Reacting to Aon insurance brokerage's announcement that its insurance unit is being sold, Bear Stearns dropped its earnings per share estimate for the firm, saying the loss of insurance investment income and increased expenses will cut Aon earnings.
In an analyst's note issued last night, David Small said Bear Stearns lowered the fourth-quarter earning estimate on the Chicago-based insurance broker from 80 cents a share to 65 cents a share. The earnings per share estimate for the year was lowered from $2.93 a share to $2.77.
Bear Stearns also lowered the earnings per share estimate for 2008 from $3.35 to $2.90.
Mr. Small said the loss of $40 million in investment income from the insurance segment plus the shift of corporate expenses from the insurance segment to corporate would impact earnings.
Aon said it is selling its accident and health company, Combined Insurance Company of America, to Bermuda-based Ace, and its Sterling Life Insurance Company to Munich Re. The total deal comes to $2.75 billion in cash.
Aon said it plans to use the proceeds to buy back stock.
"While the dilution of earnings is greater than we initially anticipated, we continue to believe this was the right move for Aon," Mr. Small wrote. "Management can now spend more time focusing on its core business where it is showing increasing momentum."
© Arc, All Rights Reserved. Request academic re-use from www.copyright.com. All other uses, submit a request to TMSalesOperations@arc-network.com. For more information visit Asset & Logo Licensing.