Aon Corp. reported its 2007 fourth quarter net income dropped 7 percent, performing better than analysts expected, beating earnings per share estimates by 3 cents a share.
The Chicago-based insurance brokerage firm defied the general trend among public brokers so far this reporting period and reported increased organic growth of two percent in its brokerage unit for the quarter.
The results came as the company also announced the integration of its brokerage operations into a single global business, and the promotion of a number of executives.
For the fourth quarter, Aon reported net income was down to $207 million off by $16 million primarily on increased expenses in new hires and other growth investments. Net income per share was 69 cents, a loss of three cents a share from the same period in 2006. Revenues in the quarter rose 8 percent, or $152 million, to $2.03 billion.
Net income for the year rose 20 percent, or $144 million, to $864 million for 2007. Earnings per share compared to 2006 rose 63-cents to $2.90 a share. Revenues rose 9 percent, or $590 million, to $7.5 billion.
Bear Stearns analyst David Small wrote that the company's results were 3-cents a share better than street estimates and 4-cents better than Bear Stearns estimates. However, when calculations were made for the fact that Aon repurchased less stock than anticipated and areas of growth and expense, he said the company's earnings were actually in line with expectations.
He said a positive for investors was the fact that organic growth by Aon was more impressive than that reported yesterday for insurance broker Willis Group Holdings.
Aon reported fourth quarter organic growth rose two percent and three percent for the year. Its America's division rose three percent, unlike other brokers who have reported zero percent growth or losses.
Greg Case, president and chief executive officer for Aon said during an analyst's conference call that the firm would not use "soft market pricing as an excuse" for not growing its book of business, but instead would continue to grow despite the pricing obstacles.
He said Aon is continuing to invest in itself, including new hires, and at the same time grow margins. "Aon is in build mode," he said, adding later, "We are nowhere near what we are capable of doing."
He said the company is seeing improvements in compensation as clients are paying more in fees and insurers are showing willingness to increase their commissions in lieu of paying contingent commissions.
The broker is one of the four big brokers to give up contingent commissions to settle allegations by state and federal authorities that they were guilty of steering of insurance contracts in return for kickbacks.
Mr. Case said the growth in contingent commission payments elsewhere is evidence that insurers are willing to pay compensation. He said the firm is having "success" talking to insurers about payment of compensation "for what is fair for our side."
The company separately announced that it is integrating its worldwide risk and insurance brokerage operations into one business, Aon Risk Services, comprised of more than 26,000 associates in 120 countries.
Aon Risk Services will be led by Steve McGill, currently CEO of Aon Risk Services America and Aon Global, and Ted T. Devine, currently CEO of Aon Re Global. Mr. McGill was named chairman and CEO. Mr. Devine was name president.
The company also announced that Andrew Appel was named CEO of Aon Re Global. He was CEO of Aon Consulting.
Kathryn Hayley the CEO of Aon Consulting U.S. and Baljit "Bal" Dail, global chief information officer of Aon Corp. and global chief administration officer of Aon Consulting, were both promoted to CEO and co-head of Aon Consulting.
Both will chair Aon Consulting's executive global operating committee. Mr. Dail will continue as global CIO of Aon.
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