No sign of market turning, Aon says, as declining rates hit bottom line

Speaking during a conference call last Friday to discuss the global brokerage firm’s fourth quarter and annual results, Mr Case said declining rates overall have impacted Aon’s bottom line. This has offset growth in other areas, such as Aon’s Global Risk Insight Platform (GRIP), a proprietary database of insurance placement data. “Strong new business growth geographically and in new products and services related to our GRIP platform was partially offset by the impact of pricing, which was down mid-single digits on average globally,” said Mr Case. “In reinsurance, excess capital and limited industry loss experience continue to drive soft pricing and higher seen retentions, a trend we expect for the foreseeable future,” he continued. hideDespite these ‘headwinds’, Mr Case highlighted positive signs for the company, namely its average retention rates of 90% or better, as well as organic revenue growth of more than 5% in Europe, Middle East and Africa for the fourth quarter. EMEA regional growth was driven largely by new business growth in continental Europe. “We saw solid growth across continental Europe, including growth in Germany, Italy and Spain driven by strong retention rates and leadership positions across these markets,” Mr Case said. “We also saw strong growth in a number of emerging markets driven by new business in areas such as Russia, Central and Eastern Europe and Africa, continuing to highlight the strength of our global network.” In the UK, organic revenue growth increased by 6%, due primarily to new business growth and growth in the company’s affinity business, he added. While the results in the region for the quarter benefited partially from certain ‘nonrecurring revenue’, Mr Case noted that the ‘underlying trends reflect solid growth driven by new business in a number of areas such as aviation, energy and construction, where we continue to add key talent, as well as in our affinity business. Truly outstanding progress in this region’, he said. For the fourth quarter, Aon reported that net income rose 17% to $23m, from $198m a year earlier. Revenue jumped 40% to $2.91bn, from $2.07bn, as Aon’s $4.9bn acquisition of Hewitt Associates, a human resources company, helped more than triple the company’s HR services revenue to $1.15bn. The transaction officially closed on 1 October. Aon’s Risk Solutions business, formerly known as Risk and Insurance Brokerage Services, saw total revenue increase 4% to $1.8bn compared to the prior year quarter due to 3% organic growth in commissions and fees, and a 2% increase from acquisitions, primarily Allied North America. “We are on track to delivering our long-term margin target of 25% for brokerage for Risk Solutions,” said Aon’s CFO Christa Davies during the call. Retail organic revenue increased 4%, reflecting the highest rate of organic revenue growth since the second quarter of 2007, Aon reported. Reinsurance organic revenue decreased 1% due primarily to soft pricing in the US for treaty placements, partially offset by the growth in capital market transactions and advisory business, Aon said. “In summary, Q4 organic revenue growth for the company increased the highest levels since 2008 despite fragile economic conditions and a continued soft market,” Ms Davis said. “However, against these headwinds we executed I guess some restructuring programs that have substantial savings yet to deliver.” For the year, Aon’s earnings were down 5% to $706m, from $747m in 2009. However, revenue climbed 12% to $8.51bn from $7.6bn, the company reported. “Looking forward, we begin 2011 in a position of strength, as the leading global professional services firm focused on risk and people,” said Mr Case. “The integration of Aon Hewitt is well underway and interaction with clients around the globe has been exceptional.”

No sign of market turning, Aon says, as declining rates hit bottom line

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