2: Aon Corp.

Aon Corp.'s recent consistent performance is helping it attract top talent and meet the brokerage's goal of better serving its customers, a top executive says.

Over the past year, the Chicago-based brokerage has made several key appointments and is still targeting talent while the industry continues to adjust to the post-Spitzer environment and the soft property/casualty market.

Aon itself, though, will be losing a key executive next month when its founder, Patrick G. Ryan, retires.

Aon has outperformed many other publicly held brokerages over the past year in terms of its financial results, and that has helped the brokerage attract new employees, according to Aon executives and observers.

"Consistent performance is very important to us and in the last 11 quarters we've been able to post consistent organic growth, despite the soft market," said Ted T. Devine, president of Aon Risk Services and executive vp of Aon Corp.

"We continue to be in growth mode," Mr. Devine said. "This, for us, is about building what we hope is the best professional services firm."

As part of that effort, Aon earlier this year consolidated its worldwide retail brokerage operations into the single Aon Risk Services unit that Mr. Devine leads with Steve McGill, CEO of the unit. The move, bringing approximately 26,000 Aon employees together in a coordinated worldwide operation, is aimed at better aligning the business while cutting costs, Mr. Devine said.

Aon posted nearly $7.10 billion in brokerage revenues in 2007, up from $6.59 billion in 2006, ensuring it retained its status as the world's second-largest broker in the 2008 Business Insurance ranking.

Another key development was this year's completion of the sale of Aon's underwriting operations, Combined Insurance Cos. of America, to ACE Ltd. as well as Sterling Life Insurance Cos. to Munich Reinsurance Co. Aon first announced plans to spin off its underwriting operations in 2001, but tabled those efforts in 2002 due to unfavorable market conditions and has been selling its underwriting operations in piecemeal fashion since.

After-tax proceeds from the transactions were approximately $2.7 billion, according to Aon. While the sales proceeds are significant, like the Aon Risk Services move, divesting the underwriting units was part of a strategic effort to focus Aon on risk and human capital, which includes benefits and human resources consulting, Mr. Devine said.

"We think we've gotten a lot more operationally disciplined," Mr. Devine said.

Attracting top talent is an essential element of the company 's strategy going forward.

Mr. Devine cited the company's success at attracting individuals such as Christa Davies, a former Microsoft Corp. executive who joined Aon as executive vp and chief financial officer in 2007, and Geoffrey Bromley, who joined Aon earlier this year from Guy Carpenter & Co. L.L.C., as vice chairman of Aon Re Global to head Aon Re's U.K., European, Middle Eastern, African and Asia-Pacific operations.

In attracting and developing top talent, Mr. Devine said the most important step has been implementing the Aon Leadership Model, under which most Aon employees anywhere in the world are evaluated on five common criteria: client value, teamwork, innovation, business results and living the firm's values.

"They're attracting talent," Mark Lane, principal and equity research analyst at William Blair & Co. in Chicago, said of Aon. "Because they've been hitting their financial targets and the expectation is for that (to continue), perhaps they can be a little more aggressive in hiring than they were two or three years ago."

Going forward, Mr. Devine said he expects Aon to continue recruiting brokerage staff and investing in the company's ability to help clients reduce their cost or risk, such as information technology to enhance identifying and delivering information that can help clients make better capital allocation decisions.

He also expects Aon to "make several more strategic niche investments."

In approaching acquisitions, cultural fit is a key consideration, Mr. Devine said. "Besides the economics, which are always the most important issue, the cultural fit issue is the second and often the knockout blow in making an acquisition."

Mr. Devine said Aon still sees tremendous opportunities in both the large and middle markets. Regionally, the company is making significant investments in Asia, the Middle East and Latin America by opening and expanding offices, Mr. Devine said.

Two recent restructuring programs also have reshaped Aon and cut staff numbers significantly.

The company said its 2005 restructuring, in which 3,600 people were laid off, produced $225 million in cumulative savings in 2007 and is expected to generate $270 million in savings this year. Meanwhile, a restructuring announced last fall that eliminated 2,700 primarily non-client facing employees is expected to produce an additional $240 million of cumulative savings in 2010, Aon said.

Aon's worldwide employee count declined to 35,900 in 2007 from 36,400 in 2006.

Since agreeing with various state attorneys general to cease taking contingent commissions in 2005 (an amended agreement in 2006 allows the company to accept contingents when serving as a managing general agent or managing general underwriter for an insurance company), Aon has come out against contingent commissions.

"On remuneration, we have come out publicly as against contingents and we continue to maintain that stance because we believe they are misaligned with delivering value," Mr. Devine said.

Transparency is the most important issue, Mr. Devine said. "As long as the client knows, then the client can make the right trade-off."

At the same time, he said he opposes the existing system. "The thing that I think is very destructive, frankly, to the industry and I think to the client, is the two-tier regulatory environment we operate in today," Mr. Devine said. "I don't know of any regulatory system anywhere on the globe where that's good for the consumer."

"The most important element to us--and we think a fundamental change to the good over the past several years--has been transparency. The push for transparency is something we think benefits clients tremendously," he said.

Even so, Aon has still been resolving the compensation scandal that engulfed major brokerages in 2004. In May, Aon Corp. reached a $4 million settlement with Florida officials over undisclosed compensation the insurance broker allegedly received for placing coverage on behalf of Florida policyholders, including several public entities.

William Blair's Mr. Lane said Aon's recent performance under challenging conditions--both in terms of the market cycle and the economy--has been impressive.

"I think their execution the last 12 months has been excellent. They're showing a little bit of pickup, and certainly competitive organic growth figures, relative to their competition," Mr. Lane said.

"Their insurance brokerage margins in the first quarter were 19.5% on an adjusted basis," Mr. Lane said. "It would seem that they are well on their way to achieving their goal of a 20% operating margin next year."

A major personnel move looming in Aon's future is the retirement this August of Mr. Ryan, who is leaving the company he built after 41 years as chief executive officer and three years as executive chairman.

"Pat Ryan is truly an industry icon," Mr. Devine said. "He is one of few people in American business history who have built a firm basically from scratch to be a global Fortune 300 successful operation."

Mr. Devine said Mr. Ryan's leadership has been invaluable to Gregory C. Case, Aon Corp.'s current president and CEO, and to the company's entire management team. "Pat retiring will clearly be a loss to the firm, but he has done a tremendous job in mentoring Greg and preparing Greg to lead us into the next chapter in Aon's history."

Aon's stock closed at $45.80 on July 11, with a 52-week high of $51.32 and a 52-week low of $38.35.

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