Act, and otherwise in connection with these
resolutions.
- 4 -
<PAGE>
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 Corporation 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;
WHEREAS, this Special Committee believes it is in the best interest of the
Corporation 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 Corporation hereby establishes a series of the
Corporation'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):
<PAGE>
1. The title of the issue of the debt securities shall be
"8.65% Notes Due 2005" (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 Notes
pursuant to Sections 2.05, 2.06, 2.07 and 3.03 of the
Indenture) shall be $250,000,000;
3. The date on which the principal of the Notes shall be
payable shall be May 15, 2005;
4. The Notes shall bear interest at the rate of 8.65% per
annum. Interest on the Notes shall accrue from May 15,
2000, 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 May 15 and November 15 in each
year, to the persons in whose names the Notes are registered
at the close of business on the preceding April 30 and
October 31, respectively;
6. 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
7. The Notes shall not be subject to redemption prior to
maturity and will not be entitled to any sinking fund.
8. Notwithstanding paragraph 1, the Corporation may, without the
consent of the holders of Notes, issue additional notes having
the same ranking and the same terms interest rate, maturity
and other terms as the Notes. Any additional notes having such
similar terms, together with the Notes, will constitute a
single series of Notes under the Indenture, and will be issued
in compliance with Section 2.01 of the Indenture.
FURTHER RESOLVED, that the Notes shall be issued only in registered form
without coupons;
FURTHER RESOLVED, the purchase price to be paid to the Corporation for the
sale of the Notes to the "Underwriters" (as defined below) shall be 99.40%
of the principal amount of the Notes, and the initial offering price to
the public of the Notes shall be 100.00% 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 Corporation and Morgan Stanley & Co. Incorporated and Aon
Securities Corporation as the Underwriters named therein;
- 2 -
<PAGE>
FURTHER RESOLVED, that the Chairman and Chief Executive Officer, the
President and Chief Operating Officer, and any Executive Vice President
and Chief Financial Officer and the Executive Vice President and Chief
Counsel of the Corporation (any one acting alone) be, and each hereby is,
authorized, in the name and on behalf of the Corporation, 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
FURTHER RESOLVED, that there be issued under the Indenture, and delivered
and sold under the Underwriting Agreement as executed (against receipt by
the Corporation payment as therein provided), the Notes, and the Chairman
and Chief Executive Officer, the President and Chief Operating Officer and
any Executive Vice President and Chief Financial Officer and the Executive
Vice President and Chief Counsel of (any one acting alone) be, and each
hereby is, authorized, on behalf of the Corporation, 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, the
Executive Vice President and Chief Financial Officer and the Executive
Vice President and Chief Counsel of as and when the conditions with
respect to the authentication and delivery thereof under the Indenture
have been complied with.
- 3 -
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-12
<SEQUENCE>4
<FILENAME>0004.txt
<DESCRIPTION>AON CORPORATION EXHIBIT 12(A) & 12(B)
<TEXT>
<TABLE>
<CAPTION>
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) 2000 1999 1998 1997 1996
------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes (1) $ 854 $ 635 $ 931 $ 542 $ 446
Add back fixed charges:
Interest on indebtedness 140 105 87 70 45
Interest on ESOP - 1 2 3 4
Portion of rents representative of
interest factor 54 49 51 44 29
------- -------- ------- -------- -------
Income as adjusted $1,048 $ 790 $1,071 $ 659 $ 524
======= ======== ======= ======== =======
Fixed charges:
Interest on indebtedness $ 140 $ 105 $ 87 $ 70 $ 45
Interest on ESOP - 1 2 3 4
Portion of rents representative of
interest factor 54 49 51 44 29
------- -------- ------- -------- -------
Total fixed charges $ 194 $ 155 $ 140 $ 117 $ 78
======= ======== ======= ======== =======
Ratio of earnings to fixed charges 5.4 5.1 7.6 5.6 6.7
======= ======== ======= ======== =======
<FN>
(1) Income from continuing operations before provision for income taxes and
minority interest includes special charges of $82 million, $313 million,
$172 million and $90 million for the years ended December 31, 2000, 1999,
1997 and 1996, respectively.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit 12(b)
Aon CORPORATION AND CONSOLIDATED SUBSIDIARIES
COMBINED WITH UNCONSOLIDATED SUBSIDIARIES
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
AND PREFERRED STOCK DIVIDENDS
Years Ended December 31,
---------------------------------------------------
(millions except ratios) 2000 1999 1998 1997 1996
-------- -------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Income from continuing operations
before provision for income taxes (1) $ 854 $ 635 $ 931 $ 542 $ 446
Add back fixed charges:
Interest on indebtedness 140 105 87 70 45
Interest on ESOP - 1 2 3 4
Portion of rents representative of
interest factor 54 49 51 44 29
-------- -------- ------- -------- --------
Income as adjusted $1,048 $ 790 $1,071 $ 659 $ 524
======== ======== ======= ======== ========
Fixed charges and preferred stock dividends:
Interest on indebtedness $ 140 $ 105 $ 87 $ 70 $ 45
Preferred stock dividends 70 70 70 82 29
-------- -------- ------- -------- --------
Interest and dividends 210 175 157 152 74
Interest on ESOP - 1 2 3 4
Portion of rents representative of
interest factor 54 49 51 44 29
-------- -------- ------- -------- --------
Total fixed charges and preferred
stock dividends $ 264 $ 225 $ 210 $ 199 $ 107
======== ======== ======= ======== ========
Ratio of earnings to combined fixed
charges and preferred stock dividends (2) 4.0 3.5 5.1 3.3 4.9
======== ======== ======= ======== ========
<FN>
(1) Income from continuing operations before provision for income taxes and
minority interest includes special charges of $82 million, $313 million,
$172 million and $90 million for the years ended December 31, 2000, 1999,
1997 and 1996, respectively.
(2) Included in total fixed charges and preferred stock dividends are $66
million for the years ended December 31, 2000, 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.
</FN>
</TABLE>
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-13
<SEQUENCE>5
<FILENAME>0005.txt
<DESCRIPTION>AON ANNUAL REPORT
<TEXT>
Risk...
Anticipate it.
Understand it.
Embrace it.
Aon
2000 Annual Report Insure your vision
- OFC -
<PAGE>
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS
Percent
(millions except per share data) 2000 1999 Change
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INCOME DATA
Revenue $ 7,375 $ 7,070 4%
Investment income 508 577 (12)
EBITDA* 1,409 1,383 2
Income before special charges and accounting change** 531 547 (3)
Special charges** (50) (195) --
Cumulative effect of change in accounting principle** (7) -- --
--------------------------------
Net income 474 352 35
- -------------------------------------------------------------------------------------------
FINANCIAL POSITION
Total assets 22,251 21,132 5
Stockholders' equity 3,388 3,051 11
- -------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA
Income before special charges and accounting change 2.01 2.07 (3)
Special charges (0.19) (0.74) --
Cumulative effect of change in accounting principle (0.03) -- --
--------------------------------
Net income 1.79 1.33 35
- -------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY PER SHARE 13.02 11.91 9
- -------------------------------------------------------------------------------------------
CASH DIVIDENDS PER SHARE PAID ON COMMON STOCK 0.87 0.82 6
- -------------------------------------------------------------------------------------------
OPERATING SEGMENTS***
REVENUE
Insurance brokerage and other services 4,367 4,144 5
Consulting 770 656 17
Insurance underwriting 2,167 2,106 3
--------------------------------
Total revenue 7,304 6,906 6
INCOME BEFORE INCOME TAX
Insurance brokerage and other services 766 684 12
Consulting 109 80 36
Insurance underwriting 303 290 4
--------------------------------
Total income before income tax excluding
special charges - operating segments 1,178 1,054 12
Special charges 82 313 --
--------------------------------
Total income before income tax--operating segments 1,096 741 48
- -------------------------------------------------------------------------------------------
CORPORATE AND OTHER
Revenue 71 164 (57)
Loss before income tax (242) (106) --
- -------------------------------------------------------------------------------------------
<FN>
* Earnings before special charges, interest, taxes, depreciation and
amortization of intangible assets.
** Net of tax.
***Before cumulative effect of change in accounting principle.
</FN>
</TABLE>
- IFC -
<PAGE>
Achieving any vision demands CHANGE.
But with change comes RISK.
The solution: ANTICIPATE, UNDERSTAND AND EMBRACE RISK. SEIZE THE OPPORTUNITIES
that taking new risks can bring and realize the benefits.
THIS IS NOT A SMALL CHALLENGE.
As the complexity of risk expands at an ever-increasing pace, it demands an
almost constant stream of innovative thinking. Globalization, e-commerce,
threats to intellectual property, vulnerability of brands and reputation,
competition for talent, product failures, economic uncertainty -- it's a growing
list.
No company faces a single set of risks for more than a short period of time. It
is a continuum, changing and evolving with an organization's growth, markets,
strategies and competitive threats.
Winning in this environment requires an advocate, a trusted advisor to help you
navigate through these challenges -- applying experience, skills and presence --
to be there with you -- how, where and when you need them.
Aon IS THE RIGHT CHOICE.
We have become leaders in our industry by continually evolving for the benefit
of our clients. Demands for global distribution, integrated fulfillment,
outsourcing solutions, human capital management advice, innovative consumer
insurance products and e-commerce solutions drove us to invest in acquisitions,
product research and development, new expertise and new technologies.
Now, we are engaged in a business transformation that will elevate client
service to even higher levels, improve career opportunities for employees and
increase returns for stockholders. But we will not stop there, because at Aon...
we are here to INSURE YOUR VISION.
- 1 -
<PAGE>
MESSAGE TO STOCKHOLDERS
During 2000, we made several important changes that I believe will be pivotal to
our future success. On the following pages, I will share my view of Aon's past,
and more importantly, Aon's future.
In 2000, we did not achieve our overall financial goals. Before special charges,
earnings per share were $2.01 compared with $2.07 in 1999, the first
year-over-year decline in Aon's history. Clearly, these results are
disappointing to me, to my fellow employees and to you, our fellow stockholders.
The primary cause of the earnings per share decline was lower investment income
in our non-operating corporate segment. Corporate segment revenue dropped $93
million, representing $0.23 per share. This was due in part to valuation
declines in the equity markets. Longer-term, we expect these investments to
provide favorable returns.
When we look more closely at the underlying financial performance of our
operating businesses, we see steady improvement in 2000 driven by strong client
satisfaction and a growing demand for our services and products. In fact, all
three of our operating segments reported increased revenues and pretax income
versus 1999.
Looking ahead, I am very optimistic. We took several decisive steps in 2000 all
building on the global foundation that we have created over the last several
years. We strengthened our executive management team, installed industry-leading
technology platforms and initiated a major business transformation plan. I
believe these actions will significantly improve our performance in 2001 --
advancing our client franchise, improving career opportunities and enhancing
returns for our stockholders.
PICTURE OMITTED (Caption listed below)
Patrick G. Ryan
Chairman and Chief Executive Officer
Aon's STRATEGY -- MEETING THE CHANGING NEEDS OF OUR CLIENTS
Aon's clients face change every day to achieve their vision for their customers,
their stockholders and their employees. They must, to keep pace with global
competition, changing economies, industry challenges and new competitive forces
such as e-commerce. Aon plays a critical role in this process, working together
with clients as they take on new risks, increasing the odds that change will
create new value.
Aon also has faced change to achieve its vision of continually improving the
quality of solutions delivered to clients. Investments in acquisitions, new
technologies and intellectual capital, as well as the implementation of new
business processes, are some of the major changes that Aon has undertaken over
the last several years.
We believe the benefits of our decisive steps and the intrinsic value that we
have created will become even more evident as 2001 unfolds. We have a powerful
worldwide professional services organization, global access to capital and
distribution channels, unparalleled risk management expertise, a growing and
more profitable consulting practice and a unique consumer policyholder base.
Looking at our external environment, we see deregulation and privatization as
growing global trends that will increase demand for our services. In addition,
we are seeing the first broad-based premium rate upturn in the property and
casualty insurance cycle in more than a decade. Heightened competition is
forcing more companies to outsource functions beyond
- 2 -
<PAGE>
their core competencies. Historically low unemployment coupled with the growing
presence of service companies are escalating the importance of human capital as
the key competitive advantage.
Aon anticipated these trends and developed business strategies around them.
REVIEW OF OPERATING SEGMENTS
In 2000, Aon's combined operating segments -- insurance brokerage and other
services, consulting and insurance underwriting -- recorded pretax income growth
of 12% before special charges. Strong organic revenue growth was driven by new
client relationships, enhanced client retention and improved productivity.
International brokerage, alternative market operations, managing general
underwriting, and wholesale and reinsurance brokerage each produced good
financial results in 2000. Claims services posted excellent organic growth and
we secured significant outsourcing contracts with insurance carriers. Our
affinity programs for nurses, accountants and other professionals increased the
amount of product offerings. And, we announced a major new business opportunity
with State Farm, the largest U.S. personal lines insurer, tapping our specialty
property and casualty expertise for the benefit of their agents' customers.
We made several executive management changes during the year in our brokerage
segment. Ken LeStrange, who headed our alternative market operations, was
promoted to lead retail brokerage for the Americas. Max Taylor, the former
chairman of Lloyds, joined us to head relationship management for large
multi-national accounts.
Consulting posted its best financial performance ever under the new leadership
of Don Ingram who was promoted to head worldwide consulting at the beginning of
2000. Revenues grew 17% and pretax income jumped 36%. The demand for talented
employees continues to create increasing needs for our consulting services.
BAR CHART DESCRIBED BELOW:
EBITDA -- Earnings from continuing operations before special charges, interest,
taxes, depreciation and amortization of intangible assets.
(in millions)
1996 - $ 721
1997 - $1,012
1998 - $1,271
1999 - $1,383
2000 - $1,409
PIE CHARTS DESCRIBED BELOW:
GEOGRAPHIC DISTRIBUTION
2000 Revenue
59% - United States
19% - United Kingdom
11% - Continent of Europe
11% - Rest of World
BUSINESS SEGMENTS
2000 Revenue
59% Insurance Brokerage and Other Services
30% Insurance Underwriting
10% Consulting
1% Corporate and Other
- 3 -
<PAGE>
In October 2000, we completed our acquisition of Actuarial Sciences Associates,
Inc. giving us greater strength with large corporate accounts in our consulting
segment, as well as a broader array of retirement planning products. We also
have developed e-commerce solutions that allow corporate clients' employees to
research, plan, purchase and enroll in insurance and financial products on-line
that match their individual risk preferences.
Consumer demand for Aon's accident, health, life and warranty products advanced
in 2000. Insurance underwriting revenues approached $2.2 billion and prior
investments in new business development initiatives showed good progress.
BUSINESS TRANSFORMATION PLAN
On November 2, 2000, we announced our business transformation plan. The purpose
of the plan is to elevate service and productivity to even higher levels that
anticipate the changing and growing needs of our clients.
Through our acquisitions and consolidations, we have brought together many
companies over several years. A common culture now exists around a unifying
principle of striving to exceed client expectations. As we acquired companies
and assimilated cultures, we simultaneously invested in new technologies to
ensure that we would stay on the leading edge, giving our employees and clients
the best tools possible.
Business transformation was the next logical step. We had a choice. We could
make improvements at the margin, or we could rethink and redesign how we do
business. We concluded that incremental change yields incremental progress and
decided that the only viable option was to undertake fundamental change.
We are realigning leadership, technologies, business models and organizational
structures. The transformation plan encompasses each of our operating segments
and staff functions. Most of the change will occur in our largest operating
segment, insurance brokerage, and in our major countries of operation, the U.S.
and U.K. We will maintain client service at the local office level, where it
belongs, but move administrative functions to processing centers, freeing up
more management time for consultation with clients.
We expect to save $150 million to $200 million in expenses per year from the
business transformation plan and we anticipate the savings to reach the
annualized level starting in fourth quarter 2001. Total pretax costs attributed
to the transformation are expected to be between $250 million and $325 million,
most of which will be recorded as a special charge.
The plan is on track. We recorded an $82 million pretax special charge in fourth
quarter 2000. The remaining special charges will be incurred in the first half
of 2001. While we will achieve significant savings, the real objective of the
transformation plan is to facilitate stronger organic growth by creating more
scalable operating platforms that enhance client service. Improved job design,
career planning and compensation programs are also being implemented to better
align employee activities with financial objectives. Employee ownership of Aon's
common shares is already high. These actions will tie employee and stockholder
interests even more closely together.
A major technological accomplishment in 2000 was the U.S. rollout of our
proprietary policy management and accounting system. It is the foundation for
much of our business transformation plan. The inherent flexibility of this new
system allows us to redesign processes and organizational structures to enhance
marketing, client service, new product development and overall workflow
productivity. Additional rollouts of the system will continue this year in
Canada and parts of Europe. We also have linked this new system with our AonLine
client software to leverage the benefits of both.
A more scalable and robust e-commerce platform infrastructure is near completion
and will be ready to accept new applications during the year. ARENA, our
reinsurance information technology platform, will be expanded from the U.S. to
international locations and our document management system efforts will also be
leveraged more widely.
We have instituted a country management model in the U.K. that we have used
successfully in other parts of the world to drive down infrastructure costs and
to enhance integrated business development across operating segments. Major
steps already completed include outsourcing agreements for
- 4 -
<PAGE>
information technology and facilities management involving the transfer of
hundreds of employees. Both will reduce costs and enhance service levels. Staff
functions such as human resources, accounting and legal have been consolidated
into single units in the U.K. to support all businesses. We have also
streamlined our subsidiary structure in the U.K. by consolidating the majority
of our operations under one entity, Aon Limited. This will lower regulatory and
administrative costs and also facilitate better management of working capital.
Overall, the business transformation plan is off to a good start. I am confident
that it will deliver on the tremendous potential that we have built over the
past several years. We have come a long way in turning several companies into
one leader. We now can focus on becoming the best operating company in our
industry by driving continuous improvement; making all of Aon more accessible,
streamlined and organized around our clients.
In November 2000, we were fortunate to welcome Robert S. Morrison, chairman of
The Quaker Oats Company, to our board of directors. Newt Minow and Dan Carroll
will be leaving Aon's board of directors in April 2001 having attained our
mandatory retirement age. We greatly appreciate their years of service and
helpful guidance.
LOOKING AHEAD
The property and casualty insurance markets are experiencing premium rate
increases in virtually every line of insurance. We see this trend continuing,
given the deteriorating underwriting results of many insurers and
reinsurers. We stand ready to secure the best options possible for our clients,
including extensive alternative risk transfer solutions, in this more difficult
environment.
Aon's strategy has always been driven by the belief that a strong client focus
will result in increased stockholder value. Aon's client base spans the Fortune
500, the FTSE 100, thousands of middle market and smaller commercial companies,
millions of individual policyholders, the world's largest insurance companies
and thousands of independent agents and brokers who tap into our vast
capabilities every day. Our global infrastructure of resources, relationships
and people cannot be replicated. We benefit from an extremely diversified
earnings stream that affords us significant financial strength.
A timely and effective implementation of our business transformation plan is a
major focus for 2001. The success of this plan will allow us to reach our
business development and productivity goals, as well as our overall financial
goals of double-digit earnings per share growth and improved returns for our
stockholders.
We have built a world-class professional services organization and I am
confident that the true value of our franchise will become more evident as we
successfully execute our business plans and our strategies.
Sincerely,
/s/Patrick G. Ryan
- ------------------
PATRICK G. RYAN
Chairman and Chief Executive Officer
- 5 -
<PAGE>
Aon: A Client-Centric Approach
Business management and risk management are inseparable items at the top of any
strategic agenda. The reason: an amazing broadening of the definition and
concept of risk. It now extends to the reputations of companies and brands,
intellectual property, unforeseen competition, attraction and retention of
talent -- it's a long and evolving list.
- 6 -
<PAGE>
We create innovative solutions that address the changing risks our clients face
as they seek out new opportunities.
- 7 -
<PAGE>
The new demands of risk have far surpassed the scope and abilities of
traditional insurance offerings. The new model demands an advisor with a
client-centric view and the ability to replace off-the-shelf policies with
programs which are custom-fit to each client's specific needs.
It requires an ally with a holistic view of risk, more an advocate than a
supplier, to help clients first understand the new dimensions of risk and then
combine their experience with Aon's global distribution network and innovative
fulfillment capabilities.
PICTURE OMITTED (Caption listed below)
MICHAEL D. O'HALLERAN
President and
Chief Operating Officer
"WE APPLY A CLIENT-CENTRIC APPROACH TO A WORLD OF RISK, BACKED BY THE EXPERTISE,
TEAMWORK AND ENERGY OF AON'S PROFESSIONALS AROUND THE WORLD."
Aon's business model applies segmentation and specialization to solve client
needs. First, in collaboration with our clients, we evaluate their needs,
complexity, industry profile, geographic scope and other characteristics. Then,
we have our specialists apply their intellectual capital: industry knowledge,
product expertise, market intelligence and other strengths. Finally, the right
solution is created from our full slate of products and services, including risk
management, global brokerage, alternative risk transfer, captive management,
claim services, affinity, managing general underwriting, human capital
consulting and consumer insurance and warranty protection.
Overlaying this model is a discipline of strategic account management where we
join forces with our clients to understand their business goals, financial
objectives, competition, core strengths, vulnerabilities and new opportunities.
Based on this understanding, we provide solutions in the most comprehensive
manner possible.
We also have created worldwide practice groups that are connected by a global
account management system so that we can tap into the most sophisticated risk
solutions, no matter where they were created. An industry expert in Europe can
access a recently updated development in the U.S. and deliver a solution
seamlessly to a client in Asia.
We also can help put the overall risk profile into perspective. For example, we
use dynamic financial analysis to assess the financial impact of various loss
scenarios. This can uncover that a client may be over-protected in one area,
dangerously under-protected in another and possibly unaware of a major new
hazard.
Together, these capabilities allow us to collaborate with clients to evaluate
risk on an enterprise basis and then apply comprehensive solutions which deliver
Aon's vast resources. We apply a client-centric approach to a world of risk,
backed by the expertise, teamwork and energy of Aon's professionals around the
world.
On the following pages, we look at three representative companies that depict
challenges Aon has addressed for clients. First, a fast-paced Fortune 100
company; second, a spin-off dealing with a dramatic change of direction; and
third, an international company where risk takes on a global scope.
In each, we illustrate how Aon helped the company take advantage of
opportunities that risk brings in terms of creating value.
- 8 -
<PAGE>
PAGE 9 OMITTED.
- 9 -
<PAGE>
UNCOVERING RISK.
WHAT YOU DON'T KNOW CAN HURT YOU.
A MAJOR SHIPPING COMPANY ASKED FOR HELP IN CUTTING CLAIMS FREQUENCY. THAT'S WHEN
THINGS GOT INTERESTING.
Like many companies that have been good enough, long enough to break into the
Fortune 100, the client had successfully cleared many hurdles.
But there was a problem. The company's management felt that their claims
frequency was out of line. They needed help. What they didn't know was their
long-time comfort level with the risk they perceived no longer matched the risk
they faced. An understandable situation when every waking hour is focused on
managing a fast-paced business.
For Aon, a request to help in one area is usually just a first step. Once our
loss control and claims experts helped reduce worker injuries, we put together a
team that could consult with the company's management to address risk in its
many forms.
We completed an enterprise risk management analysis, from transportation risk to
corporate governance to intellectual property. Our risk assessment team worked
hand-in-hand with the client looking at catastrophe risk exposures and recovery
plans, retention of key talent, occupational and environmental health hazards
and the full range of risk.
Our strategic account manager found better ways to transfer, retain and finance
operational risk. Alternative risk transfer solutions were developed and captive
management programs were deployed.
The company felt comfortable that it had adequate coverage for physical damage,
but the definition of disaster expanded due to their growing dependence on
technology. While they had insured against the cost of replacing systems, they
did not have adequate disaster recovery plans and had underestimated the costs
when an information-dependent company loses access to data.
We showed the client cases in which catastrophes that cost in the tens of
millions of dollars in direct equipment damage can generate indirect losses that
can reach hundreds of millions of dollars, not to mention lost opportunity
costs. We recommended parallel systems, comprehensive disaster recovery planning
and decentralized authority to act as soon as disaster strikes.
The result: a successful company now has an enhanced risk management program
that addresses an expanded view of risk.
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<PAGE>
A large, fast-paced company takes on a new risk profile with every market
entered, every jump in size and every business venture. A trusted advisor can
collaborate with you to help constantly rethink and review...
o Workplace hazards
o Reputation risk
o Product liability exposure
o High employee turnover
o Weather risks
o Patent infringement
Aon addresses these and a wide range of other needs with industry specialization
and products and services that include ...
o Claims management audits
o Industry expertise
o Management consulting
o Captive management programs
o Directors' and officers' coverage
o Employment outsourcing services
o Change management consulting
o Risk management information systems
- 11 -
<PAGE>
INDEPENDENCE DAY.
A NEWLY PUBLIC COMPANY CONFRONTS A WHOLE NEW WORLD OF RISK.
BEING SPUN OFF AS A SEPARATE COMPANY DOESN'T HAPPEN IN A DAY. IT JUST FEELS THAT
WAY.
A company's stock price is lagging its peers' and the answer to unlock value is
to spin off one or more of the valuable parts. They will have more freedom to
compete and the market will be able to value them as pure plays.
All of a sudden, a business accustomed to operating under one set of rules,
finds itself living under new ones. Change and risk become one.
The newly spun off client found itself looking at risk in a whole new way. It
was not something for the parent company to decide and the division to execute.
The responsibility for risk very quickly moved up the agenda of leadership
concerns.
In many ways, especially concerning risk, a spin-off is like a start-up.
Facilities and fleet coverage, workers' compensation, errors and omissions,
independent contractor programs, a new board of directors, intellectual property
- -- it's a full slate. There are new demands to attract and keep the best people.
There are employee benefits and savings plans to be created. It needs
independent access to affordable protection to fund growth. Most of all, it
needs a plan.
With a company this "new", growing this fast, and with cash flows more seasonal
and unpredictable than the parent company's, our approach centered on
flexibility. Aon helped create a long-term comprehensive plan that consolidated
the individual risk profiles for all the new company's units, with data combined
in a centralized risk information warehouse so that it could be analyzed on a
portfolio basis. The risk management process became an integral part of the
strategic business and capital planning process as the new company continued to
add units through acquisitions and remove others through divestitures.
In the course of the planning, Aon stepped in with a number of specialized
resources. Aon's mergers and acquisitions specialists provided advice regarding
acquisition targets and off balance sheet risks. Our loss prevention specialists
also found ways to reduce certain manufacturing costs.
The uncertainties that come from a changing organization also raise the threat
of a severe talent drain. So the client turned to Aon's consultants to develop
compensation and reward programs that balance the bottom line considerations of
a newly public company with the needs of talented employees. That engagement led
to a broader effort to make certain that the company was adequately staffed in
key positions and that there was a development plan in place to ensure that the
talent pipeline would meet future needs.
As the company's business needs grow, the risk management plan that Aon helped
them develop will ensure that the issues are addressed, that protections are in
place and that flexibility will promote growth.
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<PAGE>
Organizations today are subject to rapid and fundamental change. Acquisitions,
mergers, spin-offs and IPOs all bring a new element to the business of managing
risk. Among the new considerations...
o Attracting the right board of directors to provide expert guidance
o Risk management planning reflecting new exposures of a changed organization
o Protection against liabilities inherited with acquisitions
o Executive compensation programs that retain key talent
o New human resource, benefit and employee compensation programs
o Navigating the capital and risk issues in business combinations
Aon helps clients recognize and handle the risk inherent in dramatic
organizational change through ...
o Change management consulting
o Directors' and officers' coverage
o Capital markets consulting and services
o Benefits consulting and coverage
o Mergers and acquisitions expertise
o Human resources advice
o Executive compensation and benefits
o Dynamic financial analysis that evaluates risk retention capabilities
- 13 -
<PAGE>
CROSSING BORDERS.
GLOBAL BUSINESS MEANS GLOBAL RISK.
Risk management on a global basis demands worldwide services and a broad
perspective.
Aon's client, a rapidly growing communications company with global operations,
found itself with a patchwork of credit policies housed in its various
subsidiaries. Maybe they were fine as is but maybe these policies should be
consolidated. The client called in Aon to help them find the answer and to take
the right action to make sure their policies balanced growth with exposures in
markets where the opportunity is often matched by economic and political
uncertainties.
The credit-worthiness of customers country to country is one of hundreds of
considerations that any organization operating across borders must factor into
their risk profile.
Employee benefits expectations and laws vary widely. There is often the risk of
a myriad of catastrophes, from earthquakes to terrorist acts. There are
significant fleet risks in moving goods through countries with widely varying
infrastructure and safety standards. Issues can be different, not just by
country, but by region within countries.
The client turned to Aon for two reasons. One was the wide range of available
services and coverages. But just as important was Aon's global service approach
which brings together resources and people from around the world to make sure
the client has the right protection and the right service wherever they need it.
Aon's international trade credit team helped the client understand the credit
insurance market. They pointed out the information and underwriting advantages
of buying coverage locally and how to take advantage of the consolidation of
markets. They reviewed the pluses and minuses of the various forms of insurance
available in different countries. They showed how Aon can coordinate purchases
on a global basis with numerous companies to ensure the best policy service.
That led to a full audit of the client's trade insurance policies, which in turn
produced the green light for a full program of coverage.
This engagement led to the client inviting Aon to review the risks it faced in
varying political situations ranging from confiscation to the threat of
terrorism. As the company acquired new businesses, it also called on Aon's
international benefits unit to coordinate a workable benefits structure across
economies and cultures.
The client now has more latitude to focus on the global complexities of its
business, while Aon helps deal with the complexities of risk.
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<PAGE>
Doing business globally demands all the risk awareness and protection of doing
business in a single country - but adds a range of uncertainties that are
inevitable when goods and services cross borders and cultures. Global companies
need help with ...
o Political instability
o The increased threat of catastrophe
o Economic uncertainty
o Services and protection in international trade
o Threats to executives and property
o Multi-market benefits and compensation
Aon provides products and services through a global network of people and
offices to deal with the complexities of international risk including...
o Access to global insurance markets
o Kidnap and ransom coverage
o International benefits consulting
o Political risk solutions
o Trade finance solutions
o Global compensation advice
- 15 -
<PAGE>
FINANCIAL CONTENTS
- --------------------------------------------------------------------------------
Management's Discussion and Analysis of Financial
Condition and Results of Operations 17
Consolidated Statements of Income 29
Consolidated Statements of Financial Position 30
Consolidated Statements of Stockholders' Equity 32
Consolidated Statements of Cash Flows 33
Notes to Consolidated Financial Statements 34
Reports by Independent Auditors and Management 56
Selected Financial Data 57
Quarterly Financial Data 58
- 16 -
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.
This management's discussion and analysis of financial condition and results of
operations 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 28 of this annual report.
GENERAL
Aon has three operating segments: Insurance Brokerage and Other Services,
Consulting and Insurance Underwriting. These segments are based on the type of
client and the services or products delivered. Aon also has a fourth,
non-operating segment, Corporate and Other.
References to organic growth exclude the impact of acquisitions, dispositions,
transfers, investment income, foreign exchange and other unusual items. Written
premiums are the basis for the measurement of organic growth within the
Insurance Underwriting segment.
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 10) and the cumulative effect of a change in
accounting principle (see note 1).
The accounting policies for the business segments are identical to those
described in note 1 to the consolidated financial statements.
SPECIAL CHARGES
GENERAL
Aon's special charges are reflected in general expenses on the consolidated
statements of income. Aon's unpaid liabilities relating to the business
transformation plan, special charges and purchase accounting are reflected in
general expense liabilities on the consolidated statements of financial
position.
2000
BUSINESS TRANSFORMATION PLAN
In November 2000, Aon's Board of Directors approved, in principle, a
comprehensive business transformation plan designed to enhance client service,
significantly improve the way Aon conducts business and improve profitability
primarily through utilization of technology and process redesign.
Implementation of the business transformation plan began in fourth quarter 2000.
Aon will incur costs estimated to be between $250 million and $325 million on a
pretax basis comprised of both special charges and transition costs. The
majority of the special charges, which constitute the largest part of the costs
of the business transformation plan, are expected to be taken by the end of
first quarter 2001 with the remaining amount to be recognized in second quarter
2001. By third quarter 2001, transition costs are expected to decline
significantly. The majority of the plan costs and savings are related to the
Insurance Brokerage and Other Services segment principally in the U.S. and the
U.K., where most of Aon's offices and employees are located. The majority of the
charges involve cash outlays primarily for severance payments for workforce
reductions relating to the elimination of about 3,000 positions or approximately
6% of Aon's 51,000 total worldwide workforce as of December 31, 2000. Positions
being eliminated involve all levels including senior and middle management,
staff functions, administrative and clerical positions.
The first phase of the plan resulted in the elimination of approximately 500
positions. Aon's total employee headcount as of December 31, 2000 grew by 2%
compared to prior year-end due to significant new business opportunities, the
Actuarial Sciences Associates, Inc. (ASA) acquisition (see note 3) and other
smaller acquisitions.
In connection with the plan, Aon recorded pretax special charges of $82 million
($50 million after-tax or $0.19 per share) during fourth quarter 2000. The
special charges included costs related to termination benefits of $54 million,
other costs to exit an activity of $6 million and asset impairments and other
charges of $22 million relating primarily to the abandonment of systems and
equipment (see note 4).
Transition costs, primarily related to the running of parallel systems, were
nominal in fourth quarter 2000 and are projected to offset savings in the first
half of 2001. Pretax special charges and transition costs in the range of $170
million to $240 million are projected to be incurred as the plan continues to be
implemented.
Annualized pretax savings from the plan are estimated to be approximately $150
million to $200 million. Full annualized run rate savings are expected to be
achieved in fourth quarter 2001. As expected, savings in fourth quarter 2000
were not appreciable. As Aon progresses through the next several quarters, more
business process change and a significant increase in position eliminations will
drive cost savings. Temporary pressure on revenue growth rates may occur during
the implementation of the plan.
1999
In first quarter 1999, Aon recorded special charges of $163 million ($102
million after-tax or $0.39 per share). The charges included provisions for
restructuring in the Insurance Brokerage and Other Services and Consulting
segments of $120 million (see note 3). Also, in the Consulting segment, charges
of
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<PAGE>
$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 14).
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 following changes in
U.K. government requirements and $72 million relating to various litigation
matters including Unicover (see note 14).
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 was settled in early 2000. The remaining Unicover issues are complex and,
therefore, the timing and amount of resolution cannot be determined at this
time.
CONSOLIDATED RESULTS
The consolidated results of operations follow:
(millions) Years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Consolidated revenue:
Brokerage commissions and fees $ 4,946 $ 4,639 $ 4,197
Premiums and other 1,921 1,854 1,706
Investment income 508 577 590
----------------------------------
Total consolidated revenue 7,375 7,070 6,493
- --------------------------------------------------------------------------------
Expenses:
General expenses 5,108 4,901 4,457
Benefits to policyholders 1,037 973 896
Interest expense 140 105 87
Amortization of intangible assets 154 143 122
----------------------------------
Total expenses 6,439 6,122 5,562
- --------------------------------------------------------------------------------
Income before income tax
excluding special charges 936 948 931
Special charges 82 313 --
----------------------------------
Income before income tax* $ 854 $ 635 $ 931
- --------------------------------------------------------------------------------
*Excludes minority interest and cumulative effect of change in accounting
principle.
CONSOLIDATED RESULTS FOR 2000 COMPARED TO 1999
REVENUE
On a comparable currency basis, total 2000 revenue of $7.4 billion rose 7% over
1999. On a reported basis, total revenue increased 4% in 2000 compared with
1999. This increase was largely attributable to new business growth in the
operating segments, business combination activity and the impact of improving
premium rates across the property and casualty insurance markets. Revenue growth
was negatively impacted by unfavorable foreign exchange rate comparisons, the
absence of Unicover revenue and a significant decrease in corporate and other
investment revenues associated with lower income on disposals of securities. Aon
does not hedge revenues against foreign currency translation since it is not
cost effective, but does attempt to hedge pretax income. Consolidated revenue
for all segments grew approximately 8% on an organic basis over 1999.
Consolidated revenue by geographic area follows:
(millions) Years ended December 31 2000 1999 1998
- ------------------------------------------------------------------------
Revenue by geographic area:
United States $ 4,350 $ 4,131 $ 3,736
United Kingdom 1,363 1,352 1,244
Continent of Europe 833 841 790
Rest of World 829 746 723
--------------------------------
Total revenue $ 7,375 $ 7,070 $ 6,493
- ------------------------------------------------------------------------
U.S. consolidated revenue, which represents 59% of total revenue, increased 5%
in 2000 compared to 1999, largely attributable to organic growth and acquisition
activity. U.K. and Continent of Europe revenue combined increased slightly to
$2.2 billion and Rest of World revenue increased 11% to $829 million reflecting
acquisitions and new business.
Brokerage commissions and fees increased 7% to $4.9 billion, primarily from
organic growth of new business and from business combination activity. Partially
offsetting the growth was the negative impact of foreign exchange rates.
Premiums and other increased 4% in 2000 to $1.9 billion. This increase was
generated by continued strong growth in the accident and health core businesses
driven by the continued expansion of product distribution through worksite
marketing programs and the development of new product initiatives introduced in
1999 on a global basis. Revenue growth was partially offset by a reduction in
extended warranty revenues primarily from the intentional discontinuation of one
major warranty renewal and the loss of revenue from the exit of a major retailer
from the appliances and electronics line.
Investment income of $508 million declined 12% in 2000 principally reflecting
lower levels of income on disposals of securities. This decline was partially
offset by higher investment income from the insurance brokerage and other
services and consulting operations, which increased $30 million or 19% in 2000
compared to 1999. Higher short-term interest rates coupled with improved cash
flows also contributed to the increase.
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<PAGE>
EXPENSES
General expenses, excluding special charges, increased $207 million or 4% over
1999, primarily reflecting investments in new business initiatives, acquisitions
and technology. Such costs included the rollout of Aon's U.S. retail brokerage
computer system platform and related conversions, running of parallel systems
and one-time training expenses.
Benefits to policyholders increased 7% in 2000 and exhibited no unusual claims
activity.
Interest expense increased 33% from prior year partly attributable to
acquisition financing. Higher short-term interest rates and the issuances of
$250 million of 6.9% notes in second quarter 1999 and $250 million of 8.65%
notes in second quarter 2000 (see note 7) also contributed to the increase.
INCOME BEFORE INCOME TAX
Excluding special charges, income before income tax decreased $12 million or 1%,
primarily reflecting lower levels of income on disposals of securities, costs to
integrate Aon's global network, additional interest expense and the absence of
Unicover revenue. During the year, the net foreign exchange impact to pretax
income, after the benefit of derivative activity, was negligible. Approximately
47% of Aon's consolidated income before income tax and special charges is from
non-U.S. operations.
CONSOLIDATED RESULTS FOR FOURTH QUARTER 2000 COMPARED TO FOURTH QUARTER 1999
On a comparable currency basis, total revenues in the quarter increased 8%. On a
reported basis, revenue increased 4% to $2 billion primarily reflecting organic
growth from increased new business and business combination activity, the impact
of premium rate increases and additional new business. Total expenses, excluding
special charges, increased 2% to $1.7 billion for the quarter as a result of
acquisitions and related costs and investments in new business initiatives.
Income before income tax, excluding fourth quarter 2000 and 1999 special
charges, increased $56 million or 29% to $246 million. The increase in pretax
income before special charges primarily reflects the effects of strong organic
growth and expense controls offset by decreased revenues on equity investments.
CONSOLIDATED RESULTS FOR 1999 COMPARED TO 1998
REVENUE
On a comparable currency basis, total revenue growth was 10%. Total revenue was
$7.1 billion, an increase of 9% on a reported basis. This increase was largely
attributable to growth in brokerage commissions and fees resulting from business
combination activity, growth in insurance premiums from new business and organic
growth in the operating segments. Negative foreign exchange translations, lower
interest rates and lower corporate investment income on equity securities
negatively impacted revenue growth. Consolidated organic revenue growth was
approximately 5% over 1998.
U.S. revenues increased 11% in 1999 compared to 1998 primarily due to increased
new business and acquisitions. U.K. and Continent of Europe revenues increased
8% to $2.2 billion and Rest of World revenue of $746 million increased 3% in
1999 from acquisitions and new business.
Brokerage commissions and fees increased 11% to $4.6 billion reflecting growth
from business combination activity, organic growth and increased new business.
Collectively, the Insurance Brokerage and Other Services and Consulting segments
had organic revenue growth of 6% in 1999 compared to 1998.
Premiums and other revenue of $1.9 billion increased 9% in 1999 primarily
reflecting continued growth related to both appliance and electronics warranty
products and growth from accident and health products.
Investment income of $577 million decreased 2% for the year. The primary factors
contributing to this decrease were a reduction in short-term interest rates,
mostly outside of the U.S., and lower levels of revenue from equity securities.
Partially offsetting the investment income decline was income from the disposal
of tax-exempt bonds (with proceeds reinvested in foreign source income bonds for
tax planning purposes) and higher levels of income from disposals of private
equity investments. During 1999, investments in limited partnerships and private
equities increased, but still represented less than 10% of the overall
investment portfolio at year-end 1999.
EXPENSES
General expenses, excluding the 1999 special charges, increased 10% over prior
year primarily due to additional expenses associated with the integration of new
businesses in 1999, as well as expenses related to new initiatives, increased
levels of technology spending and a branding campaign. General expenses,
including special charges, increased 17% reflecting the inclusion of 1999 pretax
special charges of $313 million.
Benefits to policyholders increased 9% when compared to 1998, consistent with
growth in related premiums earned. Claims activity continued to follow
predictable patterns.
Interest expense and amortization of intangibles increased 21% and 17%,
respectively, largely as a result of acquisitions.
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INCOME BEFORE INCOME TAX
Pretax income, excluding special charges, grew 2% or $17 million, primarily
reflecting costs to integrate Aon's global network, increased technology
expenses and the launching of a branding campaign. Income before income tax
decreased $296 million or 32% in 1999 primarily due to the inclusion of special
charges in 1999. Approximately 30% of 1999 income before income tax is derived
from non-U.S. operations.
OPERATING SEGMENTS
Aon classifies its businesses into three operating segments: Insurance Brokerage
and Other Services, Consulting and Insurance Underwriting (see note 15).
Aon's operating segments are identified as those that report separate financial
information and that are evaluated on a regular basis in deciding how to
allocate resources and assess performance. Total revenue for each of the
operating segments is presented both by major product and service and by
geographic area in note 15. 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 and services within
each of the operating segments. In addition to revenue, Aon also measures a
segment's financial performance using its income before income tax. Revenues are
attributed to geographic areas based on the location of the resources producing
the revenues.
Operating segment revenue includes investment income related to that segment.
Investment characteristics mirror liability characteristics of the respective
operating segments. Aon's insurance brokerage and other services and consulting
businesses invest fiduciary funds and operating funds in shorter-term
obligations. Income derived from these investments, as well as the impact of
related derivatives, is included in the revenues of those businesses. In
insurance underwriting, investments underlying interest-sensitive capital
accumulation insurance liabilities are fixed- or floating-rate fixed-maturity
obligations. Policyholder claims and other types of non-interest sensitive
insurance liabilities are primarily supported by intermediate to long-term
fixed-maturity instruments. For the Insurance Underwriting segment, operating
invested assets are equivalent to average net policy liabilities.
For purposes of the following operating segment discussions, comparisons of 2000
against 1999 results and 1999 against 1998 results exclude special charges.
The following tables and commentary provide selected financial information on
the operating segments.
(millions) Years ended December 31 2000 1999 1998
- ------------------------------------------------------------------------
Operating segment revenue:
Insurance brokerage and
other services $ 4,367 $ 4,144 $ 3,782
Consulting 770 656 615
Insurance underwriting 2,167 2,106 1,946
--------------------------------
Total operating segment revenue $ 7,304 $ 6,906 $ 6,343
- ------------------------------------------------------------------------
Income before income tax:
Insurance brokerage and
other services $ 766 $ 684 $ 663
Consulting 109 80 68
Insurance underwriting 303 290 283
- ------------------------------------------------------------------------
Total income before income tax
excluding special charges--
operating segments 1,178 1,054 1,014
Special charges 82 313 --
--------------------------------
Total income before income tax--
operating segments $ 1,096 $ 741 $ 1,014
- ------------------------------------------------------------------------
INSURANCE BROKERAGE AND OTHER SERVICES
The Insurance Brokerage and Other Services segment consists principally of Aon's
retail brokerage, reinsurance, wholesale and specialty brokerage and other
related services such as managing underwriting and claims services. Aon's
reinsurance brokerage activities offer reinsurance, analytical services and
alternative risk financing vehicles. Aon also actively participates in placement
and captive management services. Based on revenues, Aon is the second largest
retail broker and the largest reinsurance broker globally.
The wholesale operations provide brokering expertise and underwriting solutions
and custom-designed products and services in several specialties including
entertainment, public entities, professional liability, workers' compensation,
media and financial institutions. Some of the services provided in this segment
arise in certain specialties such as marine, aviation, directors and officers
liability, financial institutions, construction and energy.
Approximately 59% of Aon's total revenues are generated from this segment.
Revenues are generated primarily through fees paid by clients; commissions and
fees paid by insurance and reinsurance companies; certain other carrier
compensation; and interest income on funds held primarily in a fiduciary
capacity. As the broker or intermediary, Aon is exposed to little underwriting
risk or catastrophic losses. Revenues vary from
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quarter to quarter throughout the year as a result of the timing of policy
renewals, the net effect of new and lost business and the realization of income
on investments. Generally, expenses tend to be more uniform throughout the year.
Revenues generated by the Insurance Brokerage and Other Services segment are
affected by premium rate levels in the property and casualty insurance markets
and available insurance capacity because compensation is frequently related to
the premiums paid by insureds.
The highly specialized product development, consulting and administrative risk
management needs of professional groups, service businesses, governments,
healthcare providers and commercial organizations are addressed in this segment.
Affinity products for professional liability, life, disability income and
personal lines are provided for individuals, associations and businesses.
Certain operating subsidiaries provide marketing and brokerage services to both
the primary and reinsurance sectors.
INSURANCE BROKERAGE AND OTHER SERVICES RESULTS FOR 2000 COMPARED TO 1999
REVENUE
Revenue growth, on a comparable currency basis, was 9% compared to prior year.
Total 2000 insurance brokerage and other services revenue was $4.4 billion, up
5% on a reported basis. Organic growth, acquisitions, new business and the
impact of diminishing premium rate declines accounted for the majority of this
revenue growth. Insurance brokerage and other services operating revenue, on an
organic basis, grew approximately 8% in a very competitive environment.
Investment income increased $27 million in 2000 as improvements in short-term
interest rates and increases in net cash flows provided from operations were
experienced.
On a global basis for 2000 and for the first time in a number of years, the
impact of insurance premium pricing was neutral and even slightly positive in
fourth quarter 2000. The property and casualty insurance market is very
competitive. As premium rates rise, some additional risk may be retained by
clients. This may limit future revenue growth thus affecting the earnings of
Aon's brokerage operations. In general, price firming outside the U.S. and
London has not been as significant. In London and the U.S., insurance pricing
levels rose in the second half of 2000.
Insurance brokerage and other services revenue by geographic region and pretax
income follows:
(millions) Years ended December 31 2000 1999 1998
- -------------------------------------------------------------------------------
Revenue by geographic area:
United States $ 2,277 $ 2,146 $ 1,884
United Kingdom 889 830 798
Continent of Europe 654 680 626
Rest of World 547 488 474
----------------------------------
Total revenue $ 4,367 $ 4,144 $ 3,782
- -------------------------------------------------------------------------------
Income before income tax
excluding special charges $ 766 $ 684 $ 663
- -------------------------------------------------------------------------------
U.S. revenue of $2.3 billion rose 6% in 2000 due to increased new business,
acquisitions, the reduced impact of premium rate declines and growth in U.S.
specialty operations. U.K. and Continent of Europe revenues of $1.5 billion
increased 2% from 1999 on the strength of internal growth and, to a lesser
extent, acquisitions. Rest of World revenue increased $59 million or 12% in
2000 primarily reflecting new initiatives and organic growth.
INCOME BEFORE INCOME TAX
Pretax income grew 12% in 2000 compared to 1999 and was positively impacted by
strong organic growth, particularly in the retail, specialty and reinsurance
sectors as well as by the easing of the competitive premium pricing environment
previously discussed. While this negatively affected income from revenue
sharing, poor underwriting performance contributed to continued price firming.
Pretax income margins in this segment expanded in 2000 to 17.5% from 16.5% in
1999. Several major factors contributed to the improvement in pretax margins: an
increase in the retention of existing business; higher investment income
(reflecting an increase in short-term interest rates); improved operating
results, and more efficient cost management. Partially offsetting these
improvements were higher technology costs related to the rollout of Aon's U.S.
retail brokerage policy management and accounting system and investments in new
initiatives, with little or no immediate associated revenue growth. Unicover
revenue, which benefited incrementally Aon's 1999 margin results, was absent in
2000.
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<PAGE>
CONSULTING
The global operations within the Consulting segment provide a full range of
services related to management of human capital, benefits and business
processes. These services are delivered to a predominantly corporate clientele
utilizing four practice groups: employee benefits, compensation, management
consulting and employment practices outsourcing. This segment generates
approximately 10% of Aon's consolidated revenues. Aon Consulting is one of the
world's largest integrated human resources consulting organizations.
Around the world, employee benefits markets continue to change as companies look
for better ways to manage their human capital costs while expanding the choices
offered to their employees. Consulting services include benefit plan design and
administration; compensation consulting and surveys; employee selection and
assessment; process improvement; leadership development; performance management
tools; workforce productivity and individual and organization change management.
Benefits issues outside the U.S. are becoming more complicated and increased
demand for services in these markets is anticipated.
Revenue in the Consulting segment is affected by changes in clients' industries
including government regulation, as well as new products and services, the state
of the economic cycle, broad trends in employee demographics and the management
of large organizations.
CONSULTING RESULTS FOR 2000 COMPARED TO 1999
REVENUE
On a comparable currency basis, consulting revenue grew 19% during the year.
Revenue grew 11% in 2000 on an organic basis. Reported revenue in 2000 increased
17% to $770 million. On a global basis, revenue growth was influenced by organic
growth, continued client demand for solutions that enhance workforce
productivity and acquisition activity. The ASA acquisition was completed in
early October 2000 and its inclusion in fourth quarter operating results
influenced comparisons.
Consulting revenue by geographic area and pretax income follows:
(millions) Years ended December 31 2000 1999 1998
- ------------------------------------------------------------------------------
Revenue by geographic area:
United States $ 486 $ 405 $ 387
United Kingdom 151 147 134
Continent of Europe 67 44 36
Rest of World 66 60 58
--------------------------------
Total revenue $ 770 $ 656 $ 615
- ------------------------------------------------------------------------------
Income before income tax
excluding special charges $ 109 $ 80 $ 68
- ------------------------------------------------------------------------------
U.S. revenue of $486 million in 2000 was up 20% from 1999 reflecting growth
across practice areas and the acquisition of ASA. Strong growth in employee
benefit services, partially offset by the sale of the financial planning
consulting business in the U.K., led to the U.K.'s 3% increase in revenue growth
from 1999. Continent of Europe revenue increased 52% or $23 million reflecting
growth of existing businesses and transfers of certain Insurance Brokerage and
Other Services segment operating activities to the Consulting segment. These
operations were transferred to properly place those operations in the area of
expertise where acceleration of growth can best be achieved. Rest of World
revenue increased 10% primarily attributable to growth from core businesses.
Unfavorable foreign exchange rates partially offset overall revenue growth.
INCOME BEFORE INCOME TAX
Total consulting pretax income increased $29 million or 36% from prior year
principally reflecting the inclusion of the ASA acquisition and organic growth.
Pretax margins improved to 14.2% from 12.2% in 1999.
INSURANCE UNDERWRITING
The Insurance Underwriting segment provides life, accident and health insurance
coverage through distribution networks, most of which are directly owned by
Aon's subsidiaries, and extended warranty and casualty insurance products. This
segment has operations in the United States, Canada, Latin America, Europe and
Asia/Pacific and generates approximately 29% of Aon's consolidated revenues.
In the life, accident and health operations, a sales force of approximately
8,000 career agents call on clients every six months to initiate and renew
coverage and to sell additional coverage. The current product portfolio often
allows policyholders the option of paying premiums monthly through a
pre-authorized check mechanism in the U.S. and on a direct
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<PAGE>
debit option in the U.K. 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 are offered. Most of
the products are primarily fixed-indemnity obligations, thereby not subject to
escalating medical costs. In addition to the traditional business, product
distribution has been expanded through payroll deduction and worksite marketing
programs.
Subsidiaries in North America, Latin America, Asia/Pacific and Europe provide
mechanical and appliance and electronics extended warranty products. The
administration of certain extended warranty products on automobiles, electronic
goods, personal computers and appliances is handled by certain operations in the
Insurance Brokerage and Other Services segment.
INSURANCE UNDERWRITING RESULTS FOR 2000 COMPARED TO 1999
REVENUE
Revenue growth in 2000 was 5% on a comparable currency basis. Revenue was $2.2
billion in 2000, up 3% from 1999 on a reported basis. There was a higher volume
of new business in the U.S. for the mechanical extended warranty products and
worldwide for the appliance and electronics extended warranty products. Accident
and health volumes continued to expand as product distribution through worksite
marketing programs and the development of new product initiatives, introduced in
1999, grew globally. Revenue growth is predominantly from existing operations as
these new initiatives continue to build momentum. The intentional
discontinuation of one major warranty renewal that did not meet profitability
hurdles and the loss of revenue from the exit of a major retailer from the
appliance and electronics line partially offset the otherwise strong revenue
growth in this segment. Organically, insurance underwriting revenue grew
approximately 6% in 2000.
Insurance underwriting revenue by geographic area and pretax income follows:
(millions) Years ended December 31 2000 1999 1998
- ----------------------------------------------------------------------
Revenue by geographic area:
United States $ 1,545 $ 1,457 $ 1,366
United Kingdom 308 349 290
Continent of Europe 111 115 117
Rest of World 203 185 173
--------------------------------
Total revenue $ 2,167 $ 2,106 $ 1,946
- ----------------------------------------------------------------------
Income before income tax
excluding special charges $ 303 $ 290 $ 283
- ----------------------------------------------------------------------
U.S. revenue of $1.5 billion was up 6% in 2000, as life, accident and health
products and extended warranty products all experienced growth. U.K. and
Continent of Europe revenue of $419 million declined 10% reflecting the
migration of certain business to fee-based servicing in the Insurance Brokerage
and Other Services segment in first quarter 2000. Rest of World revenue rose
10% reflecting continuing demand for the insurance warranty products and
services.
INCOME BEFORE INCOME TAX
Pretax income was $303 million in 2000, up 4% from last year. Partially
impacting 2000 comparisons was the positive runoff of specialty liability
policies. This is the final year that underwriting earnings are expected to be
impacted by the runoff of those policies. Revenue growth and improved expense
management were partially offset by start-up costs related to new accident and
health product initiatives and investments in new product development in the
extended warranty product lines. These efforts resulted in pretax margins of 14%
for this segment in 2000 compared to 13.8% in 1999. Overall, benefit and expense
margins in 2000 did not suggest any significant shift in operating trends.
CORPORATE AND OTHER
The components of corporate and other revenue and expenses follow:
(millions) Years ended December 31 2000 1999 1998
- ------------------------------------------------------------------------------
Corporate and other revenue:
Change in valuation of private
limited partnership investments $ 73 $ 60 $ 46
Income from marketable equity
securities and other investments 9 26 51
--------------------------------
Corporate and other revenue
before income (loss) on disposals
and related expenses 82 86 97
Income (loss) on disposals and
related expenses (11) 78 53
--------------------------------
Corporate and other revenue $ 71 $ 164 $ 150
--------------------------------
Non-operating expenses:
General expenses $ 59 $ 63 $ 60
Interest expense 140 105 87
Amortization of goodwill 114 102 86
- ------------------------------------------------------------------------------
Loss before income tax $ (242) $ (106) $ (83)
- ------------------------------------------------------------------------------
Corporate and Other segment revenue consists primarily of valuation changes of
investments in limited partnerships and income from certain other investments
(which include non-income producing equities); and income and losses on
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<PAGE>
disposals of all securities, including those pertaining to assets maintained by
the operating segments.
Private equities are principally carried at cost and usually are non-income
producing until a disposal occurs. Limited partnerships are accounted for on the
equity method and changes in the value of the underlying partnership investments
impact corporate revenue. Given the nature of Aon's limited partnership
investments, the reported income varies with the market values of underlying
publicly-traded equity investments. Limited partnership investments have
historically provided higher returns over a longer time horizon than broad
market common stock returns. However, in the short run, the returns are
inherently more variable.
Based on investment reports received through early 2001, Aon does not expect to
reflect a positive change in the valuation of limited partnerships or their
related investment results for first quarter 2001. See "Investment Operations."
Aon has no influence over the timing of these events. Consequently, such income
is not predictable and there can be no assurance that Aon will realize levels of
revenue in the future comparable to the past. Aon disposed of certain
directly-held equity investments in 1999 and reinvested the proceeds into
limited partnerships. Limited partnership investments grew to $602 million in
2000 from $465 million in 1999.
CORPORATE AND OTHER RESULTS FOR 2000 COMPARED TO 1999
REVENUE
Corporate and Other segment revenue decreased 57% or $93 million in 2000
compared to 1999. The primary factor contributing to this decline was a $78
million decrease in income on disposals of securities. In 1999, there was
approximately $30 million of income on disposals from tax-exempt bonds plus
income on disposals of other equities, with no significant comparable amounts in
2000.
LOSS BEFORE INCOME TAX
Corporate operating expenses include administrative and certain information
technology costs in addition to interest expense and goodwill amortization. The
pretax loss increased $136 million over 1999. Contributing to the higher loss in
2000 was lower equity related revenue as discussed above. In addition, interest
expense increased $35 million or 33%. Higher average short-term debt levels in
the U.S. (partly to finance acquisitions), coupled with higher short-term
interest rates, contributed to approximately 50% of the variance from 1999. The
remaining interest expense variance reflects the issuance of approximately $500
million of notes since June 1999. Goodwill amortization increased 12% in 2000
reflecting acquisitions.
DISCONTINUED OPERATIONS
Discontinued operations are composed of certain insurance underwriting
subsidiaries acquired with Alexander and Alexander Services, Inc. (A&A) that are
currently in runoff 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 TAXES
The effective tax rate was 39%, 38.3% and 37.5% for 2000, 1999 and 1998,
respectively. The increase in the 2000 effective tax rate was primarily
attributable to a shift in business mix. A program designed to enable Aon to
fully utilize foreign tax credits by switching from tax-exempt to taxable bonds
contributed to the 1999 increase. The overall effective tax rates are higher
than the U.S. federal statutory rate primarily because of state income tax
provisions and the non-deductibility of certain goodwill.
NET INCOME
Net income for 2000 was $474 million or $1.79 per share compared to $352 million
or $1.33 per share in 1999. The increase in 2000 net income and the related per
share amount is influenced primarily by a lower level of 2000 after-tax special
charges of $50 million ($0.19 per share) compared to 1999 after-tax special
charges of $195 million ($0.74 per share). Partially offsetting the increase in
2000 net income was the adoption of the Securities and Exchange Commission's
Staff Accounting Bulletin (SAB) 101 (see note 1 "Accounting and Disclosure
Changes") which resulted in a one-time cumulative noncash charge of $7 million
after-tax ($0.03 per share). As required by this new accounting guidance, Aon
restated the first quarter 2000 results for the cumulative effect of a change in
accounting principle. The adoption of SAB 101 did not impact the remaining 2000
reported quarterly results.
Net income for fourth quarter 2000 amounted to $90 million ($0.33 per share)
compared to $13 million ($0.05 per share) for 1999. Basic net income per share
was $1.81 and $1.35 in 2000 and 1999, respectively. Dividends on the redeemable
preferred stock in 2000 and 1999 have been deducted from net income to compute
income per share.
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<PAGE>
Net income excluding special charges and the cumulative effect of a change in
accounting principle was $531 million or $2.01 per share in 2000 compared to
$547 million or $2.07 per share in 1999. The decrease in 2000 net income,
excluding special charges and the accounting change, is primarily influenced by
a decrease of $93 million ($57 million after-tax or $0.23 per share) in 2000
corporate and other revenue which reflected less income on disposals of
securities. In fourth quarter 2000, dilutive average shares increased 2.1%
primarily due to the issuance of common shares, largely for the ASA acquisition,
and to a lesser extent, for employee stock compensation plans. Net income
excluding special charges amounted to $140 million or $0.52 per share in fourth
quarter 2000 compared to $106 million or $0.40 per share for 1999.
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 the 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. 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. Basic net income per share 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.
FINANCIAL CONDITION AND LIQUIDITY
Aon's routine liquidity needs are primarily for servicing its debt and for the
payment of dividends on stock issued 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 portion
of the remaining subsidiary dividends received throughout the year to invest in
acquisitions to expand its operating segment businesses. There are certain
regulatory restrictions relating to dividend capacity of the insurance
subsidiaries that are discussed in note 10. Insurance subsidiaries' statutory
capital and surplus at year-end 2000 exceeded the risk-based capital target set
by the National Association of Insurance Commissioners by a satisfactory level.
Aon's operating subsidiaries anticipate that there will be adequate liquidity to
meet their needs in the foreseeable future and to provide funds to the parent
company.
Aon anticipates that with the continued positive cash flow of its subsidiaries,
a fixed-maturity portfolio average life of 5.6 years and access to adequate
short-term lines of credit, it will have sufficient cash flow to meet both
short-term and long-term cash needs including current dividend payments. Given
these factors, Aon anticipates a sufficient level of future operating cash flows
to offset cash payments related to both restructuring charges and transition
costs associated with the implementation of the business transformation plan
that commenced in fourth quarter 2000 and will continue through the end of 2001.
Given this immediate need for available cash flows, Aon anticipates deferring
any material reduction of debt levels until after the business transformation
plan is substantially implemented.
OPERATING CASH FLOWS
Aon has reclassified certain amounts in the "Cash Flows from Operating
Activities" section of the consolidated statements of cash flows for the years
ended December 31, 1999 and 1998 to conform to the 2000 presentation.
Cash flows from operations generated $739 million in 2000 compared with $462
million in 1999, an increase of $277 million. Operating cash flows represent the
net income earned by Aon in those years adjusted for noncash charges such as
amortization of goodwill and other intangibles and depreciation on fixed assets.
Cash was used in the amount of $123 million and $153 million in 2000 and 1999,
respectively, for payments on special charges and purchase accounting
liabilities established prior to 2000. In 2000, cash of $16 million was expended
for the business transformation plan.
Net income includes $66 million and $134 million in 2000 and 1999, respectively,
relating to income on disposals, which is included in investing cash flows, and
noncash income from the limited partnership portfolio. Other cash uses of $143
million and $231 million in 2000 and 1999, respectively, primarily relate to net
changes in receivables and payables, as well as the timing of payouts on general
expenses and other liabilities.
INVESTING CASH FLOWS
Investing activities used cash of $137 million in 2000, which was made available
from operating activities. Cash used for various brokerage acquisitions,
primarily in Europe, was $85 million. Property and equipment and other capital
expenditures for 2000 were $179 million, net of proceeds of $74 million from the
sale of certain assets. These expenditures primarily relate to information
technology and leasehold improvements.
FINANCING CASH FLOWS
Financing activities during 2000 used cash of $313 million. The primary factors
influencing the use of cash were net withdrawals of $219 million tied to
scheduled maturities on deposits which are now substantially complete, the
reduction of exposure to
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<PAGE>
short-term funding agreements related to capital accumulation products and
dividends of $226 million offset by the issuance of $250 million of notes (see
note 7). In addition, Aon repurchased treasury shares in the amount of $59
million and $66 million in 2000 and 1999, respectively, primarily for employee
benefit plans. Various regulatory requirements applied to Aon's underwriting and
overseas operations limit availability of operating cash flows for general
corporate purposes.
FINANCIAL CONDITION
Total assets increased $1.2 billion since year-end 1999 to $22.3 billion.
Invested assets at December 31, 2000 decreased $165 million from year-end 1999
levels primarily resulting from the settlement of other policyholder fund
liabilities. Insurance brokerage and consulting receivables increased $722
million in 2000 with a corresponding increase in insurance premiums payable. In
addition, general expense liabilities were reduced reflecting paydowns of
special charge liabilities from prior years.
Aon's consolidated statement of financial position as of December 31, 2000
contains a general expense liability of $89 million related to purchase
restructuring liabilities (see note 3) and $44 million related to the business
transformation plan (see note 4). Aon anticipates that most of the outstanding
termination benefits will be settled in 2001 with the remainder to be paid over
the next several years. The remaining items primarily reflect lease obligations
and will run off over a period up to 15 years. Aon does not anticipate that
payments for termination benefits and lease obligations will have a material
impact on cash flows in subsequent periods. Restructuring liabilities related to
recent acquisitions and prior year special charges have been reduced by payments
as planned.
CAPITAL RESOURCES
SHORT-TERM BORROWINGS AND NOTES PAYABLE
At December 31, 2000, Aon had $1.2 billion of back-up lines of credit available
to support Aon's outstanding commercial paper that was $874 million at December
31, 2000. In order to achieve tax-efficient financing, Aon established, in June
1998, a committed revolving bank credit facility under which certain European
subsidiaries can borrow up to EUR 400 million. As of December 31, 2000, Aon had
borrowed EUR 279 million ($260 million) under this facility, of which $35
million is classified as short-term borrowings and $225 million is classified as
notes payable in the consolidated statements of financial position.
Notes payable increased by $187 million when compared to year-end 1999. The
principal factor influencing the notes payable increase is the issuance of $250
million of 8.65% notes due May 2005 (see note 7). The net proceeds from the sale
of the 8.65% notes were used during 2000 for general corporate purposes and
acquisition financing. Debt repayments and the impact of foreign exchange on
outstanding loans under the European bank credit facility partially offset the
increase in notes payable.
Aon borrows funds from and lends funds to its various subsidiaries. As of
December 31, 2000, Aon had obligations to its subsidiaries of approximately $550
million. These obligations have competitive interest rates.
STOCKHOLDERS' EQUITY
At December 31, 2000, common stockholders' equity per share increased to $13.02,
up from $11.91 in 1999. The principal factors influencing this increase were net
income and net unrealized investment gains of $49 million. Additionally, common
stock and paid-in-capital increased $186 million in 2000, of which $145 million
reflects the ASA and Horizon Group acquisitions financed through the issuance of
common stock. Partially offsetting this increase were net foreign exchange
losses of $115 million and dividends to stockholders of $226 million. Unrealized
investment and foreign exchange fluctuations from period to period are largely
based on market conditions. Aon believes it is not economical to hedge these
short-term noncash fluctuations.
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, interest and credit risks and
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, public and private equities
and limited partnerships.
Invested assets and related investment income not directly required to support
the insurance brokerage and consulting businesses, together with the assets in
excess of net policyholder liabilities of the underwriting businesses and
related income, are allocated to the Corporate and Other 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. These assets, owned in the insurance
underwriting companies, are necessary to support strong claims paying ratings by
independent rating agencies and are unavailable for other uses such as debt
reduction or share repurchases without consideration of regulatory requirements
(see note 10).
- 26 -
<PAGE>
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 valuation of the limited partnerships. Aon's ownership share of this
partnership valuation is included in Aon's reported Corporate and Other segment
revenue. By comparison, changes in the market value of directly held,
publicly-traded equities are recorded directly in stockholders' equity. As a
consequence of this accounting, the Corporate and Other segment exhibits greater
variability in investment income than is the case of investments supporting the
operating segments.
With a carrying value of $2.3 billion at December 31, 2000, Aon's total
fixed-maturity portfolio is invested primarily in investment grade holdings
(95%) and has a fair value which is 98% of amortized cost. Aon's general
investment philosophy is to hold fixed-rate assets for long-term investment.
Thus, it does not have a trading portfolio. Aon has determined that its
portfolio of bonds, notes and redeemable preferred stocks is available to be
sold in response to changes in market interest rates, relative value of asset
sectors, individual securities prepayment and credit risks and Aon's need for
liquidity.
INVESTED ASSETS
(millions) As of December 31 2000 1999
- -----------------------------------------------------------
Short-term investments $ 2,325 $ 2,362
Fixed maturities 2,337 2,497
Equity securities 492 574
Other* 865 751
- -----------------------------------------------------------
Total invested assets $ 6,019 $ 6,184
- -----------------------------------------------------------
*Limited partnerships were $602 million and $465 million as of December 31, 2000
and 1999, respectively.
INVESTMENT INCOME
(millions) Years ended December 31 2000 1999 1998
- -----------------------------------------------------------------------
Insurance brokerage and other services
(primarily short-term investments) $ 186 $ 159 $ 194
Consulting 6 3 6
Insurance underwriting
(primarily fixed maturities) 245 251 240
Corporate and other 71 164 150
- -----------------------------------------------------------------------
Total investment income $ 508 $ 577 $ 590
- -----------------------------------------------------------------------
MARKET RISK EXPOSURE
Aon is subject to various market risk exposures including foreign exchange rate
risk, interest rate risk and equity price risk. The following disclosures
reflect 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 brokerage subsidiaries receive revenues
in currencies that differ from their functional currencies. Aon's primary
exposures are associated with the British Pound, the Canadian Dollar, the
Australian Dollar and other European currencies. Aon uses various derivative
financial instruments (see note 13) 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, 2000 resulting from a
hypothetical 10% adverse change in quoted year-end foreign currency exchange
rates amounts to $136 million at December 31, 2000 and 1999. The impact to 2000
and 1999 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, income is affected by changes in
international and domestic short-term interest rates. Aon hedges its net
exposure to short-term interest rates with various derivative financial
instruments. A hypothetical 1% decrease in interest rates would cause a
decrease, net of derivative positions, of $11 million and $8 million to 2000 and
1999 pretax income, respectively.
The valuation of Aon's fixed-maturity portfolio is subject to interest rate
risk. A hypothetical 1% increase in long-term interest rates would decrease the
fair value of the portfolio at December 31, 2000 and 1999 by approximately $103
million and $121 million, respectively. Aon has long-term notes payable and
capital securities outstanding with a fair value of $2.6 billion and $2.4
billion at December 31, 2000 and 1999, respectively. Such fair value was less
than the carrying value by $10 million and $18 million at December 31, 2000 and
1999, respectively. A hypothetical 1% decrease in interest rates would increase
the fair value by approximately 10% at December 31, 2000 and 1999.
The valuation of Aon's marketable equity securities 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 of $49 million at December
31, 2000 compared to $57 million at December 31, 1999. At December 31, 2000 and
1999, there were no outstanding derivatives hedging the price risk on the equity
portfolio.
- 27 -
<PAGE>
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.
The translated value of revenue and expense from Aon's international brokerage
and underwriting operations are subject to fluctuations due to changes in
foreign exchange rates. However, the net impact of these fluctuations on Aon's
net income or cash flows has not been material.
In 1999, Aon addressed and implemented the system modifications necessary for
full conversion to the Euro effective January 1, 2002. The costs related to the
Euro conversion did not have a material impact on Aon's European operations in
1999 or 2000.
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, changes in
commercial property and casualty premium rates, the competitive environment, the
actual cost of resolution of contingent liabilities, the final form of the
business transformation plan, the ultimate cost and timing of the implementation
thereof and the actual cost savings and other benefits resulting therefrom.
- 28 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(millions except per share data) Years ended December 31 2000 1999 1998
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
REVENUE
Brokerage commissions and fees $ 4,946 $ 4,639 $ 4,197
Premiums and other 1,921 1,854 1,706
Investment income (note 6) 508 577 590
------------------------------------
Total revenue 7,375 7,070 6,493
- -----------------------------------------------------------------------------------------------------
EXPENSES
General expenses (notes 3, 4 and 14) 5,190 5,214 4,457
Benefits to policyholders 1,037 973 896
Interest expense 140 105 87
Amortization of intangible assets 154 143 122
------------------------------------
Total expenses 6,521 6,435 5,562
- -----------------------------------------------------------------------------------------------------
INCOME BEFORE INCOME TAX, MINORITY INTEREST AND ACCOUNTING CHANGE 854 635 931
Provision for income tax (note 8) 333 243 349
------------------------------------
INCOME BEFORE MINORITY INTEREST AND ACCOUNTING CHANGE 521 392 582
Minority interest, net of tax--Company-obligated mandatorily
redeemable preferred capital securities (note 10) (40) (40) (41)
------------------------------------
INCOME BEFORE ACCOUNTING CHANGE 481 352 541
Cumulative effect of change in accounting principle,
net of tax (note 1) (7) -- --
------------------------------------
NET INCOME $ 474 $ 352 $ 541
- -----------------------------------------------------------------------------------------------------
NET INCOME AVAILABLE FOR COMMON STOCKHOLDERS $ 471 $ 349 $ 538
- -----------------------------------------------------------------------------------------------------
BASIC NET INCOME PER SHARE:
Before accounting change $ 1.84 $ 1.35 $ 2.11
Cumulative effect of change in accounting principle (0.03) -- --
------------------------------------
Basic net income per share $ 1.81 $ 1.35 $ 2.11
DILUTIVE NET INCOME PER SHARE:
Before accounting change $ 1.82 $ 1.33 $ 2.07
Cumulative effect of change in accounting principle (0.03) -- --
------------------------------------
Dilutive net income per share $ 1.79 $ 1.33 $ 2.07
CASH DIVIDENDS PER SHARE PAID ON COMMON STOCK $ 0.87 $ 0.82 $ 0.73
- -----------------------------------------------------------------------------------------------------
DILUTIVE AVERAGE COMMON AND COMMON EQUIVALENT SHARES OUTSTANDING 263.0 262.7 259.4
- -----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 29 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(millions) As of December 31 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
INVESTMENTS
Fixed maturities at fair value $ 2,337 $ 2,497
Equity securities at fair value 492 574
Short-term investments 2,325 2,362
Other investments 865 751
---------------------
Total investments 6,019 6,184
- ----------------------------------------------------------------------------------------------------
CASH 1,118 837
RECEIVABLES
Insurance brokerage and consulting services 6,952 6,230
Premiums and other 1,278 1,116
---------------------
Total receivables (net of allowance for doubtful accounts: 2000--$92;
1999--$94) 8,230 7,346
- ----------------------------------------------------------------------------------------------------
CURRENT INCOME TAXES 20 73
DEFERRED INCOME TAXES 353 270
DEFERRED POLICY ACQUISITION COSTS 656 636
EXCESS OF COST OVER NET ASSETS PURCHASED
(net of accumulated amortization: 2000--$580; 1999--$466) 3,427 3,359
OTHER INTANGIBLE ASSETS
(net of accumulated amortization: 2000--$819; 1999--$779) 489 503
OTHER ASSETS 1,939 1,924
- ----------------------------------------------------------------------------------------------------
TOTAL ASSETS $ 22,251 $ 21,132
- ----------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 30 -
<PAGE>
<TABLE>
(millions) As of December 31 2000 1999
- ----------------------------------------------------------------------------------------------------
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
INSURANCE PREMIUMS PAYABLE $ 8,212 $ 7,643
POLICY LIABILITIES
Future policy benefits 1,054 1,005
Policy and contract claims 801 764
Unearned and advance premiums 1,935 2,012
Other policyholder funds 1,069 1,207
---------------------
Total policy liabilities 4,859 4,988
GENERAL LIABILITIES
General expenses 1,619 1,731
Short-term borrowings 309 303
Notes payable 1,798 1,611
Other liabilities 1,216 955
---------------------
TOTAL LIABILITIES 18,013 17,231
- ----------------------------------------------------------------------------------------------------
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: 2000--750 shares; 1999--300 shares; issued 264 259
Paid-in additional capital 706 525
Accumulated other comprehensive loss (377) (309)
Retained earnings 3,127 2,905
Treasury stock at cost (shares: 2000--3.8; 1999--2.7) (118) (90)
Deferred compensation (214) (239)
---------------------
TOTAL STOCKHOLDERS' EQUITY 3,388 3,051
- ----------------------------------------------------------------------------------------------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 22,251 $ 21,132
- ----------------------------------------------------------------------------------------------------
</TABLE>
- 31 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(millions) Years Ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
COMMON STOCK Balance at January 1 $ 259 $ 172 $ 172
Effect of three-for-two stock split -- 86 --
Issued for business combinations 4 1 --
Issued for employee benefit plans 1 -- --
-------------------------
264 259 172
- ----------------------------------------------------------------------------------------------------------
PAID-IN ADDITIONAL CAPITAL Balance at January 1 525 450 377
Effect of three-for-two stock split -- (86) --
Business combinations 141 47 --
Employee benefit plans 40 114 73
-------------------------
706 525 450
- ----------------------------------------------------------------------------------------------------------
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Balance at January 1 (309) (116) 103
Cumulative effect of change in accounting principle related to derivatives
(note 1) 3 -- --
Net derivative gains arising during fourth quarter 2000 3 -- --
Net unrealized investment gains (losses) 49 (199) (111)
Net foreign exchange losses (115) (54) (12)
Net additional minimum pension liability adjustment (8) 60 (96)
-------------------------
Other comprehensive loss (68) (193) (219)
-------------------------
(377) (309) (116)
- ----------------------------------------------------------------------------------------------------------
RETAINED EARNINGS Balance at January 1 2,905 2,782 2,463
Net income 474 352 541
Dividends to stockholders (226) (210) (194)
Loss on treasury stock reissued (24) (18) (30)
Employee benefit plans (2) (1) --
Business combinations -- -- 2
-------------------------
3,127 2,905 2,782
- ----------------------------------------------------------------------------------------------------------
TREASURY STOCK Balance at January 1 (90) (58) (93)
Cost of shares acquired (102) (105) (44)
Shares reissued at average cost 74 73 79
-------------------------
(118) (90) (58)
- ----------------------------------------------------------------------------------------------------------
DEFERRED COMPENSATION Balance at January 1 (239) (213) (200)
Net issuance of stock awards (7) (73) (54)
Debt guarantee of employee stock ownership plan -- 17 16
Amortization of deferred compensation 32 30 25
-------------------------
(214) (239) (213)
- ----------------------------------------------------------------------------------------------------------
STOCKHOLDERS' EQUITY AT DECEMBER 31 $3,388 $3,051 $3,017
- ----------------------------------------------------------------------------------------------------------
COMPREHENSIVE INCOME
NET INCOME $ 474 $ 352 $ 541
OTHER COMPREHENSIVE LOSS (NOTE 2) (68) (193) (219)
-------------------------
COMPREHENSIVE INCOME $ 406 $ 159 $ 322
- ---------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 32 -
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(millions) Years ended December 31 2000 1999 1998
- ----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 474 $ 352 $ 541
Adjustments to reconcile net income to cash provided by operating activities
Cumulative effect of change in accounting principle, net of tax 7 -- --
Insurance operating assets and liabilities net of reinsurance 46 91 165
Amortization of intangible assets 154 143 122
Depreciation and amortization of property, equipment and software 179 187 131
Income taxes 145 (106) 75
Special charge and purchase accounting liabilities (notes 3, 4 and 14) (57) 160 (130)
Valuation changes on investments and income on disposals (66) (134) (52)
Other receivables and liabilities -- net (143) (231) 12
-------------------------
CASH PROVIDED BY OPERATING ACTIVITIES 739 462 864
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Sale of investments
Fixed maturities
Maturities 100 80 107
Calls and prepayments 129 160 108
Sales 400 1,152 2,062
Equity securities 253 461 2,176
Other investments 281 114 51
Purchase of investments
Fixed maturities (455) (959) (2,257)
Equity securities (148) (385) (2,253)
Other investments (436) (357) (141)
Short-term investments -- net 3 (93) (534)
Acquisition of subsidiaries (85) (395) (374)
Property and equipment and other -- net (179) (271) (300)
-------------------------
CASH USED BY INVESTING ACTIVITIES (137) (493) (1,355)
- ----------------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Treasury stock transactions -- net (59) (66) (18)
Issuance of short-term borrowings -- net 11 408 80
Issuance of long-term debt 250 250 --
Repayment of long-term debt (70) (100) (34)
Interest sensitive, annuity and investment-type contracts
Deposits 218 444 435
Withdrawals (437) (574) (137)
Cash dividends to stockholders (226) (210) (194)
-------------------------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES (313) 152 132
- ----------------------------------------------------------------------------------------------------------
EFFECT OF EXCHANGE RATE CHANGES ON CASH (8) (7) (3)
-------------------------
INCREASE (DECREASE) IN CASH 281 114 (362)
CASH AT BEGINNING OF YEAR 837 723 1,085
-------------------------
CASH AT END OF YEAR $ 1,118 $ 837 $ 723
- ----------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes to consolidated financial statements.
- 33 -
<PAGE>
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, net of an allowance for
estimated policy cancellations. Certain life insurance commissions, commissions
on premiums billed directly by insurance companies and certain other carrier
compensation are generally recognized as income when received. Commissions on
premium adjustments are recognized as they occur. Fees for claims 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 stock awards issued pursuant to 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 and awards.
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 and awards. 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) 2000 1999 1998
- ------------------------------------------------------------------------------
Net income $ 474 $ 352 $ 541
Redeemable preferred stock dividends (3) (3) (3)
----------------------------------
Net income available for common
stockholders $ 471 $ 349 $ 538
- ------------------------------------------------------------------------------
Basic shares outstanding 260 259 255
Common stock equivalents 3 4 4
----------------------------------
Dilutive potential common shares 263 263 259
- ------------------------------------------------------------------------------
Net income per share:
Basic $ 1.81 $ 1.35 $ 2.11
Dilutive $ 1.79 $ 1.33 $ 2.07
- ------------------------------------------------------------------------------
- 34 -
<PAGE>
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 directly-held equity securities are excluded from
income and are recorded directly to stockholders' equity in accumulated other
comprehensive income or loss, net of 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 indirectly-held
equities flow through the limited partnerships' statements. Aon's ownership
share of these valuation changes is included in Aon's reported 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 statements of income.
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 13.
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,
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 are deferred and 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 35 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 through an analysis of expected future cash flows.
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, 2000 is 5.6 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 derivative financial instruments is based on quoted prices for
exchange-traded instruments or the cost to terminate or offset with other
contracts.
Other investments are composed 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.
- 35 -
<PAGE>
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, 2000. 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 8.1%.
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 income or loss, net of
deferred income tax. The effect of transaction gains and losses on the
consolidated statements of income is insignificant for all periods presented.
ACCOUNTING AND DISCLOSURE CHANGES
As of October 1, 2000, the Company adopted Financial Accounting Standards Board
(FASB) Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities (Statement 133), as amended. The adoption of Statement 133 resulted
in a $5 million cumulative effect of a change in accounting principle before
applicable income taxes of $2 million and was recognized as an increase to
accumulated other comprehensive income (note 2) in the consolidated statement of
stockholders' equity for the year ended December 31, 2000. The adoption of
Statement 133 did not have a material effect on net income for the year ended
December 31, 2000. Refer to note 13 for a description of accounting policies
relating to derivative financial instruments.
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. Effective January 1,
2000, in accordance with the provisions of SAB 101, Aon established a provision
for estimated returned commissions from policy cancellations. In 1999 and
previous years, Aon recognized returned commissions when they occurred. The
cumulative effect of this accounting change was an after-tax charge of $7
million or $0.03 per share in the first quarter of 2000. Previously reported
results for the remaining quarters of 2000 were not impacted by this accounting
change. Pro forma results for 1999 and 1998 are not materially different from
previously reported results.
In September 2000, the FASB issued Statement No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities. Statement
No. 140 replaces Statement No. 125 and revises the standards for accounting for
securitizations and other transfers of financial assets and collateral and
requires certain disclosures. Statement No. 140 is effective for all transfers
of financial assets occurring after March 31, 2001. Aon has not yet determined
the effect, if any, this statement will have on the consolidated financial
statements.
RECLASSIFICATION
Certain amounts in prior years' consolidated financial statements have been
reclassified to conform to the 2000 presentation.
- 36 -
<PAGE>
<TABLE>
<CAPTION>
2 OTHER COMPREHENSIVE INCOME
- --------------------------------------------------------------------------------
The components of other comprehensive loss and the related tax effects are as
follows:
(millions) Years ended December 31 2000 1999 1998
- ---------------------------------------------------------------------------------------------------------------------------------
Amount Income Tax Amount | Amount Income Tax Amount | Amount Income Tax Amount
Before (Expense) Net of | Before (Expense) Net of | Before (Expense) Net of
Taxes Benefit Taxes | Taxes Benefit Taxes | Taxes Benefit Taxes
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Cumulative effect of change in | |
accounting principle related | |
to derivatives $ 5 $ (2) $ 3 | $ -- $ -- $ -- | $ -- $ -- $ --
Net derivative gains arising during |
fourth quarter 2000 4 (1) 3 | -- -- -- | -- -- --
- ---------------------------------------------------------------------------------------------------------------------------------
Net derivative gains 9 (3) 6 | -- -- -- | -- -- --
| |
Unrealized holding gains (losses) | |
arising during the year 45 (14) 31 | (263) 92 (171) | (130) 49 (81)
Less: reclassification adjustment (26) 8 (18) | 45 (17) 28 | 47 (17) 30
- ---------------------------------------------------------------------------------------------------------------------------------
Net unrealized investment gains (losses) 71 (22) 49 | (308) 109 (199) | (177) 66 (111)
| |
Net foreign exchange losses (188) 73 (115) | (89) 35 (54) | (18) 6 (12)
| |
Net additional minimum pension | |
liability adjustment (13) 5 (8) | 95 (35) 60 | (155) 59 (96)
- ---------------------------------------------------------------------------------------------------------------------------------
Total other comprehensive loss $(121) $ 53 $ (68) | $(302) $ 109 $ (193) | $(350) $ 131 $(219)
- ---------------------------------------------------------------------------------------------------------------------------------
</TABLE>
<TABLE>
<CAPTION>
The components of accumulated other comprehensive loss, net of tax, as of
December 31, 2000, 1999 and 1998 are as follows:
(millions) 2000 1999 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net derivative gains $ 6 $ -- $ --
Net unrealized investment gains (losses) (72) (121) 78
Net foreign exchange losses (267) (152) (98)
Net additional minimum pension liability (44) (36) (96)
- ----------------------------------------------------------------------------------------
Accumulated other comprehensive loss $ (377) $ (309) $ (116)
- ----------------------------------------------------------------------------------------
</TABLE>
- 37 -
<PAGE>
3 BUSINESS COMBINATIONS
- --------------------------------------------------------------------------------
ACQUISITIONS
PURCHASE METHOD
In 2000, Aon acquired Actuarial Sciences Associates, Inc., an employee benefits
and compensation consulting firm, and Horizon Consulting Group, Inc., a firm
specializing in commercial policyholder claim consulting services, and certain
other insurance brokerage and consulting operations. In these transactions, Aon
paid an aggregate of approximately $85 million in cash and $145 million in
stock. Internal funds, short-term borrowings and common stock financed the
acquisitions. Excess of cost over net assets purchased of approximately $225
million accounted for on a preliminary basis resulted from these acquisitions
and is primarily being amortized over 40 years.
In 1999, Aon acquired The Nikols Group, Presidium Holdings, Inc., Societe
Generale d'Assurance et de Prevoganie and certain other insurance brokerage and
consulting operations for approximately $440 million. Aon also acquired
insurance underwriting blocks of business for $50 million. The purchase
accounting for these acquisitions was finalized in 2000. The acquisitions were
financed by internal funds, short-term borrowings and common stock. Excess of
cost over net assets purchased of approximately $500 million resulted from these
acquisitions and is primarily being amortized over 40 years.
In 1998, Aon acquired Le Blanc de Nicolay, Gil y Carvajal and certain other
operations for approximately $400 million. The acquisitions were financed by
internal funds and short-term borrowings. Excess of cost over net assets
purchased of approximately $400 million resulted from these acquisitions and is
being amortized over 40 years.
The results of operations from these acquisitions are included in the
consolidated financial statements from the dates they were acquired. Pro forma
results from these acquisitions are not materially different from reported
results.
In accordance with a 1992 purchase agreement, securities with a value of $43
million are being held pursuant to an escrow agreement (as amended). The
escrowed securities will be released on a predetermined schedule through 2007.
POOLING OF INTERESTS METHOD
In 1998, Aon issued 2.3 million shares of common stock for mergers with
insurance brokerage and consulting organizations. Aon's prior period financial
statements have not been restated for the mergers because the effect of the
mergers was not material.
RESTRUCTURING CHARGES
In 1999, Aon consummated a plan of restructuring its operations as a result of
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 occurred in 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.
The following table demonstrates the activity related to the liability for
termination benefits and abandoned leases:
Termination Lease
(millions) Benefits Abandonments Total
- ---------------------------------------------------------------------------
Initial liability $ 67 $ 11 $ 78
Cash payments in 1999 (51) (6) (57)
-------------------------------------
Balance at December 31, 1999 16 5 21
Cash payments in 2000 (9) -- (9)
Credit to expense in 2000 -- (4) (4)
Foreign currency revaluation -- (1) (1)
-------------------------------------
Balance at December 31, 2000 $ 7 $ -- $ 7
- ---------------------------------------------------------------------------
The combination of 1998 acquisitions and the finalization of purchase accounting
for the 1997 Jauch & Hubener acquisition resulted in $70 million of purchase
accounting liabilities consisting primarily of termination benefits and lease
abandonments. Termination of 160 positions occurred in 1998 and 1999 as planned.
- 38 -
<PAGE>
The following table demonstrates the activity related to the liability for
termination benefits and abandoned leases:
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
Cash payments in 2000 -- (14) (14)
Foreign currency revaluation -- (2) (2)
------------------------------
Balance at December 31, 2000 $ -- $ 4 $ 4
- --------------------------------------------------------------------------------
In 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 Alexander & Alexander Services,
Inc. (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 related to the abandonment of
systems and real estate space. Terminations of 600 positions occurred in 1997
and 1998 as planned. Lease abandonments of $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 and 1998 (52) (36) (88)
------------------------------
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
Cash payments in 2000 -- (11) (11)
Foreign currency revaluation -- (2) (2)
------------------------------
Balance at December 31, 2000 $ -- $ 32 $ 32
- --------------------------------------------------------------------------------
Also in 1997, following management's commitment to a formal plan of
restructuring the A&A and Bain Hogg 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 of 2,000 positions occurred in 1997 and 1998 as
planned.
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 and 1998 (100) (89) (189)
------------------------------
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
Cash payments in 2000 -- (14) (14)
Charge to expense in 2000 -- 4 4
Foreign currency revaluation -- (4) (4)
------------------------------
Balance at December 31, 2000 $ -- $ 46 $ 46
- --------------------------------------------------------------------------------
The remaining liabilities at December 31, 2000 primarily relate to real estate.
All of Aon's unpaid liabilities relating to acquisitions are reflected in
general expense liabilities in the consolidated statements of financial
position.
- 39 -
<PAGE>
4 BUSINESS TRANSFORMATION PLAN
- --------------------------------------------------------------------------------
In fourth quarter 2000, Aon recorded pretax special charges of $82 million
related to the Board's approval in principle of, and management's commitment to,
a formal plan of restructuring Aon's worldwide operations. This plan constitutes
the "business transformation plan" to be implemented during the fourth quarter
of 2000 and throughout 2001. Costs of the plan include special charges and
transition costs. The special charges in the fourth quarter 2000 included costs
related to termination benefits of $54 million, other costs to exit an activity
of $6 million and asset impairments and other charges of $22 million primarily
relating to the abandonment of systems and equipment. The elimination of
approximately 500 positions occurred in the fourth quarter, the majority of
which were related to the Insurance Brokerage and Other Services segment in the
U.S. and the U.K.
The following table demonstrates the activity related to the liability for
termination benefits and costs to exit an activity:
Other Costs
Termination to Exit
(millions) Benefits an Activity Total
- --------------------------------------------------------------------------------
Expense charged in 2000 $ 54 $ 6 $ 60
Cash payments in 2000 (13) (3) (16)
------------------------------
Balance at December 31, 2000 $ 41 $ 3 $ 44
- --------------------------------------------------------------------------------
5 DISCONTINUED OPERATIONS
- --------------------------------------------------------------------------------
A&A discontinued its property and casualty insurance underwriting operations in
1985, some of which were then placed into runoff, 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, 2000, the liabilities associated with the foregoing
indemnities and liabilities of insurance underwriting subsidiaries that are
currently in runoff result principally from asbestos, pollution and other health
hazard insurance claims and were included in other liabilities in the
consolidated statements of financial position. Such liabilities amounted to $136
million, net of reinsurance recoverables and other assets of $175 million, and
would be substantially reduced if a February 2000 ruling from the Court of
Appeal in England favorable to A&A, in respect of which right to appeal has been
granted, were upheld in a decision expected in or around 2002.
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 given 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.
- 40 -
<PAGE>
6 INVESTMENTS
- --------------------------------------------------------------------------------
The components of investment income are as follows:
(millions) Years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Short-term investments $ 214 $ 173 $ 196
- --------------------------------------------------------------------------------
Fixed maturities:
Interest income 172 195 219
Income on disposals 13 52 37
Losses on disposals (12) (13) (24)
------------------------------
Total 173 234 232
- --------------------------------------------------------------------------------
Equity securities:
Dividend income 31 42 80
Income on disposals 28 18 65
Losses on disposals (9) (11) (27)
------------------------------
Total 50 49 118
- --------------------------------------------------------------------------------
Limited partnerships--equity earnings 73 60 46
- --------------------------------------------------------------------------------
Other investments:
Interest, dividend and other income 11 19 13
Income (losses) on disposals (5) 48 1
------------------------------
Total 6 67 14
- --------------------------------------------------------------------------------
Gross investment income 516 583 606
Less investment expenses 8 6 16
------------------------------
Investment income $ 508 $ 577 $ 590
- --------------------------------------------------------------------------------
The components of net unrealized gains (losses) are as follows:
(millions) As of December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Fixed maturities $ (45) $ (100) $ 108
Equity securities (72) (88) 12
Deferred tax credit (charge) 45 67 (42)
- --------------------------------------------------------------------------------
Net unrealized investment gains (losses) $ (72) $ (121) $ 78
- --------------------------------------------------------------------------------
The pretax changes in net unrealized investment gains (losses) are as follows:
(millions) Years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Fixed maturities $ 55 $ (208) $ (22)
Equity securities 16 (100) (155)
- --------------------------------------------------------------------------------
Total $ 71 $ (308) $ (177)
- --------------------------------------------------------------------------------
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, 2000 Cost Gains Losses Value
- -------------------------------------------------------------------------
U.S. government and
agencies $ 189 $ 5 $ (1) $ 193
States and political
subdivisions 8 -- -- 8
Foreign governments 722 16 (3) 735
Corporate securities 1,407 9 (71) 1,345
Mortgage-backed securities 32 -- -- 32
Other fixed maturities 24 -- -- 24
---------------------------------------------
Total fixed maturities 2,382 30 (75) 2,337
Total equity securities 564 20 (92) 492
- -------------------------------------------------------------------------
Total $2,946 $ 50 $ (167) $ 2,829
- -------------------------------------------------------------------------
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
- ------------------------------------------------------------------------
- 41 -
<PAGE>
The amortized cost and fair value of fixed maturities by contractual maturity,
as of December 31, 2000, are as follows:
Amortized Fair
(millions) Cost Value
- -----------------------------------------------------------------
Due in one year or less $ 134 $ 135
Due after one year through five years 828 821
Due after five years through ten years 655 644
Due after ten years 733 705
Mortgage-backed securities 32 32
- -----------------------------------------------------------------
Total fixed maturities $ 2,382 $ 2,337
- -----------------------------------------------------------------
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.
Securities on deposit for regulatory authorities as required by law amounted to
$311 million at December 31, 2000 and $323 million at December 31, 1999. As
required by the by-laws of Lloyd's brokers, cash and short-term investments
subject to floating charges for the benefit of insurance creditors amounted to
$1.0 billion and $1.2 billion at December 31, 2000 and 1999, respectively. Aon
maintained premium trust bank accounts for premiums collected from insureds but
not yet remitted to insurance companies of $1.3 billion at December 31, 2000 and
1999.
At December 31, 2000 and 1999, Aon had $66 million and $41 million,
respectively, of non-income producing investments.
7 DEBT AND LEASE COMMITMENTS
- --------------------------------------------------------------------------------
NOTES PAYABLE
The following is a summary of notes payable:
(millions) As of December 31 2000 1999
- -----------------------------------------------------------------------
Commercial paper $ 600 $ 600
8.65% debt securities, due May 2005 250 --
6.9% debt securities, due July 2004 250 250
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
Euro credit facility, due June 2003, with interest
at 5.1% to 5.2% 225 292
Notes payable, due in varying installments,
with interest at 4% to 10% 123 119
- -----------------------------------------------------------------------
Total notes payable $ 1,798 $ 1,611
- -----------------------------------------------------------------------
Commercial paper borrowings of $600 million at December 31, 2000 and 1999 have
been included in notes payable based on Aon's intent and ability to maintain or
refinance these obligations on a long-term basis through 2002.
In May 1999, Aon filed a universal shelf registration on Form S-3 with the SEC
for the issuance of $500 million of debt and equity securities. In a 1999 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 May 2000, Aon filed a prospectus supplement to use the remaining $250 million
of its universal shelf registration and issued $250 million of 8.65% debt
securities due May 2005. The net proceeds from the sale of the 8.65% notes were
used for general corporate purposes, including securities repurchase programs,
capital expenditures, working capital, repayment or reduction of long-term and
short-term debt and the financing of acquisitions.
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 $12 million, $704 million, $377
million, $433 million and $250 million in 2001, 2002, 2003, 2004 and 2005,
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, 2000,
Aon had borrowed EUR 279 million ($260 million) under this facility, of which
$35 million is classified as short-term borrowings and $225 million is
classified as notes payable in the consolidated statements of financial
position. Aon has $1.2 billion of other unused committed bank credit facilities
at December 31, 2000 to support $874 million of commercial paper and other
short-term borrowings of which $274 million is classified as short-term
borrowings at December 31, 2000.
Information related to notes payable (excluding the debt guarantee of the
Employee Stock Ownership Plan (ESOP)) and short-term borrowings is as follows:
Years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Interest paid (millions) $ 140 $ 105 $ 87
Weighted-average interest rates--
short-term borrowings 6.4% 5.4% 5.5%
- --------------------------------------------------------------------------------
- 42 -
<PAGE>
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 stockholders' equity. The ESOP
paid $18 million in 1999 and 1998, 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 1.1 million shares were released for allocation in 1999.
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, 2000 are:
(millions)
- ----------------------------------------------
2001 $ 221
2002 200
2003 177
2004 156
2005 140
Later years 743
- ----------------------------------------------
Total minimum payments required $ 1,637
- ----------------------------------------------
Rental expenses for all operating leases for the years ended December 31, 2000,
1999 and 1998 amounted to $217 million, $198 million and $202 million,
respectively.
8 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 cumulative effect of a change in accounting
principle and the provision for income taxes consist of the following:
(millions) Years ended December 31 2000 1999 1998
- -------------------------------------------------------------
Income before income taxes*:
U.S $ 454 $ 444 $ 528
Foreign 400 191 403
-----------------------
Total $ 854 $ 635 $ 931
- -------------------------------------------------------------
Provision for income taxes:
Current:
Federal $ 115 $ 201 $ 184
Foreign 124 60 53
State 28 20 23
-----------------------
Total current 267 281 260
- -------------------------------------------------------------
Deferred (credit):
Federal 46 (42) 2
Foreign 16 7 87
State 4 (3) --
-----------------------
Total deferred 66 (38) 89
- -------------------------------------------------------------
Provision for income tax $ 333 $ 243 $ 349
- -------------------------------------------------------------
*Before cumulative effect of change in accounting principle.
During 2000, 1999 and 1998, Aon's consolidated statements of income reflect a
tax benefit of $26 million, $26 million and $25 million, respectively, on the
8.205% capital securities issued in January 1997 (see note 10).
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 2000 1999 1998
- -------------------------------------------------------------------------
Statutory tax rate 35.0% 35.0% 35.0%
Tax-exempt investment income (0.5) (1.2) (1.8)
Amortization of intangible assets
relating to acquired businesses 2.1 2.8 1.9
State income taxes 2.5 1.7 1.6
Other--net (0.1) -- 0.8
- -------------------------------------------------------------------------
Effective tax rate 39.0% 38.3% 37.5%
- -------------------------------------------------------------------------
- 43 -
<PAGE>
Significant components of Aon's deferred tax assets and liabilities are as
follows:
(millions) As of December 31 2000 1999
- ------------------------------------------------------------------------
Deferred tax assets:
Net operating loss and tax credit carryforwards $ 71 $ 36
Certain purchase accounting and special charges 31 58
Unrealized investment losses 42 67
Employee benefit plans 81 64
Unrealized foreign exchange losses 170 97
Other 183 156
------------------
Total 578 478
- ------------------------------------------------------------------------
Deferred tax liabilities:
Policy acquisition costs (64) (53)
Other (133) (127)
------------------
Total (197) (180)
- ------------------------------------------------------------------------
Valuation allowance on deferred tax assets (28) (28)
- ------------------------------------------------------------------------
Net deferred tax assets $ 353 $ 270
- ------------------------------------------------------------------------
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, valuation
allowances were established for various acquisitions. 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 assets
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, 2000, 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 2000, 1999 and 1998 was $158 million, $324
million and $249 million, respectively.
9 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 2000 1999 1998
- -----------------------------------------------------------------------
Ceded premiums earned $ 697 $ 624 $ 580
Ceded premiums written 752 510 528
Assumed premiums earned 231 178 149
Assumed premiums written 168 116 133
Ceded benefits to policyholders 494 377 325
- -----------------------------------------------------------------------
Activity in the liability for policy contract claims is summarized as follows:
(millions) Years ended December 31 2000 1999 1998
- ------------------------------------------------------------------------------
Liabilities at beginning of year $ 448 $ 483 $ 520
Incurred losses:
Current year 840 890 807
Prior years 16 (39) (19)
---------------------------------
Total 856 851 788
- ------------------------------------------------------------------------------
Payment of claims:
Current year (633) (618) (539)
Prior years (294) (268) (286)
---------------------------------
Total (927) (886) (825)
- ------------------------------------------------------------------------------
Liabilities at end of year
(net of reinsurance recoverables:
2000-$424, 1999-$316, 1998-$296) $ 377 $ 448 $ 483
- ------------------------------------------------------------------------------
- 44 -
<PAGE>
10 REDEEMABLE PREFERRED STOCK, CAPITAL SECURITIES AND STOCKHOLDERS' EQUITY
- ------------------------------------------------------------------------------
REDEEMABLE PREFERRED STOCK
At December 31, 2000, 1 million 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.
COMMON STOCK
In 2000, Aon's stockholders approved an amendment to Aon's Certificate of
Incorporation to increase the number of authorized shares of common stock from
300 million to 750 million.
Aon repurchased 3.5 million, 2.8 million and 1 million shares in 2000, 1999 and
1998, respectively, of its common stock, primarily to provide shares for stock
compensation plans. In addition, Aon issued 5.3 million new shares of common
stock in 2000 for employee benefit plans and for acquisitions.
DIVIDENDS
A summary of dividends incurred is as follows:
(millions) Years ended December 31 2000 1999 1998
- -----------------------------------------------------------------------
Redeemable preferred stock $ 3 $ 3 $ 3
Common stock 223 207 191
- -----------------------------------------------------------------------
Total dividends incurred $ 226 $ 210 $ 194
- -----------------------------------------------------------------------
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 8 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 2000 1999 1998
- -----------------------------------------------------------------------
Life insurance $ 133 $ 101 $ 239
Property casualty 49 57 62
- -----------------------------------------------------------------------
Statutory capital and surplus of the insurance subsidiaries is summarized as
follows:
(millions) As of December 31 2000 1999 1998
- -----------------------------------------------------------------------
Life insurance $ 492 $ 502 $ 610
Property casualty 491 411 446
- -----------------------------------------------------------------------
The National Association of Insurance Commissioners revised the Accounting
Practices and Procedures Manual in a process referred to as Codification. The
revised manual is effective January 1, 2001. The domiciliary states of Aon's
major insurance subsidiaries have adopted the provisions of the revised manual.
The revised manual has changed, to some extent, prescribed statutory accounting
practices and will result in changes to the accounting practices that Aon's
major insurance subsidiaries use to prepare their statutory-basis financial
statements. The impact of these changes to Aon's major insurance subsidiaries'
statutory capital and surplus as of January 1, 2001 is not expected to be
significant.
- 45 -
<PAGE>
11 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
$39 million, $37 million and $22 million in 2000, 1999 and 1998, respectively.
EMPLOYEE STOCK OWNERSHIP PLAN
Aon subsidiaries maintained a leveraged ESOP for the benefit of 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
in 1998.
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 healthcare 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, 2000 and 1999 and a
statement of the funded status as of December 31, 2000 and 1999, for both
qualified and non-qualified plans.
Pension Benefits Other Benefits
(millions) 2000 1999 2000 1999
- ------------------------------------------------------------------------------
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at beginning
of period $ 773 $ 798 $ 69 $ 70
Service cost 32 33 2 2
Interest cost 60 58 5 5
Participant contributions -- -- 6 5
Actuarial loss (gain) 2 (2) (1) (8)
Benefit payments (48) (42) (12) (12)
Curtailments -- -- -- 7
Special termination benefits -- 33 -- --
Change in interest rate (27) (105) -- --
- ------------------------------------------------------------------------------
Obligation at end of period $ 792 $ 773 $ 69 $ 69
- ------------------------------------------------------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value at beginning
of period $ 933 $ 904 $ 8 $ 8
Actual return on plan assets 45 66 -- --
Employer contributions 2 5 -- --
Benefit payments (48) (42) -- --
- ------------------------------------------------------------------------------
Fair value at end of period $ 932 $ 933 $ 8 $ 8
- ------------------------------------------------------------------------------
FUNDED STATUS
Funded status at
end of period $ 140 $ 160 $ (61) $ (61)
Unrecognized prior-service (5) (6) -- (5)
Unrecognized gain (125) (162) (17) (16)
- ------------------------------------------------------------------------------
Net amount recognized $ 10 $ (8) $ (78) $ (82)
- ------------------------------------------------------------------------------
Prepaid benefit cost $ 50 $ 26 $ -- $ --
Accrued benefit liability (46) (34) (78) (82)
Other comprehensive income 6 -- -- --
- ------------------------------------------------------------------------------
Net amount recognized $ 10 $ (8) $(78) $(82)
- ------------------------------------------------------------------------------
In 2000, plans with a projected benefit obligation (PBO) in excess of the fair
value of plan assets were unfunded plans with a PBO of $55 million, and plans
with an accumulated benefit obligation (ABO) in excess of the fair value of plan
assets were unfunded plans with an ABO of $46 million. In 1999, plans with a PBO
in excess of the fair value of plan assets were unfunded plans with a PBO of $41
million, and plans with an ABO in excess of the fair value of plan assets were
unfunded plans with an ABO of $31 million.
- 46 -
<PAGE>
Pension plan assets include 3.7 million and 2.5 million shares of common stock
issued by Aon on which dividends of $3 million and $2 million were received in
2000 and 1999, respectively.
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 in the preceding table.
The following table provides the components of net periodic benefit cost
(credit) for the plans for the years ended December 31, 2000, 1999 and 1998:
(millions) Pension Benefits 2000 1999 1998
- -----------------------------------------------------------------------
Service cost $ 32 $ 33 $ 34
Interest cost 60 58 53
Expected return on plan assets (95) (89) (71)
Amortization of prior-service (1) (1) (1)
Amortization of net gain (7) (5) 1
- -----------------------------------------------------------------------
Net periodic benefit cost (credit) $ (11) $ (4) $ 16
- -----------------------------------------------------------------------
(millions) Other Benefits 2000 1999 1998
- -----------------------------------------------------------------------
Service cost $ 2 $ 2 $ 1
Interest cost 5 5 5
Expected return on plan assets -- -- (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
2000 1999 2000 1999
- -----------------------------------------------------------------------------
Discount rate 8.3% 8.0% 8.3% 8.0%
Expected return on plan assets 10.3 10.0 -- --
Rate of compensation increase 4.0 4.0 4.0 4.0
- -----------------------------------------------------------------------------
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 2000, 1999 and 1998, the 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 to be 7.5%, 7.0%
and 7.5%, respectively, decreasing gradually to 5.5% in year 2004 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.
As a result, 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 2000.
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, 2000 and 1999 and a
statement of the funded status as of December 31, 2000 and 1999 for material
international plans, which are located in the United Kingdom and The
Netherlands.
International Pension
(millions) 2000 1999
- --------------------------------------------------------------------
RECONCILIATION OF BENEFIT OBLIGATION
Obligation at beginning of period $ 2,210 $ 2,147
Service cost 65 74
Interest cost 123 127
Participant contributions 4 6
Benefit payments (64) (77)
Change in interest rate (126) 29
Foreign exchange translation (176) (96)
- --------------------------------------------------------------------
Obligation at end of period $ 2,036 $ 2,210
- --------------------------------------------------------------------
RECONCILIATION OF FAIR VALUE OF PLAN ASSETS
Fair value at beginning of period $ 2,122 $ 1,976
Actual return on plan assets 55 248
Employer contributions 50 61
Participant contributions 4 6
Benefit payments (64) (77)
Foreign exchange translation (167) (92)
- --------------------------------------------------------------------
Fair value at end of period $ 2,000 $ 2,122
- --------------------------------------------------------------------
Funded status
Funded status at end of period $ (36) $ (88)
Unrecognized prior-service 1 1
Unrecognized loss 235 260
- --------------------------------------------------------------------
Net amount recognized $ 200 $ 173
- --------------------------------------------------------------------
Prepaid benefit cost $ 200 $ 173
Accrued benefit liability (67) (60)
Other comprehensive income 67 60
- --------------------------------------------------------------------
Net amount recognized $ 200 $ 173
- --------------------------------------------------------------------
- 47 -
<PAGE>
In 2000, plans with a PBO in excess of the fair value of plan assets had a PBO
of $1.2 billion and plan assets with a fair value of $1.1 billion, and plans
with an ABO in excess of the fair value of plan assets had an ABO of $434
million and plan assets with a fair value of $399 million.
In 1999, plans with a 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 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.
The following table provides the components of net periodic benefit cost for the
international plans for the measurement periods ended in 2000, 1999 and 1998:
(millions) 2000 1999 1998
- -----------------------------------------------------------------------
Service cost $ 65 $ 74 $ 61
Interest cost 123 127 113
Expected return on plan assets (193) (196) (172)
Amortization of net loss 10 8 2
- -----------------------------------------------------------------------
Net periodic benefit cost $ 5 $ 13 $ 4
- -----------------------------------------------------------------------
The weighted-average assumptions for the measurement period for the
international pension benefit obligations are shown in the following table:
2000 1999 1998
- -----------------------------------------------------------------------
Discount rate 6.0- 7.0% 6.0- 7.0% 6.0- 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- 4.5
- -----------------------------------------------------------------------
12 STOCK COMPENSATION PLANS
- --------------------------------------------------------------------------------
STOCK AWARD PLAN
Under the Aon Stock Award Plan, Aon could award up to 19.4 million shares of
common stock. 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. In certain circumstances, an
employee can elect to defer the receipt of vested shares to a later date. 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. In 2000, the plan was amended to add the ability to
grant options pursuant to the provisions of the Aon Stock Option Plan. At
December 31, 2000, the number of shares available for award is included with
options available for grant.
Aon common stock awards outstanding consist of the following:
(shares in thousands)
Years ended December 31 2000 1999 1998
- -----------------------------------------------------------------
Shares outstanding at beginning
of year 9,865 9,321 9,621
Granted 586 2,056 1,179
Vested (1,216) (1,159) (1,205)
Canceled (354) (353) (274)
- -----------------------------------------------------------------
Shares outstanding at end of year 8,881 9,865 9,321
- -----------------------------------------------------------------
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 million shares. Generally, the option plan requires
employees to complete two continuous years of service before the options begin
to vest in increments until the completion of a four-year period of continuous
employment. For all grants made prior to an amendment to the plan in 2000,
employees were required to complete three continuous years of service before the
options began to vest in increments until the completion of a six-year period of
continuous employment.
- 48 -
<PAGE>
A summary of Aon's stock option activity (including options granted pursuant to
the amended Aon Stock Award Plan in 2000) and related information consists of
the following:
Years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Weighted- Weighted- Weighted-
Average Average Average
Exercise Exercise Exercise
(shares in thousands) Shares Price Shares Price Shares Price
- --------------------------------------------------------------------------------
Beginning
outstanding 11,223 $ 31 10,298 $ 26 9,078 $ 21
Granted 6,812 25 2,417 43 2,381 43
Exercised (1,174) 17 (1,026) 17 (987) 15
Canceled (705) 33 (466) 28 (174) 22
- --------------------------------------------------------------------------------
Ending
outstanding 16,156 $ 29 11,223 $ 31 10,298 $ 26
- --------------------------------------------------------------------------------
Exercisable at
end of year 2,607 $ 21 1,833 $ 17 1,262 $ 15
- --------------------------------------------------------------------------------
Options available
for grant* 2,368 4,843 6,795
- --------------------------------------------------------------------------------
*In 2000, amount includes options available for grant from the Stock Award
Plan.
A summary of options outstanding and options exercisable is as follows:
As of December 31, 2000
(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-$ 15.89 1,704 0.8 $ 15.40 1,305 $ 15.25
21.72- 23.89 1,514 2.3 22.90 656 22.86
23.94- 23.94 5,894 9.1 23.94 -- --
26.53- 28.92 1,885 6.1 28.75 534 28.70
29.63- 42.67 1,228 8.7 33.42 112 35.41
43.33- 43.33 1,943 7.2 43.33 -- --
43.44- 49.29 1,988 8.2 43.56 -- --
- --------------------------------------------------------------------------------
$ 14.17-$ 49.29 16,156 6.9 $ 28.97 2,607 $ 20.79
- --------------------------------------------------------------------------------
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
- --------------------------------------------------------------------------------
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 2000 1999 1998
- -----------------------------------------------------
Net income (millions):
As reported $ 474 $ 352 $ 541
Pro forma 458 341 530
Net income per share:
Basic
As reported 1.81 1.35 2.11
Pro forma 1.75 1.31 2.07
Dilutive
As reported 1.79 1.33 2.07
Pro forma 1.73 1.29 2.03
- -----------------------------------------------------
The fair value per share of options and awards granted is estimated as $6.33 and
$25.73 in 2000, $10.87 and $35.02 in 1999 and $11.01 and $37.39 in 1998,
respectively, on the grant date using the Black-Scholes option pricing model
with the following weighted-average assumptions:
2000 1999 1998
- ------------------------------------------------------
Dividend yield 2.0% 2.0% 2.0%
Expected volatility 27% 21% 20%
Risk-free interest rate 6% 6% 6%
Expected term life beyond vesting
date (in years):
Stock options 0.94 0.87 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.
- 49 -
<PAGE>
EMPLOYEE STOCK PURCHASE PLANS
UNITED STATES
Effective July 1, 1998, Aon adopted an employee stock purchase plan which
provides for the purchase of a maximum of 7.5 million shares of Aon's common
stock by eligible U.S. employees. Under the original plan, shares of Aon's
common stock could 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. Effective July 1, 2000, the plan was amended by changing the
purchase period to three-month intervals. In 2000 and 1999, 940,000 shares and
720,000 shares, respectively, were issued to employees under the plan. No shares
were issued under the plan in 1998.
UNITED KINGDOM
In 1999, Aon adopted an employee stock purchase plan which provides for the
purchase of approximately 720,000 shares of Aon common stock by eligible U.K.
employees after a three-year period and is broadly similar to the U.S. plan
described above. No shares were issued under the plan in either 1999 or 2000.
13 FINANCIAL INSTRUMENTS
- --------------------------------------------------------------------------------
FINANCIAL RISK MANAGEMENT
Aon is exposed to market risk from changes in foreign currency exchange rates,
interest rates and equity securities prices. To manage the risk 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 to 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.
Certain derivatives also give rise to credit risks from the 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, 2000
and 1999, Aon placed securities relating to these derivative contracts in escrow
amounting to $1 million and $4 million, respectively.
Foreign currency forward contracts (forwards) and interest rate swaps entered
into require no up-front premium. Forwards settle at the expiration of the
related contract. The net effect of swap payments is settled periodically and
reported in income. The premium and commission paid for purchased options,
including interest rate caps and floors, and premium received, net of commission
paid, for written options represent the cost basis of the position until it
expires or is closed. The commission paid for futures contracts represents the
cost basis of the position until it expires or is closed. Exchange-traded
futures are valued and settled daily. Unless otherwise noted, derivative
instruments are generally reported in other receivables and liabilities in the
consolidated statements of financial position.
ACCOUNTING POLICY FOR DERIVATIVE FINANCIAL INSTRUMENTS
Effective October 1, 2000, Aon adopted Statement 133 (see note 1). Statement 133
requires all derivative instruments to be recognized in the consolidated
statements of financial position at fair value. Changes in fair value are
recognized immediately in earnings unless the derivative is designated as a
hedge and qualifies for hedge accounting.
Statement 133 identifies three hedging relationships where a derivative (hedging
instrument) may qualify for hedge accounting: a hedge of the change in fair
value of a recognized asset or liability or firm commitment (fair value hedge),
a hedge of the variability in cash flows from a recognized asset or liability or
forecasted transaction (cash flow hedge) and a hedge of the net investment in a
foreign subsidiary.
In order for a derivative to qualify for hedge accounting, the derivative must
be formally documented and designated as a hedge at inception and be consistent
with Aon's overall risk management policy. The hedge relationship must be highly
effective at inception and on an ongoing basis. For a highly effective hedge,
changes in the fair value of the hedging instrument must be expected to
substantially offset changes in the fair value of the hedged item. Aon performs
frequent analyses to measure hedge effectiveness.
The change in fair value of a hedging instrument designated and qualified as a
fair value hedge and the change in value of
- 50 -
<PAGE>
the hedged item attributable to the risk being hedged are both recognized
currently in earnings. The effective portion of the change in fair value of a
hedging instrument designated and qualified as a cash flow hedge is recognized
in other comprehensive income (OCI) and subsequently reclassified to income when
the hedged item affects earnings. The ineffective portion of the change in fair
value of a cash flow hedge is recognized immediately in earnings. For a
derivative designated and qualified as a hedge of a net investment in a foreign
subsidiary, the effective portion of the change in fair value is reported in OCI
as part of the cumulative translation adjustment. The ineffective portion of the
change in fair value of a hedge of a net investment in a foreign subsidiary is
recognized immediately in earnings.
Prior to the adoption of Statement 133, the ineffective portion of the change in
fair value of a hedging instrument designated and qualified as a hedge was not
recognized immediately in earnings.
FOREIGN EXCHANGE RISK MANAGEMENT
Certain of Aon's foreign brokerage subsidiaries, primarily in the U.K., receive
revenues in currencies that differ from their functional currencies. To reduce
the variability of cash flows from these transactions, Aon has entered into
foreign exchange forwards and options with settlement dates prior to July 2003.
Upon adoption of Statement 133, designated and qualified forwards are accounted
for as cash flow hedges of forecasted transactions. Since the adoption of
Statement 133, a $4 million pretax gain has been deferred to OCI, $3 million of
which is expected to impact earnings in 2001. There was no ineffectiveness
recorded.
Prior to the adoption of Statement 133, these transactions did not qualify for
hedge accounting and changes in the fair value related to these derivatives were
recorded in general expenses in the consolidated statements of income. Certain
other forward and option contracts did not meet the hedging requirements of
Statement 133. Changes in fair value related to these contracts were recorded in
general expenses in the consolidated statements of income.
Aon uses exchange-traded foreign currency futures and options on futures, as
well as over-the-counter options and forward contracts to reduce the impact of
foreign currency fluctuations on the translation of the financial statements of
Aon's foreign operations. These derivatives are not afforded hedge accounting as
defined by Statement 133 and prior accounting guidance. Changes in the fair
value of these derivatives are recorded in general expenses in the consolidated
statements of income.
In 2000, Aon entered into a cross currency swap to hedge the foreign currency
and interest rate risks associated with a foreign denominated fixed-rate
policyholder liability. This swap has been designated as a fair value hedge of
the combined exposure. There was no material ineffectiveness related to this
hedge.
INTEREST RATE RISK MANAGEMENT
Aon sells futures contracts and purchases options on futures contracts to reduce
the price volatility of its fixed-maturity portfolio. Upon adoption of Statement
133, derivatives designated and qualified as hedging specific fixed-income
securities are accounted for as fair value hedges. There are no designated and
qualified hedges at December 31, 2000. Prior to the adoption of Statement 133,
realized gains and losses on derivatives that qualified as hedges were deferred
and reported as an adjustment of the cost basis of the hedged item and are being
amortized into earnings over the remaining life of the hedged item. Outstanding
derivatives hedging fixed-maturities at December 31, 1999 were recorded at fair
value with changes in the derivative fair value reported as unrealized gains and
losses in OCI.
Prior to the adoption of Statement 133, Aon purchased futures contracts to hedge
the fair value of its fixed-rate notes from changes in interest rates. Aon
deferred the gains from the termination of the contracts and is amortizing these
gains over the remaining life of the fixed-rate notes.
Aon issued fixed-rate notes in May 2000. Aon purchased options on interest rate
swaps to hedge against the change in interest rates prior to the issuance. These
options qualified as a hedge of an anticipated transaction under prior
accounting guidance and related gains were deferred and are being amortized as
an offset to interest expense over the remaining life of the notes. Upon the
adoption of Statement 133, pretax deferred gains of $5 million were reclassified
to OCI. At December 31, 2000, this amount remains in OCI, $1 million of which is
expected to offset interest expense in 2001.
Aon 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. and U.K. Since the adoption of Statement 133, there were no designated
and qualified cash flow hedges of this exposure. Under prior accounting
guidance, unrealized gains and losses were not recorded in the consolidated
statements of financial position and realized gains and losses were deferred and
recognized in earnings as the hedged item affected earnings.
- 51 -
<PAGE>
Aon uses interest rate swaps and caps to limit its exposure to changes in
interest rates related to interest rate guarantees provided by a subsidiary of
Aon to certain unaffiliated entities. Under prior accounting guidance, these
derivatives qualified for hedge accounting treatment. Unrealized gains and
losses were not recorded in the consolidated statements of financial position as
of December 31, 1999 and realized gains and losses were deferred and recognized
in earnings as the hedged item affected earnings. In August 2000, these
guarantees were replaced with new offsetting interest rate swaps between Aon and
an unaffiliated entity, with Aon essentially retaining the same exposure.
Following the replacement of the original hedged item, hedge accounting was
terminated and previously deferred realized gains and losses as well as
previously unrecognized changes in fair value were recognized currently in
earnings. The termination of this hedging relationship did not have a material
effect on pretax earnings. The adoption of Statement 133 did not affect the
accounting for these derivative instruments.
EQUITY PRICE RISK MANAGEMENT
Aon sells futures contracts and purchases options to reduce the price volatility
of its equity securities portfolio and equity securities it owns indirectly
through limited partnership investments. Since the adoption of Statement 133,
there were no designated and qualified hedges of this exposure. Prior to the
adoption of Statement 133, realized gains and losses on derivatives that
qualified as hedges were deferred and reported as an adjustment of the cost
basis of the hedged item and are being amortized into earnings over the
remaining life of the hedged item. Outstanding derivatives hedging equity
securities at December 31, 1999 were recorded at fair value with changes in the
derivative fair value reported as unrealized gains and losses in OCI. Realized
gains and losses on derivatives that did not qualify for hedge accounting
treatment were recognized currently in investment income in the consolidated
statements of income.
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, 2000 and 1999 totaled $184
million and $312 million, respectively.
Subsidiaries and affiliates of Aon have entered into agreements with financial
institutions, whereby certain receivables were sold, with limited recourse.
Agreements provide for sales of receivables on a continuing basis through
November 2001. As of December 31, 2000 and 1999, the maximum commitment
contained in these agreements was $2.9 billion and $3.6 billion, respectively.
Aon's maximum credit risk under recourse provisions of these agreements was
approximately $197 million and $260 million at December 31, 2000 and 1999,
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 2000 1999
- --------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(millions) Value Value Value Value
- --------------------------------------------------------------------------------
Assets:
Fixed maturities and
equity securities $2,829 $2,829 $3,071 $3,071
Other investments 865 863 740 739
Cash, receivables and
short-term
investments* 11,632 11,632 10,545 10,545
Derivatives 44 44 -- 3
Liabilities:
Investment type
insurance contracts 1,069 1,040 1,207 1,147
Short-term borrowings,
premium payables and
general expenses 10,140 10,140 9,677 9,677
Notes payable 1,798 1,818 1,611 1,601
Capital securities 800 770 800 792
Derivatives 46 46 -- --
- --------------------------------------------------------------------------------
*Excludes derivatives.
- 52 -
<PAGE>
14 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.
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 currently a party. In 1999, Aon
charged general expenses for $72 million in the Insurance Brokerage and Other
Services segment relating to various litigation matters including Unicover.
Certain United Kingdom 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. Aon's ultimate exposure from the private pension plan
review, as presently calculated, is subject to a number of variable factors
including, among others, general level of pricing in the equity markets, the
interest rate established quarterly 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, amounts already provided,
availability of insurance coverages and legal advice received, 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. 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.
- 53 -
<PAGE>
15 SEGMENT INFORMATION
- --------------------------------------------------------------------------------
Aon classifies its businesses into three operating segments: Insurance Brokerage
and Other Services, Consulting and Insurance Underwriting. A fourth
non-operating segment, Corporate and Other, when aggregated with the operating
segments, totals to the amounts in the accompanying consolidated financial
statements. Revenues are attributed to geographic areas based on the location of
the resources producing revenues. Intercompany revenues and expenses are
eliminated in computing consolidated revenues and income before tax. There are
no material inter-segment amounts to be eliminated. Long-lived assets and
related depreciation and amortization are not material.
Consolidated revenue by geographic area follows:
United United Continent Rest of
(millions) Total States Kingdom of Europe World
- --------------------------------------------------------------------------------
Revenue for the years ended December 31:
2000 $ 7,375 $ 4,350 $ 1,363 $ 833 $ 829
1999 7,070 4,131 1,352 841 746
1998 6,493 3,736 1,244 790 723
- --------------------------------------------------------------------------------
The Insurance Brokerage and Other Services segment consists principally of Aon's
retail and reinsurance brokerage and related operations, which include wholesale
and claims services. The Consulting segment is Aon's employee benefit and human
capital consulting organization. The Insurance Underwriting segment is comprised
of life, accident and health coverage and extended warranty and casualty
insurance products.
<TABLE>
<CAPTION>
Operating segment revenue by product follows:
Reinsurance,
Wholesale Life, Extended
Total and Claims Accident Warranty
(millions) Operating Retail Services Consulting and Health and Casualty
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue for the years ended December 31:
2000 $ 7,304 $ 2,947 $ 1,420 $ 770 $ 1,424 $ 743
1999 6,906 2,831 1,313 656 1,338 768
1998 6,343 2,761 1,021 615 1,263 683
- -------------------------------------------------------------------------------------------
</TABLE>
- 54 -
<PAGE>
<TABLE>
<CAPTION>
Selected information reflecting Aon's operating segments follows:
Insurance Brokerage and
Other Services Consulting Insurance Underwriting
- -----------------------------------------------------------------------------------------------------------
(millions) Years ended December 31 2000 1999 1998 | 2000 1999 1998 | 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Revenue by geographic area: | |
United States $ 2,277 $ 2,146 $ 1,884 | $ 486 $ 405 $ 387 |$ 1,545 $ 1,457 $ 1,366
United Kingdom 889 830 798 | 151 147 134 | 308 349 290
Continent of Europe 654 680 626 | 67 44 36 | 111 115 117
Rest of World 547 488 474 | 66 60 58 | 203 185 173
- -----------------------------------------------------------------------------------------------------------
Total revenues 4,367 4,144 3,782 | 770 656 615 | 2,167 2,106 1,946
| |
General expenses* 3,564 3,422 3,086 | 658 573 544 | 827 843 767
Benefits to policyholders -- -- -- | -- -- -- | 1,037 973 896
Amortization of intangible assets 37 38 33 | 3 3 3 | -- -- --
---------------------------------------------------------------------------
Total expenses 3,601 3,460 3,119 | 661 576 547 | 1,864 1,816 1,663
- -----------------------------------------------------------------------------------------------------------
Income before income tax | |
excluding special charges 766 684 663 | 109 80 68 | 303 290 283
Special charges 76 191 -- | 3 122 -- | 3 -- --
- -----------------------------------------------------------------------------------------------------------
Income (loss) before income tax $ 690 $ 493 $ 663 | $ 106 $ (42) $ 68 | $ 300 $ 290 $ 283
- -----------------------------------------------------------------------------------------------------------
Identifiable assets at
December 31 $ 10,035 $ 9,467 $ 9,006 | $ 232 $ 248 $ 150 |$ 5,594 $ 5,640 $ 5,213
- -----------------------------------------------------------------------------------------------------------
</TABLE>
*Insurance underwriting general expenses include amortization of deferred
acquisition costs of $215 million, $247 million and $216 million for the years
ended December 31, 2000, 1999 and 1998, respectively.
Corporate and Other segment revenue consists primarily of valuation changes of
investments in limited partnerships and income from certain other investments
(which include non-income producing equities), and income and losses on
disposals of all securities, including those pertaining to assets maintained by
the operating segments. Corporate and other general expenses include
administrative and certain information technology costs.
Selected information reflecting Aon's non-operating segment follows:
Corporate and Other
(millions) Years ended December 31 2000 1999 1998
- --------------------------------------------------------------------------------
Revenue $ 71 $ 164 $ 150
- --------------------------------------------------------------------------------
General expenses 59 63 60
Interest expense 140 105 87
Amortization of goodwill 114 102 86
----------------------------
Total expenses 313 270 233
- --------------------------------------------------------------------------------
Loss before income tax $ (242) $ (106) $ (83)
- --------------------------------------------------------------------------------
Identifiable assets at December 31 $ 6,390 $ 5,777 $ 5,319
- --------------------------------------------------------------------------------
- 55 -
<PAGE>
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, 2000 and 1999, and the related
consolidated statements of income, stockholders' equity and cash flows for each
of the three years in the period ended December 31, 2000. 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, 2000 and 1999, and the consolidated results of its operations and
its cash flows for each of the three years in the period ended December 31,
2000, in conformity with accounting principles generally accepted in the United
States.
As discussed in Note 1, in 2000, the Company changed its method of accounting
for certain commission and fee revenue and also changed its method of accounting
for derivative financial instruments.
/s/ Ernst & Young LLP
Chicago, Illinois
February 8, 2001
REPORT BY MANAGEMENT
Management of Aon Corporation is responsible for the fairness of presentation
and integrity of the financial statements and other financial information in the
annual report. The financial 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, 2000 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. All
members of the Audit Committee are independent of the Company. The Audit
Committee recommends to the Board of Directors 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.
- 56 -
<PAGE>
<TABLE>
<CAPTION>
SELECTED FINANCIAL DATA
(millions except common stock and per share data) 2000 1999 1998 1997 1996
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Brokerage commissions and fees $ 4,946 $ 4,639 $ 4,197 $ 3,605 $ 1,919
Premiums and other 1,921 1,854 1,706 1,646 1,577
Investment income 508 577 590 500 392
----------------------------------------------------------------
Total revenue $ 7,375 $ 7,070 $ 6,493 $ 5,751 $ 3,888
- ------------------------------------------------------------------------------------------------------------------------------------
Income from continuing operations before special charges
and accounting change $ 531 $ 547 $ 541 $ 406 $ 351
Special charges--net of tax (50) (195) -- (107) (59)
Discontinued operations -- -- -- -- 43
----------------------------------------------------------------
Income before accounting change 481 352 541 299 335
Cumulative effect of change in accounting principle* (7) -- -- -- --
----------------------------------------------------------------
Net income $ 474 $ 352 $ 541 $ 299 $ 335
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA
Income from continuing operations before special charges
and accounting change $ 2.01 $ 2.07 $ 2.07 $ 1.55 $ 1.33
Special charges (0.19) (0.74) -- (0.43) (0.23)
Discontinued operations -- -- -- -- 0.17
----------------------------------------------------------------
Income before accounting change 1.82 1.33 2.07 1.12 1.27
Cumulative effect of change in accounting principle* (0.03) -- -- -- --
----------------------------------------------------------------
Net income $ 1.79 $ 1.33 $ 2.07 $ 1.12 $ 1.27
BASIC PER SHARE DATA
Income from continuing operations $ 1.81 $ 1.35 $ 2.11 $ 1.14 $ 1.11
Net income 1.81 1.35 2.11 1.14 1.29
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE SHEET DATA
ASSETS
Investments $ 6,019 $ 6,184 $ 6,452 $ 5,922 $ 5,213
Brokerage and consulting receivables 6,952 6,230 5,423 5,320 3,566
Intangible assets 3,916 3,862 3,500 3,094 1,598
Other 5,364 4,856 4,313 4,355 3,346
----------------------------------------------------------------
Total assets $ 22,251 $ 21,132 $ 19,688 $ 18,691 $ 13,723
- ------------------------------------------------------------------------------------------------------------------------------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Insurance premiums payable $ 8,212 $ 7,643 $ 6,948 $ 6,380 $ 4,144
Policy liabilities 4,859 4,988 4,823 4,450 4,360
Notes payable 1,798 1,611 1,423 637 521
General liabilities 3,144 2,989 2,627 3,552 1,815
----------------------------------------------------------------
Total liabilities 18,013 17,231 15,821 15,019 10,840
Redeemable preferred stock 50 50 50 50 50
Capital securities 800 800 800 800 --
Stockholders' equity 3,388 3,051 3,017 2,822 2,833
----------------------------------------------------------------
Total liabilities and stockholders' equity $ 22,251 $ 21,132 $ 19,688 $ 18,691 $ 13,723
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Dividends paid per share $ 0.87 $ 0.82 $ 0.73 $ 0.68 $ 0.63
Stockholders' equity per share 13.02 11.91 11.83 11.20 10.81
Price range 42 3/4 - 46 2/3 - 50 3/8 - 39 1/4 - 28 3/4 -
20 11/16 26 1/16 32 3/16 26 13/16 21 1/16
Market price at year-end 34.250 40.000 36.917 39.083 27.583
Common stockholders 13,687 13,757 12,294 12,698 13,030
Shares outstanding (in millions) 260.3 256.1 255.0 252.0 249.6
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Adoption of SEC Staff Accounting Bulletin 101, effective January 1, 2000, net
of tax.
</FN>
</TABLE>
- 57 -
<PAGE>
<TABLE>
<CAPTION>
QUARTERLY FINANCIAL DATA
(millions except common stock and per share data) 1Q* 2Q* 3Q* 4Q 2000
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA
Brokerage commissions and fees $ 1,205 $ 1,203 $ 1,176 $ 1,362 $ 4,946
Premiums and other 468 491 476 486 1,921
Investment income 137 125 133 113 508
--------------------------------------------------------------------
Total revenue 1,810 1,819 1,785 1,961 7,375
--------------------------------------------------------------------
Income before special charges and accounting change $ 123 $ 129 $ 139 $ 140 $ 531
Special charges--net of tax -- -- -- (50) (50)
Cumulative effect of change in accounting principle* (7) -- -- -- (7)
--------------------------------------------------------------------
Net income 116 129 139 90 474
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA
Income before special charges and accounting change $ 0.47 $ 0.49 $ 0.53 $ 0.52 $ 2.01
Special charges -- -- -- (0.19) (0.19)
Cumulative effect of change in accounting principle* (0.03) -- -- -- (0.03)
--------------------------------------------------------------------
Net income 0.44 0.49 0.53 0.33 1.79
- ------------------------------------------------------------------------------------------------------------------------------------
BASIC NET INCOME PER SHARE $ 0.44 $ 0.50 $ 0.53 $ 0.34 $ 1.81
- ------------------------------------------------------------------------------------------------------------------------------------
COMMON STOCK DATA
Dividends paid per share $ 0.21 $ 0.22 $ 0.22 $ 0.22 $ 0.87
Stockholders' equity per share 12.05 12.08 12.40 13.02 13.02
Price range 42 3/4 - 36 15/16 - 42-29 42 5/16 - 42 3/4 -
20 11/16 24 7/16 28 1/8 20 11/16
Shares outstanding (in millions) 255.9 255.0 256.1 260.3 260.3
Average monthly trading volume (in millions) 29.8 15.4 16.9 32.3 23.6
- ------------------------------------------------------------------------------------------------------------------------------------
(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
--------------------------------------------------------------------
Income before special charges $ 152 $ 151 $ 138 $ 106 $ 547
Special charges (102) -- -- (93) (195)
--------------------------------------------------------------------
Net income 50 151 138 13 352
- ------------------------------------------------------------------------------------------------------------------------------------
DILUTIVE PER SHARE DATA
Income before special charges $ 0.58 $ 0.57 $ 0.52 $ 0.40 $ 2.07
Special charges (0.39) -- -- (0.35) (0.74)
--------------------------------------------------------------------
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
- ------------------------------------------------------------------------------------------------------------------------------------
<FN>
*Adoption of SEC Staff Accounting Bulletin 101, effective January 1, 2000,
net of tax. Except for the cumulative effect adjustment, the impact of the
change in accounting principle was not material to any quarter during 2000.
</FN>
</TABLE>
- 58 -
<PAGE>
OPERATING SEGMENTS
- --------------------------------------------------------------------------------
INSURANCE BROKERAGE AND OTHER SERVICES
Around the world in hundreds of offices, our insurance professionals provide
comprehensive insurance and risk management services to organizations of all
sizes. These services include risk identification and assessment; insurance
program design, placement and administration; wholesale brokerage; managing
general underwriting; affinity programs; reinsurance brokerage; and claims,
premium financing, risk management, actuarial and loss control services.
PAUL R. DAVIES DENNIS L. MAHONEY DIRK P. M. VERBEEK
KENNETH J. LESTRANGE MICHAEL D. RICE
- --------------------------------------------------------------------------------
CONSULTING
Thousands of consulting professionals assist with the attraction, retention,
productivity and leadership of people to enable clients to achieve their
business strategies. We deliver integrated solutions and outsourcing services to
help clients with:
o Employee benefits by designing health and retirement plans that balance
employer and employee needs
o Compensation by developing innovative compensation and reward programs along
with industry survey data
o Management consulting in the areas of process improvement, leadership
development, employee selection and assessment systems, performance
measurement tools and change management
o Employment practices outsourcing by administering HR administrative functions,
including employee assessment and selection and benefit plan administration
Our expertise and our ability to provide integrated solutions, including process
implementation through a single point of contact, results in added value for our
clients.
DONALD C. INGRAM
- --------------------------------------------------------------------------------
INSURANCE UNDERWRITING
Individual accident, life and health insurance products are provided to over 5
million policyholders worldwide through a salesforce of nearly 8,000 plus other
professionals throughout North America, Latin America, Europe and the Pacific.
Warranty products and services are delivered to the world's premier
manufacturers, distributors and retailers of almost every type of consumer good
including vehicles, electronics, appliances, computers and telephone equipment,
as well as extended service plans and warranties for home buyers and sellers.
DAVID L. COLE RICHARD M. RAVIN
- 59 -
<PAGE>
BOARD OF DIRECTORS
PATRICK G. RYAN
Chairman and
Chief Executive Officer
DANIEL T. CARROLL
Chairman
The Carroll Group, Inc.
FRANKLIN A. COLE
Chairman
Croesus Corporation
EDGAR D. JANNOTTA
Senior Director
William Blair & Company, L.L.C.
LESTER B. KNIGHT
Founding Partner
RoundTable Healthcare Partners
PERRY J. LEWIS
Senior Managing Director
Heartland Industrial Partners
ANDREW J. MCKENNA
Chairman and
Chief Executive Officer
Schwarz
NEWTON N. MINOW
Senior Counsel
Sidley & Austin
ROBERT S. MORRISON
Chairman, President and
Chief Executive Officer
The Quaker Oats Company
RICHARD C. NOTEBAERT
President and
Chief Executive Officer
Tellabs, Inc.
MICHAEL D. O'HALLERAN
President and
Chief Operating Officer
DONALD S. PERKINS
Chairman of the Board (retired)
Jewel Companies Inc.
JOHN W. ROGERS, JR.
Chairman and
Chief Executive Officer
Ariel Capital Management, Inc.
Trustee-Ariel Mutual Funds
GEORGE A. SCHAEFER
Chairman of the Board (retired)
Caterpillar Inc.
RAYMOND I. SKILLING
Executive Vice President
and Chief Counsel
FRED L. TURNER
Senior Chairman
McDonald's Corporation
ARNOLD R. WEBER
President Emeritus
Northwestern University
CAROLYN Y. WOO
Dean
Mendoza College of Business
University of Notre Dame
CORPORATE OFFICERS
PATRICK G. RYAN
Chairman and
Chief Executive Officer
MICHAEL D. O'HALLERAN
President and
Chief Operating Officer
JUNE E. DREWRY
Executive Vice President
and Chief Information Officer
HARVEY N. MEDVIN
Executive Vice President
and Chief Financial Officer
ROBERT A. ROSHOLT
Executive Vice President
RAYMOND I. SKILLING
Executive Vice President
and Chief Counsel
MICHAEL A. CONWAY
Senior Vice President and
Senior Investment Officer
RICHARD F. FERRUCCI
Senior Vice President
JOSEPH J. PROCHASKA, JR.
Senior Vice President
and Controller
JOSEPH W. SHENTON
Senior Vice President
GARY A. ACKLAND
Vice President
Internal Audit
JEROME I. BAER
Vice President
Taxes
KEVANN M. COOKE
Vice President and
Corporate Secretary
MELODY L. JONES
Vice President
Human Resources
SEAN P. O'NEILL
Vice President
Financial Relations
JOHN A. RESCHKE
Vice President
Compensation and Benefits
DIANE M. AIGOTTI
Treasurer
- 60 -
<PAGE>
CORPORATE INFORMATION
Aon Corporation
123 North Wacker Drive
Chicago, Illinois 60606
312 701-3000
Internet: www.aon.com
The new corporate headquarters address for Aon Corporation as of August 2001
will be:
Aon Center
200 East Randolph Drive
Chicago, IL 60602
STOCK TRADING
Aon Corporation's common stock is listed on the New York, Chicago, London and
Frankfurt stock exchanges.
Trading Symbol: AOC
ANNUAL STOCKHOLDER'S MEETING
The 2001 Annual Meeting of Stockholders will
be held on April 20, 2001 at 10:00 a.m. (CST) at:
Bank One Auditorium
1 Bank One Plaza
10 South Dearborn Street
Chicago, Illinois 60670
TRANSFER AGENT AND DIVIDEND REINVESTMENT
SERVICES ADMINISTRATOR
EquiServe
P.O. Box 2500
Jersey City, New Jersey 07303-2500
Within the U.S. and Canada: 800 446-2617
Outside the U.S. and Canada: 201 324-0498
TDD/TTY for hearing impaired: 201 222-4955
Internet: www.equiserve.com
STOCKHOLDER INFORMATION
Copies of the Annual Report, Forms 10-K and 10-Q, and other Aon information may
be obtained from our Internet web site, www.aon.com, or by calling Stockholder
Communications:
Within the U.S. and Canada: 888 858-9587
Outside the U.S. and Canada: 858 431-7902
PRODUCTS AND SERVICES
For a detailed list of Aon's products and services, please refer to the section
entitled "Solutions" on our web site, www.aon.com.
- IBC -
<PAGE>
</TEXT>
</DOCUMENT>
<DOCUMENT>
<TYPE>EX-21
<SEQUENCE>6
<FILENAME>0006.txt
<DESCRIPTION>AON CORPORATION AND IT'S SUBSIDIARIES
<TEXT>
EXHIBIT 21
Aon CORPORATION AND IT'S SUBSIDIARIES (AS OF DECEMBER 31, 2000)
Aon Corporation Delaware
120524 Canada Inc. Canada
123 Newco, Inc. Delaware
1e Katharinastrase 29 Vermogensverwaltungsges mbH Germany
2e Katharinastrase 29 Vermogensverwaltungsges mbH Germany
A Morel & Cie Sa France
A. J. Norcott & Company (Holdings) Limited United Kingdom
A. J. Norcott & Partners (Northern) Limited United Kingdom
A.G.Y.C. Corretores de Seguros Lda. Portugal
A.H. Laseur B.V. Netherlands
A.H.E. Alexander Howden de Espana S.A. Spain
A.H.O.H. (Bermuda) Limited Bermuda
A/S Assurance Norway
AARE Corporation New York
ABS Insurance Agency Ltd. United Kingdom
ACGMGA Corp. Texas
ACN 004 192 394 Pty. Ltd. 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
Advanced Risk Management Techniques, Inc. California
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
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
Alexander & Alexander (C.I.) Limited Guernsey
Alexander & Alexander (Hong Kong) Holdings Limited Hong Kong
Alexander & Alexander (Ireland) Limited Ireland
<PAGE>
Alexander & Alexander (Isle of Man) Limited United Kingdom
Alexander & Alexander (Malaysia) Sdn. Bhd. Malaysia
Alexander & Alexander (Thailand) Ltd. Thailand
Alexander & Alexander Asia Holdings Pte. Ltd. Singapore
Alexander & Alexander B.V. Netherlands
Alexander & Alexander Consultants S.A. France
Alexander & Alexander Corretores e Consultores
de Seguros Lda. Portugal
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 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. (Thailand) Thailand
Alexander & Alexander Middle East Limited Bermuda
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 Ltd. Taiwan
Alexander & Alexander Services (India) Pvt. Ltd. India
Alexander & Alexander Services Canada Inc. Canada
Alexander & Alexander Services UK Limited Scotland
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 United Kingdom
Alexander Clay Communications Limited United Kingdom
Alexander Consulting Groep B.V Netherlands
Alexander Coyle Hamilton Ltd. Ireland
Alexander Financial Services Limited 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 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 (Bermuda) Limited Bermuda
Alexander Howden Group Far East Ltd. Hong Kong
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
<PAGE>
Alexander Howden North America, Inc. Texas
Alexander Howden Ossa De Colombia SA Colombia
Alexander Howden Previsionales y Personas Ltda Colombia
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 Portfolio Management Ltd. New Zealand
Alexander R.M.C. Brown Partners Ltd. Australia
Alexander Reinsurance Intermediaries, Inc. New York
Alexander RMC Brown Partners Pty. Limited Australia
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 Risk Management S.A. Spain
Alexander Underwriting Agencies Limited Bermuda
Alexander Underwriting Services Limited United Kingdom
Alexander, Ayling, Barrios & Cia, S.A. Argentina
Algemeen Asurantiekantoor van 1863 Justin
van de Port bv Netherlands
Allen Insurance Associates, Inc. California
Alternative Market Operations (Aust) Pty. Ltd. United Kingdom
AMC Worldwide 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
Andes Global Ltd. Brit. Virgin Islands
Anglo-Swiss Reinsurance Brokers Ltd. Switzerland
ANR Engineering Limited United Kingdom
Anscor Insurance Brokers Inc. Philippines
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 (Phils.) Corp. Philippines
Aon Administrative Services Corp. California
Aon Advisors (UK) Limited United Kingdom
Aon Advisors, Inc. Virginia
Aon Aisa Ltd. Hong Kong
Aon Alexander & Alexander nv Belgium
Aon Alexander Clay Limited United Kingdom
Aon Alexander Limited United Kingdom
<PAGE>
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 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 Canada Limited Canada
Aon Capital A Delaware
Aon Capital Markets Limited United Kingdom
Aon Captive Management, Ltd. U.S. Virgin Islands
Aon Captive Services (Nederland) bv Netherlands
Aon Captive Services Antilles 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 Club Shopper Limited United Kingdom
Aon Colombia S.A. Corredores de Seguros Colombia
Aon Commercial Risks Hong Kong Ltd. Hong Kong
Aon Conseil et Courtage France
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 SA Belgium
Aon Consulting Chile Limitada Chile
Aon Consulting Compensation & Benefits Limited United Kingdom
Aon Consulting Consultores de Seguros Ltda. Brazil
Aon Consulting Denmark A/S Denmark
Aon Consulting Financial Services Limited United Kingdom
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 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. New York
Aon Consulting, Inc. New Jersey
Aon Consulting, Inc. Ohio
Aon Consulting, Inc. Texas
Aon Consulting, Inc. Florida
Aon Consulting, Inc. of Arizona Arizona
<PAGE>
Aon Consulting, Inc. of New Jersey Delaware
Aon Consulting, Limited Quebec
Aon Consulting, S.A. de C.V. Mexico
Aon Corporation Australia Ltd. 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 Eesti AS Estonia
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 Advisor Services Pty. Limited Australia
Aon Financial Planning & Protection Pty. Ltd. Australia
Aon Financial Planning Ltd. Australia
Aon Financial Products, Inc. Delaware
Aon Financial Services Australia Holdings Limited Australia
Aon Financial Services Australia Limited Australia
Aon Financial Services Group of Colorado, Inc. Colorado
Aon Financial Services Group of New York, Inc. New York
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 Financial, Inc. Delaware
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 Correduria de Seguros, SA Spain
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 Australia Limited (Australia) Australia
Aon Group Corretagem, Administracao
e Consultoria de Seguros Ltda UK
Aon Group Ecuador S.A. Intermediaria de Reaseguros Ecuador
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 Nominee Pty. Ltd. Australia
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 Alliance Limited United Kingdom
Aon Healthcare Insurance Services of Arizona, Inc. Arizona
Aon Healthcare Insurance Services, Inc. California
<PAGE>
Aon Hellas A.E. Greece
Aon Holdings Antillen nv Netherland Antilles
Aon Holdings Australia Ltd. Australia
Aon Holdings Belgium SA 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
Aon Hudig-Schreinemacher vof Netherlands
Aon India Limited United Kingdom
Aon Innovative Solutions, Inc. Missouri
Aon Insurance Agencies Pte Ltd Singapore
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 Micronesia (Guam) Inc. Guam
Aon Insurance Services California
Aon Insurance Services, Inc. Pennsylvania
Aon Intermediaries (Bermuda) Ltd. Bermuda
Aon Intermediaries Limited United Kingdom
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 Limited United Kingdom
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 Malawi Ltd. Malawi
Aon Malta Ltd. Malta
Aon Managed Care Risk & Insurance Services, Inc. California
Aon Manzitti S.p.A. Italy
Aon Middle East United Arab Emirates
Aon Minet Insurance Brokers Ltd. Kenya
Aon Minet Ltd. New Zealand
Aon Mozambique Ltd. Mozambique
Aon Natural Resources Asia Ltd. Labuan
Aon Natural Resources South Africa (Pty) LTd. South Africa
Aon Nederland cv Netherlands
<PAGE>
Aon Netherlands b.v. Netherlands
Aon New Jersey Holding Corporation New Jersey
Aon Nikols Adriatica Srl Italy
Aon Nikols bv Netherlands
Aon Nikols Chile bv Netherlands
Aon Nikols Colombia Holdings SA Colombia
Aon Nikols International Sarl. Brit. Virgin Islands
Aon Nikols International Sarl. Luxembourg
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
Aon Ossa Limitada, Corredores de Reaseguros Colombia
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 Consultor Colombia
Aon Private Client Insurance Agency, Inc. Illinois
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 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 Realty Services, Inc. Pennsylvania
Aon Reed Stenhouse Inc. Canada
Aon Reinsurance Australia Limited (Australia) Australia
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 (Barbados) Ltd. Barbados
<PAGE>
Aon Risk Services (Cayman) Ltd. Cayman Islands
Aon Risk Services (Chile) S.A. Chile
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 (Solomon Islands) Ltd. Australia
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 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 Ltd. 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 PNG Pty. Ltd. Papau New Guinea
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 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
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
<PAGE>
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. SA France
Aon Securities Corporation New York
Aon Select Limited United Kingdom
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 Re, Inc. Illinois
Aon Stockholm AB Sweden
Aon Superannuation Pty Limited Australia
Aon Suretravel Limited United Kingdom
Aon Surety & Guarantee Limited United Kingdom
Aon Sweden AB Sweden
Aon Tanzania Ltd. Tanzania
Aon Technical Insurance Services, Inc. Illinois
Aon Trade Credit Insurance Brokers S.r.l. Italy
Aon Trade Credit Insurance Services, Inc. California
Aon Trade Credit Limited United Kingdom
Aon Trade Credit, Inc. New York
Aon Trade Credit, Inc. Illinois
Aon Trust Corporation Limited United Kingdom
Aon UK Holdings Limited United Kingdom
Aon UK Limited United Kingdom
Aon UK Trustees Limited United Kingdom
Aon Underwriting Agencies (Hong Kong) Ltd. Hong Kong
Aon Vietnam Vietnam
Aon WACUS Kreditversicherungsmakler GmbH & Co. KG Germany
Aon WACUS Verwaltungs GmbH Germany
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-Baoviet Inchcape Insurance Services Limited Vietnam
Aon-Lihou-Uzbekinsurance Limited Republic of Uzbekistan
Aon/Albert G. Ruben Company (New York) Inc. New York
<PAGE>
Aon/Albert G. Ruben Insurance Services, Inc. California
Aon/Brockinton Agency of Texas, Inc. Texas
Aon/Saiz Limitada Barranquilla Corredores de Seguros Colombia
Aongyc - Resseguros e Consultores de Seguros, Lda Portugal
AonLine Services, Inc. Illinois
AOPA Insurance Agency, Inc. Maryland
AOPA Insurance Agency, Inc. Texas
APAC (Alliance Pour l'Assurance Credit) Sarl France
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 (PNG) Ltd. Australia
ARS Holdings, Inc. Louisiana
Artemis Securities Ltd. Guernsey
Artscope Insurance Services Limited United Kingdom
Artscope International Insurance Services Limited United Kingdom
ASA Administration Inc. Delaware
ASA Communications, Inc. Delaware
ASA Fiduciary Counselors Inc. Delaware
ASA Financial Services, Inc. Delaware
ASA Global Services Inc. Ontario
Ascom Nijmegen B.V. Netherlands
ASCOMIN S.A. Belgium
Asesores Kennedy Agente de Seguros y de
Fianzas, S.A. de Mexico
Asesores y Corredores De Seguros, S.A. Republica Dominica
Asharo bv Netherlands
Asian American Finance Limited Bermuda
Asian Reinsurance Underwriters Limited Hong Kong
Assekurazkontor fur Industrie und Verkehr GmbH Germany
Asset Security Managers Limited United Kingdom
Assidoge Srl Italy
Associated Brokers International Zimbabwe
Associated Fund Adminstrators Botswana (Pty) Limited Botswana
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
Atlanta International Insurance Company New York
Attorneys' Advantage Insurance Agency, 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
<PAGE>
B E P International Holding Inc. Canada
B E P International US Inc. Delaware
B.L. Carnie Hogg Robinson Ltd. United Kingdom
B.N.H. Group Ltd. United Kingdom
B.V. Assurantiekantoor Langeveldt-Schroder Netherlands
Bailiwick Consultancy & Management Co. Ltd. Guernsey
Bain Clarkson (UK) Limited United Kingdom
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 Investments (Australia) Pty Ltd. Australia
Bain Hogg Australia Ltd. Australia
Bain Hogg Brokers Espana SA Spain
Bain Hogg Chile S.A. Corredoros de Reasguro Chile
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 Brokers Kenya Ltd. Kenya
Bain Hogg Insurance Management (Guernsey) Ltd. Guernsey
Bain Hogg Intermediaro de Reaseguro SA de CV Mexico
Bain Hogg International Holdings Ltd. United Kingdom
Bain Hogg International Ltd. United Kingdom
Bain Hogg Ltd. United Kingdom
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 Hogg Venezolana SA Venezuela
Banca Seguros Colon, S.A. Colombia
Bankassure Insurance Services Limited United Kingdom
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
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
BHN Unit Trust Australia
Bing S.A. Argentina
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 Luxembourg S.a.r.l. Luxembourg
Boels & Begault Vlaanderen S.A. Belgium
<PAGE>
Bonnor & Company A/S Denmark
Bowes & Company, Inc., of New York New York
Bowring and Minet (Swaziland) (Pty) Ltd. Swaziland
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
Budapest Pension Fund Company Hungary
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
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 Horizon Consultants, Inc. New York
Cambridge Integrated Services Group, Inc. Pennsylvania
Cambridge Professional Liability Services, Inc. Illinois
Cambridge Professional Liability Services, Inc. Pennsylvania
Cambridge Professional Liability Services, Inc. Florida
Cambridge Settlement Services, Inc. Minnesota
Camperdown 100 Limited United Kingdom
Camperdown 101 Limited United Kingdom
Camperdown 102 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
Carbon Risk Management Limited United Kingdom
Carstens & Schues GmbH & Co. Germany
Carstens & Schues Poland Ltd. Poland
Carstens & Schues Verwaltungs GmbH Germany
Catz & Lips B.V. Netherlands
CCM McGrath Berrigan Ltd. Ireland
CD Benefit, Inc. Texas
Celinvest Amsterdam bv Netherlands
Central Technica SA Spain
Centris Services Limited United Kingdom
Centurion, Agente de Seguros, S.A. de C.V. Mexico
CI-Erre Srl Italy
CIA Italia S.R.L. Italy
<PAGE>
CIA Link Ltd. United Kingdom
CICA Superannuation Nominees Pty. Ltd. Australia
Citadel Insurance Company Texas
CJP, Inc. Delaware
Clarkson Argentine SA Argentina
Clarkson Bain Japan Ltd. United Kingdom
Clarkson Puckle Group, Ltd. Unknown
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 Limited United Kingdom
Clay & Partners Pension Trustees Limited United Kingdom
CNL Nikols SA 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
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 Limited 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
Continential SA Spain
Contract & Investment Recoveries Ltd. United Kingdom
Control de Riesgos, S.A. Spain
Control y Global Services, S.A. 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
Credit Indemnity & Financial Services Limited United Kingdom
Credit Insurance Association (Singapore) Pte Limited Singapore
CRiON nv Belgium
Crotty MacRedmond Insurance Limited Ireland
CRP (Isreal) Limited United Kingdom
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
<PAGE>
Dale-Parizeau Management Ltd. Bermuda
Dealer Auto Receivables Corp. Delaware
Dealer Development Services, Ltd. United Kingdom
Deanborne Limited United Kingdom
Denison Pension Trustees Limited United Kingdom
Denison Pension Trustees Ltd. United Kingdom
Dobson Park L. G. Limited Guernsey
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 A/S Norway
DuPage Care Administrators, Inc. Illinois
E. Lillie & Co. Limited 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
Entertainment Managers Insurance
Agency of New York, Inc. New York
Entertainment Managers Insurance Services Ltd United Kingdom
Entertainment Managers Insurance Services, Inc. Ontario
ERAS (International) Ltd. United Kingdom
Ernest A. Notcutt & Co. Ltd. United Kingdom
Essar Insurance Consultants Ltd. Taiwan
Essar Insurance Services Ltd. Hong Kong
European 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
EXKO Excess Ruckversicherungs-AG Germany
EXKO Excess Versicherungsagentur GmbH Germany
Figurecheck Limited United Kingdom
Finance Assurance Conseil - FAC SA France
Financial & Professional Risk Solutions, Inc. Illinois
Finsbury Healthcare Limited United Kingdom
Firma A.J. Driessen C.V. Netherlands
France Cote D'Afrique France
France Fenwick Limited United Kingdom
Frank B. Hall & Co. (N.S.W.) Pty. Ltd. Australia
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 & Capel Cure Agencies Limited United Kingdom
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
<PAGE>
Gil y Carvajal Chile Ltda., Corredores de Seguros Chile
Gil y Carvajal Consultores, S.A. 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
Godwins Investments Limited United Kingdom
Gras Savoye Rumania Romania
Greville Baylis Parry & Associates Ltd. United Kingdom
Greyfriars Marketing Services Pty Ltd. Australia
Grieg (UK) Limited United Kingdom
Group Le Blanc de Nicolay SA France
Groupement Europeen d'Assurances Generales France
Growth Enterprises Ltd. Bahamas
Guardrisk Insurance Company Limited South Africa
Guernsey Nominees (Pty) Limited Guernsey
Gwelforth Ltd. United Kingdom
Halford, Shead & Co. Limited United Kingdom
Hamburger Gesellschaft zur
Forderung des Versicherungswes Germany
Hans R Schmidt Gmbh Germany
Hans Rudolf Schmidt EDV Systemhaus GmbH Germany
Hanse Assekuranz-Vermittlungs GmbH Germany
Hanseatische Assekuranz Kontor GmbH Germany
HARB Limited United Kingdom
Harbour Pacific Holdings Pty., Ltd. Australia
Harbour Pacific Underwriting Management Pty Limited Australia
Heerkens Thijsen Groep bv Netherlands
Heerkens Thijssen & Co. bv Netherlands
Heerkens Thijssen Caviet vof Netherlands
Hemisphere Marine & General Assurance Ltd. Bermuda
HHL (Taiwan) Ltd. Taiwan
HHL Reinsurance Brokers Pte. Ltd. Singapore
HHL Reinsurance Services Sdn. Bhd. Malaysia
HIB Limited United Kingdom
Highplain Limited United Kingdom
HL Puckle (Underwriting) Ltd. United Kingdom
Hobbs & Partners Ltd. United Kingdom
Hogg Automotive Insurance Services Ltd. United Kingdom
Hogg Group Limited United Kingdom
Hogg Group Netherlands BV Netherlands
Hogg Group Overseas Ltd. United Kingdom
Hogg Insurance Brokers GmbH Germany
Hogg Insurance Group SA Spain
Hogg Robinson & Gardner Mountain (Insurance) Ltd. United Kingdom
Hogg Robinson (Nigeria) Unlimited Nigeria
Hogg Robinson (Pvt) Limited United Kingdom
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
<PAGE>
HRGM 1989 Ltd. United Kingdom
HRGM Cargo Ltd. United Kingdom
HRGM Management Services Ltd. United Kingdom
HRGM Marine Ltd. United Kingdom
Hudig Langeveldt Pte Ltd. Singapore
Hudig-Langeveldt (Pensioenbureau) bv Netherlands
Hudig-Langeveldt (Reinsurance) bv Netherlands
Hudig-Langeveldt Janson Elffers B.V. Netherlands
Hudig-Langeveldt Makelaardij in Assurantien bv 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 Limited United Kingdom
Ian H. Graham, Inc. California
Ibex Managers Ltd. Kenya
ICR-Riass Srl Italy
Impact Forcasting Limited United Kingdom
Impact Forecasting, L.L.C. Illinois
Imperial Investment Company Cayman Islands
Inchcape Continental Insurance
Holdings (Eastern Europe) Ltd. Cyprus
Inchcape Insurance Agencies (HK) LTd. Hong Kong
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 Management Services International Limited United Kingdom
Insurance Planning, Inc. Nevada
Integrated Risk Resources Limited United Kingdom
Integrated Risk Resources Limited United Kingdom
Interbroke Ltd. Switzerland
Interglobe Management AG Switzerland
Interims Limited United Kingdom
International Art & Antique Loss Register Limited United Kingdom
International Film Finance Limited Partnership UK
International Industrial Insurances Limited Ireland
International Insurance Brokers Ltd. Jamaica
International Medical Rescue Limited United Kingdom
International Shipowners Mutual
Insurance Association Limited Bermuda
International Space Brokers Inc. Virginia
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
ISG Administration Services Inc. Ontario
ISPP Purchasing Group Missouri
ITA Insurance, Inc. Utah
J H Minet (Insurance) Limited Ireland
J H Minet (Inter-Gremium) AG Switzerland
J H Minet Agencies Ltd. United Kingdom
<PAGE>
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
Janson Green Limited United Kingdom
Janson Services Limited United Kingdom
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 Intermediary
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
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
Jewellery Replacement Services Limited United Kingdom
JFC Consulting, Inc. Delaware
JFS (Sudamerica) SA Uruguay
JFS Fenchurch Limited United Kingdom
JFS Greig Fester Limited United Kingdom
JG Associates Limited United Kingdom
JG Holdings Limited United Kingdom
JML-Minet A.G. Switzerland
John C. Lloyd Reinsurance Brokers Ltd. Australia
John Scott Insurance Brokers Limited United Kingdom
Johnson Rooney Welch, Inc. California
Joost & Preuss GmbH Germany
Joseph U. Moore, Inc. Florida
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
Keith Rayment & Associates Ltd. United Kingdom
Keyaction Limited United Kingdom
Kininmonth Limited Ireland
Kroller Holdings B.V. Netherlands
KTW Enterprises, Inc. New Jersey
L. & F. Longobardi SRL Italy
La Societe de Courtage Meloche Alexander Inc. Canada
Langeveldt de Vos b.v. Netherlands
<PAGE>
Langeveldt Groep B.V. Netherlands
Laurila, Kauriala & Grig Ltd. Russia
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 Reassurances SA France
Le Blanc de Nicolay Ruckversicherungsmakler GmbH Germany
Leslie & Godwin (C.I.) Limited Guernsey
Leslie & Godwin (Scotland) Limited Scotland
Leslie & Godwin (U.K.) 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 International Limited United Kingdom
Leslie & Godwin Investments Limited United Kingdom
Leslie & Godwin Limited United Kingdom
LIB Financial Services Ltd. United Kingdom
LIB Limited United Kingdom
Livewire Group Pty. Ltd. ACN 088 444 964 Australia
LMG Claims Information Network Limited United Kingdom
LMG Jewellery Claims Service Limited United Kingdom
London General Holdings Limited United Kingdom
London General Insurance Company Limited United Kingdom
Loss Management Group 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 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
Lylehead Limited United Kingdom
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
MacDonagh Boland Cullen Duggan Limited Ireland
MacDonagh Boland Foley Woollam Limited Ireland
Macey Williams Insurance Services Limited United Kingdom
Macey Williams Limited United Kingdom
Macquarie Underwriting Pty. Ltd. United Kingdom
Madison Intermediaries Pty. Limited Australia
Mahamy Company plc (Aon Iran) Iran
Management and Regulator Services, Inc. New York
Mansfeld, Hubener & Partners Gmbh Germany
Marinaro Dundas SA Uruguay
Marinaro Dundas SA Argentina
<PAGE>
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
Media/Professional Insurance Agency Limited United Kingdom
Media/Professional Insurance Agency, Inc. Missouri
Medical Care Management Limited United Kingdom
Mediterranean Insurance Training Centre Malta
MEIE Argentina SA Argentina
MIB UK (Holdings) Ltd. United Kingdom
Mibsa Investments (Namibia) (Pty) Limited Namibia
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 Pty. Ltd. Australia
Minet Australia Pty. 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 Direct Marketing Services Ltd. United Kingdom
Minet Employees' Trust Company Ltd. United Kingdom
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 Holdings Guernsey Limited Guernsey
Minet Holdings Inc. New York
Minet Hong Kong Ltd. Hong Kong
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 International (Holdings) Ltd. United Kingdom
Minet Kingsway (Lesotho) (Pty) Ltd. Lesotho
Minet Limited United Kingdom
Minet Limited Uganda
Minet Limited (Bermuda) Bermuda
Minet Lindgren i Helsingborg Sweden
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. (UK) United Kingdom
Minet Professional Services Pty. Ltd. (Australia) Australia
Minet Properties Ltd. United Kingdom
Minet RAIA Insurance Brokers Limited Hong Kong
Minet Re (Bermuda) Limited Bermuda
<PAGE>
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 Singapore Pte. Ltd. Singapore
Minet Superannuation Nominee Pty. Ltd. Australia
Minet Trustees Ltd. United Kingdom
Minet West Africa Ltd. United Kingdom
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
Netherlands Construction Insurance Services Ltd United Kingdom
New Dimensions Underwriting Group, Inc. Virginia
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 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 Bankscope Insurance Services Limited United Kingdom
Nicholson Leslie Bankscope Marine Insurance Consultants United Kingdom
Nicholson Leslie Energy Resources Limited United Kingdom
Nicholson Leslie International Limited United Kingdom
Nicholson Leslie Investments Limited United Kingdom
Nicholson Leslie Limited United Kingdom
Nicholson Leslie Management Services Limited United Kingdom
Nicholson Leslie Non-Marine Reinsurance Brokers Limited United Kingdom
Nicholson Leslie North American
Reinsurance Brokers, Limited United Kingdom
Nicholson Leslie Property Limited United Kingdom
Nikols Chile SA Chile
Nikols Galicia SA Spain
Nikols Iberia SA Spain
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
Norwegian Insurance Partners A/S Norway
Norwegian Insurance Partners as (Non-Marine) Norway
NRC Reinsurance Company Ltd. Bermuda
Ohio Cap Insurance Company, Inc. Bermuda
<PAGE>
OHM Insurance Agency, Inc. Ohio
OHM Services of Texas, Inc. Texas
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 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
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.T. Alexander Lippo Indonesia Indonesia
Pacific Underwriting Corporation Pty. Ltd. Australia
Pacific Wholesale Insurance Brokers Pty Ltd. Australia
Paladin Reinsurance Corporation New York
Pandimar Consultants, Inc. New York
Paribas Assurantien B.V. Netherlands
Parker Risk Management (Bermuda) Ltd. Bermuda
Pat Ryan & Associates, B.V. Netherlands
Paul J.F. Schultz oHG Germany
PBG Pensions Beratungs-Gesellschaft mbH (Partnership) Germany
PHH Insurance Associates Corporation Maryland
Pinerich Limited Ireland
Plaire SA France
Poland Puckle Insurance Brokers Ltd. United Kingdom
Prairie State Administrative Services, Inc. Illinois
Prairie State Underwriting Managers, L.L.C. Illinois
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
Priority Line Direct Limited United Kingdom
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
Property Owners Database Limited United Kingdom
Proruck Ruckversicherungs - AG Germany
PROVIA Gesselschaft fur betriebliche Risicoanalyse mbH Germany
Provider Services, Ltd. Bermuda
PT Alexander Lippo Indonesia Australia
PT RNJ Ratna Nusa Jaya Indonesia
PYXYS-Gestion de Flottes SA France
R&M Reinsurance Intermediaries Ltd. Trinidad
R.E.I.A. Insurance Brokers Pty. Ltd. Australia
Ralph S. Harris (Insurance) Pty. Ltd. Zimbabwe
Rath & Strong, Inc. Massachusetts
RBH General Agencies (Canada) Inc. Quebec
RDG Resource Dealer Group (Canada) Inc. Canada
RE BID Pty. Ltd. Australia
Reed Stenhouse Asia Pacific Limited Scotland
Reed Stenhouse Europe Holdings B.V. Netherlands
Reed Stenhouse Gmbh Germany
<PAGE>
Reed Stenhouse Underwriting Management Limited Scotland
REI (NSW) Insurance Brokers Pty. Ltd. Australia
REISA Insurance Brokers Pty. Ltd. Australia
REIV Insurance Brokers (Pty) Ltd. Australia
Resource Acquisition Corporation Delaware
Resource Dealer Group of Alabama, Inc. Alabama
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
RG Reis (Management Services) Ltd. United Kingdom
RG Reis Pension Fund Trustees Ltd. United Kingdom
RHH Surety & Guarantee Limited United Kingdom
RIP Services Limited Guernsey
Risk Funding Services (Pty) Limited South Africa
Risk Management Consultants of Canada Limited Canada
Risque et Finance SA France
Rockford Holding, Inc. Delaware
Rockford Life Insurance Company Arizona
Rollins Heath Korea Co. Ltd. Korea
Rollins Hudig Hall & Co. (N.S.W.) Pty. Ltd. Australia
Rollins Hudig Hall (Hong Kong) Ltd.