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Insurance broker Aon Corp. (AON) reversed a prior-year loss caused by divestitures and other impacts, with results beating analysts' estimates, though organic revenue growth continued to lag.
The insurance industry is grappling with how to price policies low enough to attract customers who are in cost-cutting mode. That has led to falling insurance prices, which have weighed on the bottom line for insurers and brokers. In addition, Aon has been overhauling its operations for more than a year.
The "pressure" on insured values and premiums will continue through 2010, said Greg Case, Aon's chief executive, in an interview Friday.
During the company's earnings conference call, analysts quizzed executives on how they plan to increase revenue and profit margins in an environment of falling prices.
Aon will continue to invest in developing new products to attract and keep customers and will also make acquisitions, Case said.
After making some significant buys in 2009, the company will continue spending $200 million to $250 million annually on acquisitions, focusing on specialist businesses, emerging markets and acquiring "talent," said Christa Davies, Aon's chief financial officer, during the interview.
Smaller rival Willis Group Holdings Ltd. (WSH) did manage to report a small increase in organic commission and fee revenue in its fourth quarter results, released Wednesday evening, which pushed up Willis shares nearly 4% on Thursday. Shares of Willis traded down 0.3% recently, to $28.14.
Case said the company is not counting on the return of so-called contingent commissions, which are paid to brokers by insurers based on business profitability or volume. The three largest brokers all agreed to give up the commissions while other brokers continue to accept them.
"We can't take them now," Case said, but the broker works with clients "to get remunerated fairly."
Aon, one of the world's largest insurance brokerages by revenue, reported a profit of $198 million, or 69 cents a share, compared with a prior-year loss of $6 million, or 2 cents a share.
Excluding restructuring impacts and the prior-year loss from disposing its property - and casualty-insurance operations, earnings from continuing operations rose to 96 cents from 80 cents.
Revenue increased 9% to $2.1 billion, but fell 2% excluding currency effects, acquisitions and divestitures.
Analysts polled by Thomson Reuters most recently forecast earnings of 81 cents on revenue of $1.96 billion.
At Aon's largest unit, risk and insurance brokerage services, profit fell 8% on rising compensation and benefits costs. Revenue rose 8%, aiding by currency change and its Benfield Group acquisition in 2008.
Consulting-business earnings rose 11% as revenue rose 2%, mostly owing to currency effects and acquisitions.
Meanwhile, Aon raised its estimate for annualized savings from its restructuring program by $9 million, and now pegs it at $536 million.
Shares traded up 1.8% recently, to $39.50.
Lavonne Kuykendall
Source: WSJ.com February 2010
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