123 N. Wacker Drive, Chicago, Ill. 60606;

312-701-3000; fax: 312-845-1294;

Internet: www.aon.com

1997 1996

Gross revenues $6.01 billion* $3.89 billion

Brokerage revenues $4.03 billion* $2.0 billion

Brokerage: Retail* 43% 33%

Wholesale* 8% 6%

Reinsurance* 9% 6%

Services* 10% 7%

Investment income* 4% 6%

Other* 26% 42%

Employees* 33,000 19,600

Rev./Employee $122,176 $102,143

Offices 600 550

* BI estimates. 1997 revenues include BI estimate of full year of revenues from Jauch & Huebener KGaA and Minet Group.

Despite several large acquisitions over the past two years and the demands of integrating those purchases, the drive to expand is far from over for Aon Group Inc.

Chairman and Chief Executive Officer Patrick G. Ryan, in fact, describes the brokerage and consulting unit as "just rounding second base" in terms of its potential.

That's a powerful statement, considering recent home runs the Chicago-based broker of parent Aon Corp. has hit, starting in early 1997, when it bought three of the world's largest insurance brokers, and continuing this year, when it acquired two more.

It is those acquisitions, according to Mr. Ryan, that help position Aon today as a leading global insurance broker, with more than 600 offices around the world and 33,000 employees. In terms of how Aon hopes to position itself in the marketplace of the future, however, the company is only part of the way there, the CEO said.

"We don't want it to look like, after all this activity in 1997, that this is it, because we don't think that's true," Mr. Ryan said. "There are so many opportunities to keep recreating Aon in the dynamically changing world in which we all live."

"The Aon 10 years ago is hardly recognizable today, and what we have today, we are very proud of. But it is sort of the middle of the game in terms of positioning in the future," he said.

The future for Aon, executives say, will include more mega-acquisitions, though not necessarily of retail brokerages. Aon's future also will include more global expansion and the development of more products and services to creatively meet clients' needs.

With the process of integrating recent acquisitions nearly complete, Aon is poised to take advantage of the benefits this consolidation has brought.

"We believe there is a new model broker," Mr. Ryan said. "The old model broker is basically dead. The old model broker was just a placing broker that was managed territorially and played an intermediary role. That is still a part of what the new model broker does, but there is just so much more," Mr. Ryan said. "There are so many different types of services we're engaged in that go beyond brokerage."

Mr. Ryan points to its recent acquisitions of Alexander & Alexander Services Inc., Minet Group, Sodarcan Inc., Jauch & Huebener KGaA, Gil y Carvajal Group and Groupe Le Blanc de Nicolay as instrumental in achieving this new broker model broker.

In addition to sheer size and geographic expansion, these 1997 and 1998 deals added more talent, creativity and resources to Aon's expanding global reach, executives say.

"When you merge these organizations, you're able to bring the strengths together and are able to get rid of the weaknesses in each of the companies," Mr. Ryan said. "That's one of the values of consolidation strategies."

Parent company Aon Corp. reported total corporate revenues of $5.75 billion for 1997, up 47.9% over 1996. That total includes revenues from the company's insurance underwriting operations and its brokerage and consulting operations. Aon Group reported 1997 brokerage and consulting revenues of $3.77 billion, up 88.5% from a year earlier.

However, those reported figures do not include full years of performance for Aon's 1997 acquisitions, Jauch & Huebener and Minet Group. Adding estimated revenues from those major purchases, Business Insurance estimates Aon's 1997 brokerage revenues would total $4.03 billion, up 100% from 1996. Corporate revenues would stand at an estimated $6.01 billion, up 54.5%.

Based on BI's estimate, Aon ranked as the world's No. 2 broker in 1997.

Corporate net income dipped 10.9% to $299 million in 1997, reflecting $172 million in special charges Aon took in the first half of 1997 relating to the integration of A&A.

Executives say that, excluding some systems integration, A&A, Minet and Sodarcan have been completely integrated into Aon. The broker now is integrating Jauch & Huebener, Gil y Carvajal and Groupe Le Blanc de Nicolay, which it expects to complete by year's end.

Jauch & Huebener, which Aon acquired last December for an undisclosed amount, ranked as the world's 13th-largest broker in 1996 and generated an estimated $177.8 million in revenues in 1997.

The German, Austrian and Swiss operations of both brokers are being merged into a new Hamburg, Germany-based brokerage unit, Aon Jauch & Huebener, which is headed by Christian Dahms, formerly managing partner at Jauch & Huebener.

Gil y Carvajal, which Aon acquired in March for an undisclosed sum, is the largest retail broker in Spain, with 21 offices throughout the country and offices in the United Kingdom, Portugal and Colombia. It reported $51 million in 1997 revenues and has approximately 600 employees (BI, Feb. 9).

Gil y Carvajal is being combined with Aon's existing smaller Spanish operation, Aon Iberia. The integrated operation, called Aon Gil y Carvajal, is headed by Santiago Gil de Biedma, former president of Gil y Carvajal.

Groupe Le Blanc de Nicolay, which Aon acquired in April for an undisclosed amount, brings an estimated $81 million in revenues and 550 employees to Aon.

Adding GLN strengthened Aon's existing offices and added locations in France, Italy, Spain, Switzerland, Singapore and Sweden. GLN is in the process of integrating with Aon's existing French operation; it will operate under a holding company called Aon Holdings France. Vincent Redier, former head of GLN, has been named chairman of Aon Holdings France.

The unraveling of the UNISON network that followed Marsh & McLennan Cos. Inc.'s acquisition of Johnson & Higgins, UNISON's largest member, was a catalyst behind much of Aon's recent acquisition activity.

Jauch & Huebener and Gil y Carvajal were former UNISON members, as was Grieg Insurance, Norway's largest insurance broker, which Aon in April said it planned to acquire. That deal is expected to close sometime in the third quarter.

In addition to the large retail brokerage operations Aon acquired in 1997 and so far in 1998, other deals also brought Aon new consulting, reinsurance brokerage and claims administration operations.

Aon's plans include more acquisitions. Since Aon went public with a strategy to build its brokerage operations through acquisitions in 1996, the rumor mill has gone into overdrive as to which broker might be next on Aon's list. The most often-cited candidates are Sedgwick Group P.L.C. and Willis Corroon Group P.L.C.

Mr. Ryan is reluctant to reveal any plans for another megamerger. "Would Aon ever buy another company the size of Minet? I would say probably," he said. But when asked about another broker the size of A&A, he declined to be specific. "Those two companies obviously are not interested in selling," said Mr. Ryan, referring to Sedgwick and Willis. "Those two will most likely remain independent."

Mr. Ryan said Aon will continue to grow through substantial acquisitions but that those deals are not limited to big brokers and can include consulting firms and other service providers. "This industry is changed now permanently to being much more than just a broker. Therefore, it's more likely we will add a consulting organization that is substantial" in terms of size.

What is not in Aon's current acquisition plans is the purchase of a commercial bank. "When you look at the world of convergence, we don't see a financial institution activity that we need to be in at this time," Mr. Ryan said. "We've been building a boutique banking activity with our capital markets initiatives and developing that de novo."

Aon Capital Markets Inc. for instance, recently formed a new unit called Aon Financial Products Inc. that will assist clients in managing financial risks emanating from exposure to interest and foreign exchange rates and commodity and equity prices. The unit also will develop insurance derivative products to be placed in the emerging insurance-linked securities marketplace.

The new unit was instrumental in the recent catastrophe bond deal with Yasuda Fire & Marine Insurance Co. Ltd., which secured $80 million in reinsurance for typhoon exposures for up to seven years. The transaction involved the sale of $80 million in notes by a Cayman Islands special-purpose vehicle; Aon structured and brought the notes to market (BI, June 29).

While the deal was the first to securitize Japanese windstorm risks, it received more attention for the fact that Aon, not an investment bank, was the one to structure and securitize the notes. "We think it is critical that we be in the position of filling our clients' needs with capital market solutions, often blended with insurance and

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reinsurance solutions, and that's a departure that we think differentiates us but also allows Aon to provide creative solutions to clients' needs," Mr. Ryan said.

Remaining client-focused is indeed a strategic goal. "We want to continue to be a company that manages itself around its clients, and so we're bringing in industry specialists and product specialists -- people who understand the needs of our clients," said Michael D. O'Halleran, president of Aon Group, noting the recent acquisitions offer extra resources and specialties.

Not only is Aon "segmenting ourselves by these specialties, we also are segmenting ourselves by small, middle and large commercial accounts, which allows better focus and dedication of services," Mr. O'Halleran said.

Overall, Aon wants to enhance its delivery in the most efficient and professional way, he said. "By making investments in technology and eliminating duplication of process between carrier and broker, we feel we can improve the economics of the whole industry by making the right types of applications and processes."

One of the initiatives helping Aon achieve this is its AonLine extranet service, which released its 2.0 version in April. An extension of the original Access A&A, an Internet-based network created by A&A in 1996, the new and improved interactive AonLine system provides risk managers a wide range of information tools from a single electronic point of entry.

In addition to its retail brokerage operations, organized under the name Aon Risk Services Inc., Aon Group consists of three other key units:

Aon Re Worldwide. With offices in 50 countries and estimated 1997 revenues of $540.8 million, Aon Re is the world's largest reinsurance intermediary.

Revenues were relatively flat compared with 1996, a reflection of the soft pricing environment.

Aon Re provides reinsurance placement, alternative risk services, captive management services and catastrophe data forecasting to clients worldwide.

"I feel good about 1997; I wish I could feel great about it, but a lot of it was out of our control," Mr. O'Halleran said of Aon Re's performance last year. "The organization had a good year, when you look at the difficulties of the pricing environment. We had very good new-business growth, which is absolutely necessary to offset the pricing declines," he said.

Much of 1997 revolved around integrating the reinsurance operations of the former Aon Re, Alexander Reinsurance Intermediaries Inc., Minet Re and BEP International Holdings Inc., Sodarcan's reinsurance operations in Canada.

"Overall, '97 was bringing these operations together and strategizing about where else we needed to put the pieces of the puzzle together," Mr. O'Halleran said, adding that the pieces soon came together with the acquisitions of Jauch & Huebener, Gil y Carvajal and Le Blanc de Nicolay, all leading reinsurance brokers in their respective countries.

Aon does not break out revenues from acquired reinsurance operations. In 1997, however, Le Blanc de Nicolay Reassurance was the world's seventh-largest reinsurance broker, based on $71.7 million in 1996 revenues.

In 1996, 13%, or $27 million, of Jauch & Huebener's $211.5 million in 1995 revenues were derived from reinsurance brokerage operations.

As a result of all the recent acquisitions, Aon Re now has "a very significant operation in Europe, the Far East, Australia and Canada," Mr. O'Halleran said.

Meanwhile, Aon Re strengthened its position in developing capital market and risk transfer products and will continue to work with Aon Capital Markets. In 1997, for example, Aon placed two catastrophe equity put programs for clients Horace Mann Educators Corp. and LaSalle Re Ltd. (BI, April 17, 1997; Nov. 10, 1997).

Aon Services Group. Aon Services Group, formerly Aon Specialty Group, designs and delivers specialized retail and wholesale insurance products and services for associations and affinity groups, service business, insurance companies, independent insurance agents and brokers, governments, health care providers and commercial organizations.

As a result of the A&A and Minet acquisitions, Aon Services became a powerhouse in the insurance wholesale arena. Three of the 10 largest U.S.-based wholesalers are Aon Services Group units: Swett & Crawford Group, Sherwood Insurance Services and K&K Insurance Group Inc. (BI, Sept. 15, 1997).

Aon Services also is parent to wholesaler Bryson Associates Inc.

In addition to building on its wholesale strength, Aon Services is looking to expand and invest in its direct marketing efforts to affinity groups and associations, Mr. Ryan said. Aon Services also is focusing on expanding its affinity business to other markets, such as Europe and Latin America.

In April, Aon Services acquired Pilar Administradora e Correctora de Seguros S/C Ltda., a Sao Paulo, Brazil-based broker that specializes in affinity and association business. Pilar will report to Affinity Insurance Services Inc., an Aon Services unit.

* Aon Consulting Worldwide. Based on estimated 1997 benefit consulting revenues of $470 million, Aon Consulting ranks as the world's sixth-largest employee benefit consulting firm (BI, Dec. 8, 1997).

In addition to its employee benefit consulting group, Aon Consulting comprises a human resource consulting group, a compensation consulting group and a change management consulting group.

Aon Consulting's European expansion efforts were "very nicely enhanced" in 1997 and 1998 with the additions of A&A, Sodarcan, Jauch & Huebener, Le Blanc de Nicolay and Gil y Carvajal, Mr. Ryan said.

And through some smaller acquisitions made in 1998, Aon Consulting continues to build on its strengths. In January, Aon Consulting acquired Rath & Strong, a management consulting firm with offices in London; Hamburg, Germany; and Lexington, Mass. In March, it acquired SSi, a recruitment, screening and outsourced hiring support services firm headquartered in Findlay, Ohio. In April, it acquired Carl D. Jacobs & Associates Inc., a Woodland Hills, Calif.-based compensation consulting firm. And in May, it acquired WTR/Bethesda Inc., a Bethesda, Md.-based employee benefits consulting firm.

With more than 110 offices around the world, Aon Consulting is eager to take advantage of global opportunities. Daniel T. Cox, chairman of Aon Consulting, said demand for human resource consulting in Europe "encourages us that the capabilities we have here are exportable."

Aon Consulting hopes to take advantage of the opportunities created as many Eastern European countries try to revamp their social security systems, possibly with some type of privatization of pension programs, he said.

Mr. Cox said that Aon Consulting also is looking into the opportunity of doing more managed care consulting business in various Third World countries as those countries' social systems break down.

During the first quarter of 1998, Aon Group reported a 15.3% increase 14, 1997. On July 10, Aon's stock was trading at $73.81 per share.

The cash compensation, including salary and bonuses, of the top five officers of Aon Corp. in 1997, as reported to the Securities and Exchange Commission, follows:

Patrick G. Ryan $1,763,942

Michael D. O'Halleran $1,332,500

Daniel T. Cox $895,981

Harvey N. Medvin $858,173

Raymond I. Skilling $858,173