Aon beat the street's earnings expectations this quarter, reporting net income per share coming in at 8 cents higher than analysts' estimates and a 24 percent increase in net income.
The Chicago-based insurance broker reported second-quarter net income rose $47 million compared with the same period last year, to $240 million, or 75 cents a share. Revenues grew 13 percent, or $280 million, to $2.5 billion.
For the six months, net income increased 16 percent, or $62 million, to $453 million, or $1.41 a share. Revenues grew 11 percent, or $496 million, to $4.9 billion.
Organic growth in the firm's brokerage division grew 6 percent, with all segments showing organic growth–from 3 percent in Europe, Middle East and Africa segments to a high of 8 percent for the Americas.
During an analyst's conference call today, Greg Case, the firm's president and chief executive officer, called the results "solid progress" that shows Aon's ongoing momentum toward continued growth.
Bear Stearns' analyst David Small said in a note that Aon's performance beat the firm's estimate of 64 cents a share and street estimates of 67 cents a share.
Mr. Case said the brokerage business is seeing more opportunity in all lines, and despite the soft market its retention rates in the Americas is above 90 percent. Other sectors continue to show strong growth.
He said the United Kingdom business, which showed 6 percent organic growth, was primarily driven by new business. That sector would remain "lumpy," he pointed out, noting it was down 11 percent in the first quarter of this year.
He stressed that the firm's success has come from its sales staff telling its story to clients and expanding the services provided to those clients. Expansion in business with existing clients also increases its rate of retention, he said.
"We are very optimistic about what the future holds," Mr. Case, said, referring to investments the firm has made and future performance of its reinsurance brokerage segment. "It comes back to classic supply and demand. Demand for what's needed here is going to continue to go up, like it is across all of the brokerage areas, and those who can provide what is needed from a value-added standpoint are going to do extremely well. If you can't do that, then it is going to become much more difficult [to grow the business]."
Mr. Case said Aon is aiming to spin off its company, Combined Insurance Company, an accident and health and life carrier. This segment grew 19 percent organically in the quarter, reporting revenues of $610 million, up 21 percent or $105 million.
The sale continues the broker's earlier decision to exit its underwriting business and concentrate on professional services, Mr. Case said. He noted that while Aon would focus on a spin-off, it would entertain any queries for a sale. He called it "a wonderful, performing business" whose spin-off would release shareholder value.
In his analyst's note, Mr. Small observed that Combined Insurance could sell from $2-to-$2.5 billion.
On the news of a potential spin-off Standard & Poor's issued a note affirming the "A-minus" financial strength rating and long-term counterparty credit rating on Combined Insurance and Combined Life Insurance Co. of New York. The outlook remains positive. S&P said the evaluation reflects the company's strong fundamentals.
A.M. Best placed Aon's combined insurance companies on review with negative implications.
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