Aon Results Viewed As Improving

Chicago-based insurance broker Aon Corp.'s fourth-quarter results revealed flat net income growth, but investment analysts saw positive developments in organic growth.

Aon reported net income for the quarter was flat when compared to the same period in 2005 at $224 million. However, net income per share rose from 65 cents to 68 cents helped by a lower tax rate and restructuring charges. Revenues increased 7 percent, or $166 million, from $2.28 billion to $2.41 billion.

For the year, net income was down 2 percent, or $16 million, from $737 million, or $2.17 a share, to $721 million, or $2.13 a share. Revenues increased by 5 percent, or $458 million, from $8.5 billion to $9 billion.

In an analyst's note, David Small from Bear Stearns said “the core results were better than we anticipated.”

Organic growth overall was up 5 percent in the quarter, with the brokerage coming in at 2 percent, consulting services up 8 percent, and insurance underwriting up 10 percent.

For the year, organic growth for the total company was also up 5 percent, with brokerage growing 2 percent, consulting standing at 4 percent growth, and underwriting up 13 percent.

“It's likely Aon's shear size and scale make growth more difficult to achieve,” said Mr. Small. “Investors should be pleased, however, with the continued margin improvement that the company posted in the [brokerage] division in the quarter.”

During a conference call with analysts, Greg Case, president and chief executive officer, made the case that the company's realignment of its services and streamlining operations is paying off.

Mr. Case said there has been steady progress in organic growth, profit growth and margin expansion, “but clearly nowhere near where we want to be in those areas.”

He said the company will continue to make investments into technology, new markets and talents that will drive growth in the future.

Aon revealed that an internal review found certain stock options granted in 2000 were dated incorrectly, but that there was no evidence of “intentional misconduct or financial self-dealing, including backdating or other manipulation of stock option pricing.”

The audit committee is reviewing the stock options, but the outcome is not expected to have a material effect on 2005 or 2006 results, the company said.

Mr. Case said the firm's Florida reinsurance will not be affected by recent legislation allowing the state to provide low cost reinsurance to primary carriers.

He said Aon's reinsurance business there is primarily on the casualty side with little property business, and so there is opportunity for the company.

Florida recently allowed its insurer of last resort for property homeowners risks–Citizens Property Insurance Corporation–to begin writing commercial accounts and to write business at competitive prices.

Generally, while the insurance market is trending toward lower pricing, “we don't intend to have our growth dictated by the underwriting cycle,” said Mr. Case.