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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number: 1-7933
Aon Corporation
(Exact Name of Registrant as Specified in its Charter)
DELAWARE
(State or Other Jurisdiction of 36-3051915
Incorporation or Organization) (I.R.S. Employer
123 NORTH WACKER DRIVE, Identification No.)
CHICAGO, ILLINOIS 60606
(Address of Principal Executive Offices) (Zip Code)
(312) 701-3000
(Telephone Number)
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Each Class on Which Registered
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Common Stock, $1 par value New York Stock Exchange*
6.875% Notes Due 1999 New York Stock Exchange
7.40% Notes Due 2002 New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: NONE
*The Common Stock of the Registrant is also listed for trading on the Chicago
Stock Exchange and the International Stock
Exchange London.
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements,
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [ ]
Aggregate market value of the voting stock held by non-affiliates of the
Registrant as of February 25, 1998 was $8,729,515,545.
Number of shares of $1.00 par value Common Stock outstanding as of February 25,
1998: 167,971,048.
DOCUMENTS FROM WHICH INFORMATION IS INCORPORATED BY REFERENCE: Annual Report to
Stockholders of the Registrant for the Year 1997 (Parts I, II and IV) Notice of
Annual Meeting of Holders of Common Stock and Series C Cumulative Preferred
Stock and Proxy Statement for Annual Meeting of Stockholders on April 17, 1998
of the Registrant (Part III)
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PART I
ITEM 1. BUSINESS.
The Registrant is a holding company whose operating subsidiaries carry
on business in two distinct segments: (i) insurance brokerage and consulting
services, and (ii) insurance underwriting. Incorporated in 1979, it is the
parent corporation of long-established and more recently formed companies.
Aon Group, Inc., its subsidiaries and certain other indirect
subsidiaries of the Registrant (the "Aon Group") including Aon Risk Services
Companies, Inc.; Aon Holdings bv; Aon Consulting Worldwide, Inc.; Aon Services
Group, Inc.; Aon Re Worldwide, Inc.; and Aon Group Limited provide reinsurance
intermediary services, benefits consulting and commercial insurance brokerage
services. Aon Group revenues grew significantly in fiscal 1996 and 1997 when the
Registrant acquired, among other companies, Bain Hogg Group plc in October 1996,
Alexander & Alexander Services Inc. in January 1997, The Minet Group in May
1997, and Jauch & Hubener in November 1997.
Combined Insurance Company of America ("Combined Insurance") engages in
the marketing of life and accident and health insurance products. Virginia
Surety Company, Inc. and London General Insurance Company Limited offer extended
warranty and specialty insurance products.
In second quarter 1996, the Registrant and Combined Insurance sold two
of Combined Insurance's insurance subsidiaries, Union Fidelity Life Insurance
Company ("UFLIC") and the Life Insurance Company of Virginia ("LOV"). In second
quarter 1996, Ryan Insurance Group, Inc. sold its North American auto credit
underwriting and distribution businesses, including the distribution of auto
extended warranty products.
The Registrant hereby incorporates by reference pages 7 through 16 of
the Annual Report to Stockholders of the Registrant for the Year 1997 ("Annual
Report").
COMPETITION AND INDUSTRY POSITION
(1) INSURANCE BROKERAGE AND CONSULTING SERVICES
Aon Group, Inc. ("Aon Group"); Aon Risk Services Companies, Inc. ("Aon
Risk Services Companies"); Aon Holdings bv ("Aon Holdings"); Aon Services Group,
Inc. ("Aon Services Group"); Aon Consulting Worldwide, Inc. ("Aon Consulting");
Aon Re Worldwide, Inc. ("Aon Re"); Aon Group Limited ("AGL").
Aon Group is the holding company for the Registrant's commercial
brokerage and consulting operation. Aon Group is the fastest growing global
insurance brokerage and consulting services firm in the world. The Aon Group
companies have more than 550 offices around the world in more than 100
countries. In 1997, Aon Group employed over 33,000 professionals and support
personnel to serve the diverse needs of clients.
Aon Risk Services Companies' (formerly Rollins Hudig Hall Co.)
subsidiaries operate in a highly competitive industry and compete with a large
number of retail insurance brokerage and agency firms as well as individual
brokers and agents and direct writers of insurance coverage. Aon Risk Services
Companies' subsidiaries offer comprehensive services to clients including
insurance placement, specialized brokerage services, program development and
administration, premium financing services, risk management and loss-control
consulting. It has also developed certain specialist niche areas such as marine,
aviation, directors and officers liability, financial institutions,
construction, energy, media and entertainment.
Subsidiaries of Aon Risk Services Companies and Aon Holdings operate
through owned offices in North America and Europe, as well as in South America,
Africa, Australia and Asia. The acquisitions of A&A and Bain Hogg significantly
augmented the Registrant's presence in Latin America, Asia, Africa and
Australia, and the acquisition of Jauch & Hubener strengthened the Registrant's
presence throughout Europe.
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Aon Services Group (formerly Aon Specialty Group) addresses the highly
specialized product development, consulting and administrative needs of
professional groups, service businesses, governments, health-care providers and
commercial organizations. It also provides underwriting management skills,
claims and risk management expertise, and third-party administration services to
insurance companies. Aon Services Group operating subsidiaries market and broker
both the primary and reinsurance risks of these programs. For individuals and
businesses, Aon Services Group provides affinity products for professional
liability, life and personal lines. The acquisition of The Minet Group by the
Registrant will augment Aon Services Group's already strong expertise in
wholesale brokerage and professional liability programs.
Subsidiaries of Aon Consulting and the European benefits operations of
Aon Holdings serve the employee benefit needs of clients around the world. Aon
Consulting is one of the world's largest integrated human resources consulting
organizations. Focusing on the increasing demand for outsourcing solutions, Aon
Consulting targets emerging businesses, IPOs, recent mergers and acquisitions
and corporations that are reengineering staff functions.
In the United States, the benefits environment continues to change as
companies look for ways to manage their benefits costs while increasing the
choices offered to their employees. Aon Consulting, with its expertise in all
areas of benefits and compensation, and its access to the Registrant's other
subsidiaries, is well-positioned to serve this market. Aon Consulting
subsidiaries offer services to clients including organizational analysis and HR
strategic planning, recruitment and selection, benefits design and management
training and development. Benefits issues in foreign countries are becoming more
complicated, and Aon Holdings and Aon Consulting anticipate increased demand for
their services in these markets. In particular, the 1997 acquisitions of
Sodarcan Inc. and Martineau Provencher & Associates will strengthen the
Registrant's consulting expertise in Quebec.
Aon's reinsurance brokerage activities are organized under Aon Re. With
the acquisitions of A&A and Bain Hogg, Aon Re is a global leader in the
reinsurance and specialist brokerage industry. Aon Re serves the alternative
market with reinsurance placement, alternative risk services, captive management
services and catastrophe information forecasting.
AGL is a London-based Lloyd's broker that places wholesale and
reinsurance business in the London and international markets and serves the
needs of a wide range of clients around the world.
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(2) INSURANCE UNDERWRITING
Combined Insurance Company of America ("Combined Insurance"); Combined
Life Insurance Company of New York ("CLICNY"); Virginia Surety Company, Inc.
("VSC"); London General Insurance Company Limited ("London General"); and Aon
Warranty Group, Inc. ("Aon Warranty").
The Registrant's insurance underwriting subsidiaries are part of a
highly competitive industry that serves individual consumers in North America,
Europe, Latin America and the Pacific by providing accident and health coverage,
traditional life insurance, and extended warranties through global distribution
networks most of which are directly owned by the Registrant's subsidiaries.
The life, accident and health distribution network encompasses
primarily the agents of Combined Insurance and CLICNY (which operates
exclusively in the State of New York). With more than five million
policyholders, Combined Insurance has more individual accident policies in force
than any other United States company. Combined Insurance, the Registrant's
principal life, accident and health insurer, has a direct sales force of several
thousand career agents calling on individuals to sell a broad spectrum of
accident and health products. It is one of the few companies with agents that
call on customers every six months to renew coverage and to sell additional
coverage. Combined Insurance offers a wide range of accident-only and
sickness-only insurance products, including short-term disability, cancer aid,
Medicare supplement and disability income coverage. Combined Insurance's
products are primarily fixed indemnity obligations, thereby not subject to
escalating medical costs. Combined Insurance offers a simplified accident and
sickness long-term disability policy. In addition to its traditional business,
Combined Insurance is expanding its product distribution through payroll
deduction, worksite marketing programs.
Combined Insurance and CLICNY market whole life products through direct
sales career agents in the United States. Combined Insurance ranked among the
top 140 life insurance companies in the United States in terms of total life
premiums in 1996. Life insurance business is conducted by the Registrant's life
insurance subsidiaries in the United States, Canada, Europe and Asia Pacific.
The Registrant's extended warranty and specialty insurance business,
conducted by subsidiaries VSC in North America and London General in Europe, is
composed primarily of extended warranty insurance products, professional
liability insurance coverages, workers' compensation and specialty financial
institution coverages. VSC and London General continue to be one of the world's
largest underwriters of consumer extended warranties. The automobile warranty
products are sold in the United States, Canada, the United Kingdom, Ireland,
France, The Netherlands, Belgium, Spain and Japan. Aon Warranty Group handles
the administration of certain extended warranty products on automobiles,
electronic goods, personal computers and appliances. It serves manufacturers,
distributors and retailers of major worldwide consumer product and financial
institutions, associations and affinity groups in North America and in Europe.
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(3) DISCONTINUED OPERATIONS
The Life Insurance Company of Virginia ("LOV") and Union Fidelity Life
Insurance Company ("UFLIC").
In April 1996, the Registrant and Combined Insurance completed the
sales of Combined Insurance's subsidiaries, LOV and UFLIC. The business written
by LOV primarily included capital accumulation products and some other life
products. UFLIC operated in the United States in the highly competitive direct
response life and health marketing segment of the industry. The Registrant
hereby incorporates by reference note 3 of the Notes to Consolidated Financial
Statements on page 32 of the Annual Report.
A&A's Discontinued Operations
The Registrant hereby incorporates by reference note 3 of the Notes to
Consolidated Financial Statements page 33 of the Annual Report.
LICENSING AND REGULATION
Insurance companies must comply with laws and regulations of the
jurisdictions in which they do business. These laws and regulations are designed
to ensure financial solvency of insurance companies and to require fair and
adequate service and treatment for policyholders. They are enforced by the
states in the United States, by industry self-regulating agencies in the United
Kingdom, and by various regulatory agencies in other countries through the
granting and revoking of licenses to do business, licensing of agents,
monitoring of trade practices, policy form approval, minimum loss ratio
requirements, limits on premium and commission rates, and minimum reserve and
capital requirements. Compliance is monitored by the state insurance departments
through periodic regulatory reporting procedures and periodic examinations. The
quarterly and annual financial reports to the regulators in the United States
utilize accounting principles which are different from the generally accepted
accounting principles used in stockholders' reports. The statutory accounting
principles, in keeping with the intent to assure the protection of
policyholders, are based, in general, on a liquidation concept while generally
accepted accounting principles are based on a going-concern concept.
The state insurance regulators are members of the National Association
of Insurance Commissioners ("NAIC"). This Association seeks to promote
uniformity of, and to enhance the state regulation of, insurance. Both the NAIC
and the individual states continue to focus on the solvency of insurance
companies. This focus is reflected in additional regulatory oversight by the
states and emphasis on the enactment or adoption of a series of NAIC model laws
and regulations designed to promote solvency. The increase in any
solvency-related oversight by the states is not expected to have any significant
impact on the insurance business of the Registrant.
Several years ago, the NAIC developed a formula for analyzing insurers
called risk-based capital ("RBC"). RBC is intended to establish "minimum"
capital threshold levels that vary with the size and mix of a company's
business. It is designed to identify companies with the capital levels that may
require regulatory attention. RBC does not have any significant impact on the
insurance business of the Registrant.
Insurance companies are generally not subject to any federal regulation
of their insurance business because of the existence of a federal law commonly
known as the McCarran-Ferguson Act. McCarran-Ferguson provides the insurance
industry with immunity from certain aspects of the federal anti-trust law and
exempts the business of insurance from federal regulation. In the past several
years there have been a number of recommendations that McCarran-Ferguson be
repealed entirely or modified to remove the industry's anti-trust exemption and
subject it to federal regulation. If McCarran-Ferguson were to be repealed or
modified, state regulation of the insurance business would continue. The result
could be an additional layer of federal regulation. The Registrant expects that
any repeal of anti-trust exemptions available to insurers under the
McCarran-Ferguson Act would not have a significant impact on its operations.
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The state insurance holding company laws require prior notice to and
approval of the domestic state insurance department of intracorporate transfers
of assets within the holding company structure, including the payment of
dividends by insurance company subsidiaries. In addition, the premium finance
loans by Cananwill, Inc., an indirect wholly-owned subsidiary of the Registrant,
are subject to one or more of truth-in-lending and credit regulations, insurance
premium finance acts, retail installment sales acts and other similar consumer
protection legislation. Failure to comply with such laws or regulations can
result in the temporary suspension or permanent loss of the right to engage in
business in a particular jurisdiction as well as other penalties.
Regulatory authorities in the states in which the operating
subsidiaries of Aon Group conduct business may require individual or company
licensing to act as brokers, agents, third party administrators, managing
general agents, reinsurance intermediaries or adjusters. Under the laws of most
states, regulatory authorities have relatively broad discretion with respect to
granting, renewing and revoking brokers' and agents' licenses to transact
business in the state. The manner or operating in particular states may vary
according to the licensing requirements of the particular state, which may
require, among other things, that a firm operate in the state through a local
corporation. In a few states, licenses are issued only to individual residents
or locally-owned business entities. In such cases, Aon Group subsidiaries have
arrangements with residents or business entities licensed to act in the state.
In 1996 the federal Health Care Insurance Portability and
Accountability Act of 1996 ("HIPPA") was enacted. The Act requires the states to
take action to implement the requirements of the Act or to become subject to
federal oversight. HIPPA implementation by the states has not materially
affected the business of the Registrant's subsidiaries. In addition, recent
federal laws and proposals, mandating specific practices by medical insurers,
and the health care industry will not, because of the nature of the business of
the Registrant's subsidiaries, materially affect the Registrant. Numerous states
have had legislation introduced to reform the health care system and such
legislation has passed in several states. While it is impossible to forecast the
precise nature of future federal and state health care changes, the Registrant
does not expect a major impact on its operations because of the supplemental
nature of most of the policies issued by its insurance subsidiaries and because
the coverages are primarily purchased to provide, on a fixed-indemnity basis,
protection against loss-of-time or disability benefits. If health care reform
does not provide for a significant role for insurance companies currently
writing primary medical coverage, the Registrant expects that some of those
companies would increase their participation in other segments of the insurance
underwriting business, perhaps heightening the competition with Combined
Insurance. Combined Insurance and its subsidiaries currently operate
successfully in several foreign countries which have national health plans in
effect.
CLIENTELE
No significant part of the Registrant's or its subsidiaries' business
is dependent upon a single client or on a few clients, the loss of any one of
which would have a material adverse effect on the Registrant.
EMPLOYEES
The Registrant's subsidiaries had approximately 40,000 employees at the
end of 1997 of whom approximately 35,000 are salaried and hourly employees and
the remaining 5,000 are sales representatives who are generally compensated
wholly or primarily by commission.
ITEM 2. PROPERTIES.
The Registrant's subsidiaries own and occupy office buildings in seven
states and certain foreign countries, and lease office space elsewhere in the
United States and in various foreign cities. Loss of the use of any owned or
leased property, while potentially disruptive, would have no material impact on
the Registrant.
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ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 12 of the Notes to
Consolidated Financial Statements on page 42 of the Annual Report.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
None.
EXECUTIVE OFFICERS OF THE REGISTRANT
Executive officers of the Registrant are regularly elected by its Board
of Directors at the annual meeting of the Board which is held following each
annual meeting of the stockholders of the Registrant. The executive officers of
the Registrant were elected to their current positions on April 18, 1997 to
serve until the meeting of the Board following the annual meeting of
stockholders on April 17, 1998. Ages shown are as of December 31, 1997.
For information concerning certain directors and executive officers of
the Registrant, see item 10 below. As of March 31, 1998, the following
individuals are also executive officers of the Registrant as defined in Rule
16a-1(f):
HAS CONTINUOUSLY
SERVED AS AN OFFICER
OF REGISTRANT OR
NAME, AGE, AND ONE OR MORE OF
CURRENT OFFICE ITS SUBSIDIARIES BUSINESS EXPERIENCE
OR PRINCIPAL POSITION SINCE PAST 5 YEARS
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Harvey N. Medvin, 61 1972 Mr. Medvin became Vice President and Chief
Executive Vice President, Financial Officer of the Registrant in 1982 and
Chief Financial Officer was elected to his current position in 1987. He
and Treasurer also serves as a Director or Officer of certain of
the Registrant's subsidiaries.
Daniel T. Cox, 51 1986 Mr. Cox was elected to his current position in
Executive Vice President 1991 and, prior to their sale in 1996, had served
as Chairman and Chief Executive Officer of certain
of the Registrant's underwriting subsidiaries.
Mr. Cox has headed the Registrant's benefits
consulting operation since 1987. He also serves as
Director or Officer of certain of the Registrant's
subsidiaries.
Michael A. Conway, 50 1990 Mr. Conway was Vice President of Combined
Senior Vice President and Insurance from 1980 to 1984. Following other
Senior Investment Officer employment, Mr. Conway rejoined the Registrant
in 1990 as Senior Vice President of Combined
Insurance and was elected to his current position
in 1991. He also serves as Director or Officer of
certain of the Registrant's subsidiaries.
Michael D. O'Halleran, 47 1987 Mr. O'Halleran was appointed President and Chief
President and Chief Operating Operating Officer of Aon Group, Inc. in 1995.
Officer of Aon Group, Inc. Prior thereto, since joining the Registrant in 1987,
he held a variety of senior positions in the
Registrant's insurance and reinsurance brokerage
business.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
The Registrant's $1.00 par value common shares ("Common Shares") are
traded on the New York, Chicago and London stock exchanges. The Registrant
hereby incorporates by reference the "Dividends paid per share" and "Price
range" data on page 45 of the Annual Report.
The Registrant had approximately 12,500 holders of record of its Common
Shares as of February 25, 1998.
The Registrant hereby incorporates by reference note 8 of the Notes to
Consolidated Financial Statements on page 36 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 44 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The Registrant hereby incorporates by reference "Management's Analysis
of Operating Results and Financial Condition" on pages 18 through 24 of the
Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant hereby incorporates by reference "Market Risk Exposure"
on page 24 of the Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Registrant hereby incorporates by reference the following
statements, notes and data from the Annual Report.
Page(s)
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Consolidated Financial Statements .......................... 25 - 29
Notes to Consolidated Financial Statements ................. 30 - 42
Report of Ernst & Young LLP, Independent Auditors .......... 43
Quarterly Financial Data ................................... 45
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
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PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The Registrant hereby incorporates by reference the information on
pages 3 and 7 of the Proxy Statement For Annual Meeting of the Stockholders on
April 17, 1998, of the Registrant ("Proxy Statement") concerning the following
Directors of the Registrant, each of whom also serves as an executive officer of
the Registrant as defined in Rule 16a-1(f): Patrick G. Ryan and Raymond I.
Skilling. Information concerning additional executive officers of the Registrant
is contained in Part I hereof, pursuant to General Instruction G(3) and
Instruction 3 to Item 401(b) of Regulation S-K. The Registrant also hereby
incorporates by reference the information on pages 11 and 12 of the Proxy
Statement.
ITEM 11. EXECUTIVE COMPENSATION
The Registrant hereby incorporates by reference the information under
the headings "Executive Compensation," "Aggregated Option Exercises in Last
Fiscal Year and Fiscal Year-End Option Values," "Option Grants in 1997 Fiscal
Year" and "Pension Plan Table" on pages 14 through 17 of the Proxy Statement.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Registrant hereby incorporates by reference the share ownership
data contained on pages 2, 9 and 10 of the Proxy Statement.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The Registrant hereby incorporates by reference the information under
the heading "Transactions With Management" on page 22 of the Proxy Statement.
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PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a) (1) and (2). The Registrant has incorporated by reference from the Annual
Report (see Item 8) the following consolidated financial statements of the
Registrant and subsidiaries:
Annual
Report
Page(s)
-------
Consolidated Statements of Income - Years Ended December 31, 1997, 1996, and 1995 25
Consolidated Statements of Financial Position - As of December 31, 1997 and 1996 26-27
Consolidated Statements of Stockholders' Equity - Years Ended December 31, 1997, 1996 and 1995 28
Consolidated Statements of Cash Flows - Years Ended December 31, 1997, 1996 and 1995 29
Notes to Consolidated Financial Statements 30-42
Report of Ernst & Young LLP, Independent Auditors 43
Financial statement schedules of the Registrant and consolidated subsidiaries
not included in the Annual Report but filed herewith:
Consolidated Financial Statement Schedules -
Schedule
--------
Summary of Investments - Other than Investments in Related Parties I
Parent Company Condensed Financial Statements II
Supplementary Insurance Information III
Reinsurance IV
Valuation and Qualifying Accounts V
Schedule VI is omitted as it is immaterial
(A)(3). EXHIBITS
(a) Second Restated Certificate of Incorporation of the Registrant
- incorporated by reference to Exhibit 3(a) to the
Registrant's Annual Report to the Securities and Exchange
Commission on Form 10-K for the year ended December 31, 1991
(the "1991 Form 10-K").
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation incorporated by reference to
Exhibit 3 to the Registrant's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1994 (the "First Quarter 1994
Form 10Q").
(c) Bylaws of the Registrant - incorporated by reference to
Exhibit (d) to the Registrant's Annual Report to the
Securities and Exchange Commission on Form 10-K for the year
ended December 31, 1982 (the "1982 Form 10-K").
(d) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America
Illinois), as Trustee - incorporated by reference to Exhibit
4(a) to the Registrant's Current Report on Form 8-K dated
September 23, 1992.
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(e) Resolutions establishing terms of 6.875% Notes Due 1999 and
7.40% Notes Due 2002 incorporated by reference to Exhibits
4(d) to the Registrant's Annual Report to the Securities and
Exchange Commission on Form 10-K for the year ended December
31, 1992 (the "1992 Form 10-K").
(f) Resolutions establishing the terms of 6.70% Notes Due 2003 and
6.30% Notes Due 2004 incorporated by reference to Exhibits
4(c) and 4(d) of the Registrant's Annual Report to the
Securities and Exchange Commission on Form 10-K for the year
ended December 31, 1993 (the "1993 Form 10-K").
(g) Junior Subordinated Indenture dated as of January 13, 1997
between the Registrant and The Bank of New York, as trustee -
incorporated by reference to Exhibit 4.1 of the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 No.
333-21237 dated March 27, 1997 (the "Capital Securities
Registration").
(h) First Supplemental Indenture dated as of January 13, 1997
between the Registrant and the Bank of New York, as trustee -
incorporated by reference to Exhibit 4.2 of the Capital
Securities Registration.
(i) Certificate of Trust of Aon Capital A - incorporated by
reference to Exhibit 4.3 of the Capital Securities
Registration.
(j) Amended and Restated Trust Agreement of Aon Capital A dated as
of January 13, 1997 among the Registrant, as Depositor, The
Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, the Administrative Trustees
named therein and the holders, from time to time, of the
Capital Securities - incorporated by reference to Exhibit 4.5
of the Capital Securities Registration.
(k) Capital Securities Guarantee Agreement dated as of January 13,
1997 between the Registrant and the Bank of New York, as
guarantee trustee - incorporated by reference to Exhibit 4.8
of the Capital Securities Registration.
(l) Capital Securities Exchange and Registration Rights Agreement
dated as of January 13, 1997 among the Registrant, Aon Capital
A and Morgan Stanley & Co. Incorporated and Goldman, Sachs &
Co. - incorporated by reference to Exhibit 4.10 of the Capital
Securities Registration.
(m) Debenture Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
incorporated by reference to Exhibit 4.11 of the Capital
Securities Registration.
(n) Guarantee Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co.
incorporated by reference to Exhibit 4.12 of the Capital
Securities Registration.
(o) Certificate of Designation for the Registrant's Series C
Cumulative Preferred Stock incorporated by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated February 9, 1994.
(p) Registration Rights Agreement dated November 2, 1992 by and
between the Registrant and Frank B. Hall & Co., Inc. -
incorporated by reference to Exhibit 4(c) to the Third Quarter
1992 Form 10-Q.
(q) Registration rights agreement by and among the Registrant and
certain affiliates of Ryan Insurance Group, Inc. (including
Patrick G. Ryan and Andrew J. McKenna) - incorporated by
reference to Exhibit (f) to the 1982 Form 10-K.
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(r) Deferred Compensation Agreement by and among the Registrant
and Registrant's directors who are not salaried employees of
Registrant or Registrant's affiliates - incorporated by
reference to Exhibit 10(i) to the Registrant's Annual Report
to the Securities and Exchange Commission on Form 10-K for the
year ended December 31, 1987 (the "1987 Form 10-K").
(s) Amendment and Waiver Agreement dated as of November 4, 1991
among the Registrant and each of Patrick G. Ryan, Shirley
Ryan, Ryan Enterprises Corporation and Harvey N. Medvin
incorporated by reference to Exhibit 10(j) to the 1991 Form
10-K.
(t) Statement regarding Computation of Ratio of Earnings to Fixed
Charges.
(u) Statement regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(v) Aon Corporation 1994 Amended and Restated Outside Director
Stock Award Plan - incorporated by reference to Exhibit 10(b)
to the First Quarter 1994 Form 10-Q.
(w) Annual Report to Stockholders of the Registrant for the year
ended December 31, 1997 (for information, and not to be deemed
filed, except for those portions specifically incorporated by
reference herein).
(x) List of Subsidiaries of the Registrant.
(y) Consent of Ernst & Young LLP to the incorporation by reference
into Aon's Annual Report on Form 10-K of its report included
in the 1997 Annual Report to Stockholders and into Aon's
Registration Statement Nos. 33-27984, 33-42575, 33-59037 and
333-21237.
(z) Annual Report to the Securities and Exchange Commission on
Form 11-K for the Aon Savings Plan for the year ended December
31, 1997 - to be filed by amendment as provided in Rule 15d-
21(b).
(aa) Executive Compensation Plans and Arrangements:
(A) Aon Stock Option Plan (as amended and restated
through 1997) - incorporated by reference to Exhibit
10 (a) to the Registrant's Quarterly Report to the
Securities and Exchange Commission on Form 10-Q for
the Quarter ended March 31, 1997 (the "First Quarter
1997 Form 10-Q").
(B) Aon Stock Award Plan (as amended and restated through
1997) - incorporated by reference to Exhibit 10(b) to
the First Quarter 1997 Form 10-Q.
(C) Aon Corporation 1995 Senior Officer Incentive
Compensation Plan incorporated by reference to
Exhibit 10(p) to the Registrant's Annual Report to
the Securities and Exchange Commission on Form 10-K
for the year ended December 31, 1995 (the "1995 Form
10-K").
(D) Aon Deferred Compensation Plan and First Amendment to
the Aon Deferred Compensation Plan - incorporated by
reference to Exhibit 10(q) of the 1995 Form 10-K.
(E) Employment Agreement dated June 1, 1993 by and among
the Registrant, Aon Risk Services, Inc. and Michael
D. O'Halleran.
(F) Aon Severance Plan - incorporated by reference to
Exhibit 10 to the Registrant's Quarterly Report to
the Securities and Exchange Commission and Form 10-Q
for the quarter ended June 30, 1997.
- 12 -
(ab) Asset Purchase Agreement dated July 24, 1992 between the
Registrant and Frank B. Hall & Co. Inc. - incorporated by
reference to Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10- Q for the period ended June 30, 1992.
(ac) Stock Purchase Agreement by and among the Registrant, Combined
Insurance Company of America, Union Fidelity Life Insurance
Company and General Electric Capital Corporation dated as of
November 11, 1995 - incorporated by reference to Exhibit 10(s)
of the 1995 Form 10-K.
(ad) Stock Purchase Agreement by and among the Registrant; Combined
Insurance Company of America; The Life Insurance Company of
Virginia; Forth Financial Resources, Ltd.; Newco Properties,
Inc.; and General Electric Capital Corporation dated as of
December 22, 1995 - incorporated by reference to Exhibit 10(t)
of the 1995 Form 10-K.
(ae) Agreement and Plan of Merger among the Registrant; Subsidiary
Corporation, Inc. ("Purchaser"); and Alexander & Alexander
Services Inc. ("A&A") dated as of December 11, 1996 -
incorporated by reference to Exhibit (c)(1) of the
Registrant's Tender Offer Statement on Schedule 14D-1 filed by
the Registrant with the Securities and Exchange Commission
("SEC") on December 16, 1996 (the "Schedule 14D-1").
(af) First Amendment to Agreement and Plan of Merger, dated as of
January 7, 1997, among the Registrant, Purchaser and A&A -
incorporated by reference to Exhibit (c)(3) to the Schedule
14D-1 filed by the Registrant with the SEC on January 9, 1997.
(b) Reports on Form 8-K.
The Registrant filed no Current Reports on Form 8-K during the
last quarter of the Registrant's year ended December 31, 1997.
- 13 -
SIGNATURES
Pursuant to the requirements of Scetion 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly cuased this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 21st day of
March, 1998.
Aon Corporation
By: /s/PATRICK G. RYAN
---------------------------------
Patrick G. Ryan, Chairman, President
and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this Report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/PATRICK G. RYAN Chairman, President, Chief March 21, 1998
- --------------------------------------- Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/DANIEL T. CARROLL Director March 21, 1998
- ---------------------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 21, 1998
- ---------------------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 21, 1998
- ---------------------------------------
Edgar D. Jannotta
/s/PERRY J. LEWIS Director March 21, 1998
- ---------------------------------------
Perry J. Lewis
/s/JOAN D. MANLEY Director March 21, 1998
- ---------------------------------------
Joan D. Manley
/s/ANDREW J. McKENNA Director March 21, 1998
- ---------------------------------------
Andrew J. McKenna
- 14 -
SIGNATURE TITLE DATE
--------- ----- ----
/s/NEWTON N. MINOW Director March 21, 1998
- ---------------------------------------
Newton N. Minow
/s/RICHARD C. NOTEBAERT Director March 21, 1998
- ---------------------------------------
Richard C. Notebaert
/s/PEER PEDERSEN Director March 21, 1998
- ---------------------------------------
Peer Pedersen
/s/DONALD S. PERKINS Director March 21, 1998
- ---------------------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 21, 1998
- ---------------------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 21, 1998
- ---------------------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 21, 1998
- ---------------------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 21, 1998
- ---------------------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 21, 1998
- ---------------------------------------
Arnold R. Weber
/s/HARVEY N.MEDVIN Executive Vice President, March 21, 1998
- --------------------------------------- Chief Financial Officer
Harvey N. Medvin and Treasurer
(Principal Financial and
Accounting Officer)
- 15 -
SCHEDULE I
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS - OTHER
THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1997
Amount shown
in Statement
(millions) Amortized Fair of Financial
Cost or Cost Value Position
---------------- ---------------- ------------------
Fixed maturities - available for sale:
U.S. government and agencies ........................... $ 208.6 $ 212.8 $ 212.8
States and political subdivisions ...................... 523.9 554.9 554.9
Debt securities of foreign governments
not classified as loans .............................. 841.9 891.8 891.8
Corporate securities ................................... 1,282.9 1,323.6 1,323.6
Public utilities ....................................... 59.4 61.7 61.7
Mortgage-backed securities ............................. 42.6 43.7 43.7
Other fixed maturities ................................. 54.6 55.1 55.1
---------------- ---------------- ------------------
TOTAL FIXED MATURITIES ...... ..................... 3,013.9 3,143.6 3,143.6
---------------- ---------------- ------------------
Equity securities - available for sale:
Common stocks:
Banks, trusts, and insurance companies .................. 197.1 318.6 318.6
Industrial, miscellaneous, and all other ................ 106.3 149.0 149.0
Nonredeemable preferred stocks .......................... 335.4 338.7 338.7
---------------- ---------------- ------------------
TOTAL EQUITY SECURITIES .............................. 638.8 $ 806.3 806.3
---------------- ---------------- ------------------
Other:
Mortgage loans on real estate ............................. 15.0* 14.7*
Real estate - net of depreciation ......................... 11.6 11.6
Policy loans .............................................. 57.8 57.8
Other long-term investments ............................... 199.1* 190.4*
Short-term investments .................................... 1,697.7 1,697.7
---------------- ------------------
TOTAL INVESTMENTS ............................... $ 5,633.9 $ 5,922.1
================ ==================
* Differences between cost and amounts shown in Statements of
Financial Position for investments other than fixed maturity
and equity securities result from certain valuation allowances.
- 16 -
SCHEDULE II
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31,
---------------------------------
(millions) 1997 1996
--------------- --------------
ASSETS
Investments in subsidiaries ......................... $ 4,667.8 $ 3,268.9
Notes receivable - subsidiaries ..................... 745.3 482.6
Cash and cash equivalents ........................... 9.5 216.9
Other assets ........................................ 166.2 34.4
--------------- --------------
Total Assets ................................. $ 5,588.8 $ 4,002.8
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings ............................... $ 764.2 $ 213.4
6.3% long-term debt securities ...................... 99.8 99.8
7.4% long-term debt securities ...................... 99.9 99.9
6.875% long-term debt securities .................... 99.9 99.9
6.7% long-term debt securities ...................... 149.7 149.7
Subordinated debt.................................... 800.0 --
Notes payable - subsidiaries ........................ 488.8 351.4
Notes payable - other ............................... 70.0 --
Debt guarantee of employee stock
ownership plan ................................... 33.1 46.1
Accrued expenses and other liabilities .............. 111.3 59.7
--------------- --------------
Total Liabilities ............................ 2,716.7 1,119.9
--------------- --------------
Redeemable preferred stock .......................... 50.0 50.0
STOCKHOLDERS' EQUITY
Preferred stock ..................................... - 5.5
Common stock ........................................ 171.5 114.1
Paid-in additional capital .......................... 377.0 475.4
Net unrealized investment gains of subsidiaries ..... 189.0 153.1
Net foreign exchange gains (losses) of subsidiaries . (85.6) 1.0
Retained earnings ................................... 2,463.4 2,356.8
Less treasury stock at cost ......................... (93.2) (121.5)
Less deferred compensation .......................... (200.0) (151.5)
--------------- --------------
Total Stockholders' Equity ................... 2,822.1 2,832.9
--------------- --------------
Total Liabilities and Stockholders' Equity ... $ 5,588.8 $ 4,002.8
=============== ==============
See notes to condensed financial statements
- 17 -
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
---------------------------------------------------------
1997 1996 1995
---------------- ---------------- ----------------
(millions)
REVENUE
Dividends from subsidiaries $ 179.6 $ 1,026.6 $ 199.3
Other investment income 49.5 44.1 34.3
Realized investment gains (losses) 2.3 (11.0) (4.1)
---------------- ---------------- ----------------
Total Revenue 231.4 1,059.7 229.5
EXPENSES
Operating and administrative 6.3 5.7 3.0
Interest - subsidiaries 85.3 20.6 20.0
Interest - other (1) 61.7 43.2 53.6
---------------- ---------------- ----------------
Total Expenses 153.3 69.5 76.6
---------------- ---------------- ----------------
INCOME BEFORE EQUITY IN UNDISTRIBUTED
INCOME OF SUBSIDIARIES 78.1 990.2 152.9
Equity in undistributed income of subsidiaries 220.7 (655.0) 249.9
---------------- ---------------- ----------------
NET INCOME $ 298.8 $ 335.2 $ 402.8
================ ================ ================
See notes to condensed financial statements.
(1) Interest expense - other allocated to discontinued operations was $5
million and $18 million for the years ended December 31, 1996 and 1995,
respectively.
- 18 -
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years ended December 31
--------------------------------------------
1997 1996 1995
-------------- ------------ ------------
(millions)
Cash Flows From Operating Activities ....................... $ 124.3 $ 1,016.9 $ 164.5
Cash Flows From Investing Activities:
Investments in subsidiaries ............................. (1,354.8) (319.3) (62.6)
Notes receivables from subsidiaries ..................... (135.2) (10.8) 1.5
-------------- ------------ ------------
Cash Used by Investing Activities .................. (1,490.0) (330.1) (61.1)
-------------- ------------ ------------
Cash Flows From Financing Activities:
Treasury stock transactions - net ....................... 21.4 (40.1) (46.4)
Issuance (repayment) of short-term borrowings - net ..... 541.7 (139.2) 108.8
Issuance of subordinated debt............................ 800.0 -- --
Issuance (repayment) of notes payable and long-term debt. 113.5 (105.6) 73.6
Retirement of preferred stock ........................... (136.2) (14.2) (75.4)
Cash dividends to stockholders .......................... (182.1) (172.9) (171.3)
-------------- ------------ ------------
Cash Provided (Used) by Financing Activities ....... 1,158.3 (472.0) (110.7)
-------------- ------------ ------------
Increase (Decrease) in Cash and Cash Equivalents ........... (207.4) 214.8 (7.3)
Cash and Cash Equivalents at Beginning of Year ............. 216.9 2.1 9.4
-------------- ------------ ------------
Cash and Cash Equivalents at End of Year ................... $ 9.5 $ 216.9 $ 2.1
============== ============ ============
See notes to condensed financial statements.
- 19 -
SCHEDULE II
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) See notes to consolidated financial statements incorporated by reference
from the Annual Report.
(2) Payments made as assessments by state guaranty funds to cover losses to
policyholders of insurance companies under regulatory supervision for the
years ended December 31, 1997, 1996 and 1995 were $0.8 million, $1.4
million and $5.0 million, respectively.
(3) Generally, the net assets of Aon's insurance subsidiaries available for
transfer to the parent company are limited to the amounts that the
insurance subsidiaries' statutory net assets exceed minimum statutory
capital requirements; however, payments of the amounts as dividends in
excess of $360 million may be subject to approval by regulatory
authorities.
(4) Subsequent Events
On February 5, 1998, Aon announced an agreement to acquire Gil y
Carvajal, the leading broker in Spain. In addition, Aon announced an
agreement in principle to acquire Le Blanc de Nicolay, subject to normal
regulatory consents and due diligence. Le Blanc de Nicolay is the largest
reinsurance broker in France and is also prominent in retail brokerage
and consulting services. Annual revenues of these acquisitions are
approximately $125 million.
- 20 -
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(5) Below is a reconciliation of the combined statutory stockholders'
equity and net income of Aon's insurance subsidiaries to the
consolidated stockholders' equity and net income on a basis in
accordance with generally accepted accounting principles (GAAP):
(millions)
As of December 31, 1997
-----------------------------------
Life/A&H P&C Combined
----------- ---------- ---------
Statutory Stockholders' Equity $ 724.3 $ 438.3 $ 1,162.6
Insurance business related adjustments:
Deferred policy acquisition costs 421.7 127.3 549.0
Excess of cost over net assets purchased 2.2 - 2.2
Policy liabilities and reinsurance assets 126.3 - 126.3
Deferred income taxes (264.0) 16.9 (247.1)
Investment valuation reserves 184.4 - 184.4
Non admitted assets 60.9 7.4 68.3
Unrealized capital gains (FAS 115) 89.9 39.8 129.7
-----------------------------------
Subtotal $ 1,345.7 $ 629.7 1,975.4
========================
Investment in other operations and other 2,692.5
---------
Investments in subsidiaries 4,667.9
Elimination of parent company contributions (1,845.8)
---------
Consolidated Stockholders' Equity $ 2,822.1
=========
(millions)
As of December 31, 1996
-----------------------------------
Life/A&H P&C Combined
----------- ---------- ---------
Statutory Stockholders' Equity $ 611.7 $ 363.8 $ 975.5
Insurance business related adjustments:
Deferred policy acquisition costs 488.8 110.0 598.8
Excess of cost over net assets purchased 2.6 - 2.6
Policy liabilities and reinsurance assets 112.1 - 112.1
Deferred income taxes (185.9) 24.1 (161.8)
Investment valuation reserves 133.7 - 133.7
Non admitted assets 47.3 5.9 53.2
Unrealized capital gains (FAS 115) 76.8 34.8 111.6
-----------------------------------
Subtotal $ 1,287.1 $ 538.6 1,825.7
========================
Investment in other operations and other 1,443.2
---------
Investments in subsidiaries 3,268.9
Elimination of parent company contributions (436.0)
---------
Consolidated Stockholders' Equity $ 2,832.9
=========
(millions)
As of December 31, 1997
------------------------------------
Life/A&H P&C Combined
----------- ---------- ----------
Statutory Net Income * $ 264.7 $ 65.8 $ 330.5
Insurance business related adjustments:
Deferred policy acquisition costs 65.3 98.3 163.6
Amortization of deferred policy acquisition costs (127.2) (81.0) (208.2)
Amortization of cost of insurance purchased - - -
Amortization of excess of cost over net assets purchased (0.8) - (0.8)
Policy liabilities and reinsurance assets 14.2 - 14.2
Deferred income taxes (80.1) (6.1) (86.2)
Change in valuation reserves (3.1) - (3.1)
Deferred income (losses) (69.9) 3.2 (66.7)
Difference in realized gain on sale of subsidiaries - - -
Realized gain on transfer of subsidiary - - -
------------------------------------
Subtotal $ 63.2 $ 80.2 143.3
========================
Investment in other operations and other 155.5
----------
Consolidated Net Income - GAAP Basis $ 298.8
==========
* net of intercompany dividends
(millions)
As of December 31, 1996
------------------------------------
Life/A&H P&C Combined
----------- ---------- ----------
Statutory Net Income * $ 807.4 $ 70.7 $ 878.1
Insurance business related adjustments:
Deferred policy acquisition costs 121.6 95.1 216.7
Amortization of deferred policy acquisition costs (166.9) (68.7) (235.6)
Amortization of cost of insurance purchased (2.0) - (2.0)
Amortization of excess of cost over net assets purchased (0.9) - (0.9)
Policy liabilities and reinsurance assets 11.8 - 11.8
Deferred income taxes (4.0) (9.2) (13.3)
Change in valuation reserves 4.1 - 4.1
Deferred income (losses) 2.8 (3.5) (0.7)
Difference in realized gain on sale of subsidiaries (551.2) - (551.2)
Realized gain on transfer of subsidiary - - -
-------------------------------------
Subtotal $ 222.8 $ 84.4 307.1
========================
Investment in other operations and other 28.1
-----------
Consolidated Net Income - GAAP Basis $ 335.2
===========
* net of intercompany dividends
(millions)
As of December 31, 1995
------------------------------------
Life/A&H P&C Combined
----------- ---------- ----------
Statutory Net Income * $ 196.7 $ 57.5 $ 254.2
Insurance business related adjustments:
Deferred policy acquisition costs 325.6 84.7 410.3
Amortization of deferred policy acquisition costs (240.3) (62.4) (302.7)
Amortization of cost of insurance purchased (10.4) - (10.4)
Amortization of excess of cost over net assets purchased (4.9) - (4.9)
Policy liabilities and reinsurance assets (31.0) - (31.0)
Deferred income taxes (17.1) (7.8) (24.9)
Change in valuation reserves 5.6 - 5.6
Deferred income (losses) 34.3 5.9 40.2
Difference in realized gain on sale of subsidiaries - - -
Realized gain on transfer of subsidiary 7.0 - 7.0
------------------------------------
Subtotal $ 265.5 $ 77.9 343.4
========================
Investment in other operations and other 59.4
----------
Consolidated Net Income - GAAP Basis $ 402.8
==========
* net of intercompany dividends
- 21 -
SCHEDULE III
Aon Corporation and Subsidiaries
SUPPLEMENTARY INSURANCE INFORMATION
Future Amorti-
policy Unearned zation of
benefits, premiums Benefits, deferred
Deferred losses, and other Commis- claims, policy Other
policy claims policy- Net sions, losses and acqui- oper-
acquisition and loss holders' Premium investment fees and settlement sition ating Premiums
costs expenses funds revenue income(1) other expenses costs expenses written(2)
----------- --------- --------- -------- ---------- -------- ---------- --------- -------- ----------
(millions)
Year ended December 31, 1997
Insurance brokerage and
consulting services . $ -- $ -- $ -- $ -- $ 168.6 $3,605.2 $ -- $ -- $ 3,425.0 $ --
Insurance underwriting . 549.0 1,752.0 2,697.8 1,608.9 214.3 34.6 842.3 208.2 529.0 1,596.2
Corporate and other..... -- -- -- -- 111.1 7.9 -- -- 204.5 --
----------- --------- --------- -------- ---------- -------- ---------- --------- --------- ----------
Total ........ $ 549.0 $ 1,752.0 $ 2,697.8 $1,608.9 $ 494.0 $3,647.7 $ 842.3 $ 208.2 $ 4,158.5 $ 1,596.2
=========== ========= ========= ======== ========== ======== ========== ========= ========= ==========
Year ended December 31, 1996
Insurance brokerage and
consulting services . $ -- $ -- $ -- $ -- $ 83.5 $1,918.8 $ -- $ -- $1,820.2 $ --
Insurance underwriting. 598.8 1,920.3 2,439.3 1,526.7 197.0 50.1 789.5 207.9 524.1 1,581.6
Corporate and other.... -- -- -- -- 103.5 8.6 -- -- 100.9 --
----------- --------- --------- -------- ---------- -------- ---------- --------- -------- ----------
Total ........ $ 598.8 $ 1,920.3 $ 2,439.3 $1,526.7 $ 384.0 $1,977.5 $ 789.5 $ 207.9 $2,445.2 $ 1,581.6
=========== ========= ========= ======== ========== ======== ========== ========= ======== ==========
Year ended December 31, 1995
Insurance brokerage and
consulting services .. $ -- $ -- $ -- $ -- $ 75.7 $1,651.3 $ -- $ -- $1,515.1 $ --
Insurance underwriting . 1,348.7 2,446.0 7,110.4 1,426.5 168.5 44.9 698.5 207.5 487.5 1,596.2
Corporate and other..... -- -- -- -- 85.2 13.6 -- -- 99.1 --
----------- --------- --------- -------- ---------- -------- ---------- --------- -------- ----------
Total ........ $ 1,348.7 $ 2,446.0 $ 7,110.4 $1,426.5 $ 329.4 $1,709.8 $ 698.5 $ 207.5 $2,101.7 $ 1,596.2
=========== ========= ========= ======== ========== ======== ========== ========= ======== ==========
(1) The above results reflect allocations of investment income and certain
expense elements considered reasonable under the circumstances.
(2) Net of reinsurance ceded.
- 22 -
SCHEDULE IV
Aon Corporation and Subsidiaries
REINSURANCE
Year Ended December 31, 1997
--------------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
---------- ---------- ---------- ---------- ----------
Life insurance in force (1) ...................... $ 10,437.8 $ 12,514.9 $ 8,822.7 $ 6,745.6 130.8%
========== ========== ========== ========== ==========
Premiums and policy fees
Life Insurance .................................. $ 214.0 $ 153.5 $ 85.8 $ 146.3 58.6%
A&H Insurance ................................... 1,072.7 277.7 139.7 934.7 14.9
Specialty Property
& Casualty (2) ............................... 634.2 178.3 72.0 527.9 13.6
---------- ---------- ---------- ---------- ----------
Total premiums and policy fees .................. $ 1,920.9 $ 609.5 $ 297.5 $ 1,608.9 18.5%
========== ========== ========== ========== ==========
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
Year Ended December 31, 1996
--------------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
---------- ---------- ---------- ---------- ----------
Life insurance in force (1) ...................... $ 10,996.7 $ 12,749.8 $ 10,304.1 $ 8,551.0 120.5%
========== ========== ========== ========== ==========
Premiums and policy fees
Life Insurance .................................. $ 206.5 $ 133.0 $ 87.7 $ 161.2 54.4%
A&H Insurance ................................... 1,045.3 213.9 112.7 944.1 11.9
Specialty Property
& Casualty (2) ............................... 490.3 160.8 91.9 421.4 21.8
---------- ---------- ---------- ---------- ----------
Total premiums and policy fees .................. $ 1,742.1 $ 507.7 $ 292.3 $ 1,526.7 19.1%
========== ========== ========== ========== ==========
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
Year Ended December 31, 1995
--------------------------------------------------------------
Percentage
Ceded to Assumed of amount
Gross other from other Net assumed to
(millions) amount companies companies amount net
---------- ---------- ---------- ---------- ----------
Life insurance in force (1) ...................... $ 80,176.6 $ 27,936.6 $ 991.4 $ 53,231.4 1.9%
========== ========== ========== ========== ==========
Premiums and policy fees
Life Insurance .................................. $ 251.9 $ 83.9 $ 4.0 $ 172.0 2.3%
A&H Insurance ................................... 1,032.9 98.5 5.1 939.5 0.5
Specialty Property
& Casualty (2) ............................... 375.0 133.9 73.9 315.0 23.5
---------- ---------- ---------- ---------- ----------
Total premiums and policy fees .................. $ 1,659.8 $ 316.3 $ 83.0 $ 1,426.5 5.8%
========== ========== ========== ========== ==========
(1) Includes credit life insurance.
(2) Includes mechanical repair insurance sold through automobile dealers,
appliance warranty insurance and property liability insurance.
- 23 -
SCHEDULE V
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
(millions) Additions
-------------------------------------
Charged/
Balance at Charged to (credited) Balance
beginning cost and to other Deductions at end
Description of year expenses accounts (1) of year
- ---------------------------------------------------- ---------- ---------- ---------- ---------- ----------
Year ended December 31,1997
Reserve for losses (3)
(deducted from mortgage loans on real estate) $ 0.7 $ - $ (0.4) $ - $ 0.3
Reserve for losses (3)
(deducted from other long-term investments) 5.2 - 3.5 - 8.7
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
services receivables) 59.9 9.3 66.7 (14.4) 121.5
Allowance for doubtful accounts
(deducted from premiums and other) 3.1 2.2 - (0.3) 5.0
Year ended December 31, 1996
Reserve for losses (2)
(deducted from mortgage loans on real estate) $ 25.6 $ - $ (24.9) $ - $ 0.7
Reserve for losses
(deducted from other long-term investments) 5.2 - - - 5.2
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
services receivables) 47.4 9.5 13.4 (10.5) 59.9
Allowance for doubtful accounts (2)
(deducted from premiums and other) 3.9 2.1 (2.9) - 3.1
Year ended December 31, 1995
Reserve for losses (3)
(deducted from mortgage loans on real estate) $ 29.7 $ - $ (4.1) $ - $ 25.6
Reserve for losses (3)
(deducted from other long-term investments) 6.7 - 1.0 (2.5) 5.2
Allowance for doubtful accounts
(deducted from insurance brokerage and consulting
services receivables) 45.2 6.0 - (3.8) 47.4
Allowance for doubtful accounts
(deducted from premiums and other) 3.2 2.0 - (1.3) 3.9
(1) Amounts deemed to be uncollectible.
(2) Amounts shown in additions credited to other accounts primarily
represent reduction due to sale of discontinued operations.
(3) Amounts shown in additions charged/(credited) to other accounts
represent realized investment (gains)/losses.
(4) Amounts shown in additions charged to other accounts represent reserves
related to acquired business.
- 24 -
Cross Reference Sheet, Pursuant
to General Instruction G(4)
ITEM IN FORM 10-K INCORPORATED BY REFERENCE TO
- ----------------- ----------------------------
Part I
Item 1. Business Annual Report to Stockholders of the Registrant for
the Year 1997 ("Annual Report") pages 7
through 16, and 32 and 33.
Item 3. Legal Proceedings Annual Report page 42 (note 12 of Notes to
Consolidated Financial Statements).
Part II
Item 5. Market for the Registrant's Common Stock Annual Report page 36 (note 8 of Notes to
and Related Security Holder Matters Consolidated Financial Statements) and page 45
("Dividends paid per share" and "Price range").
Item 6. Selected Financial Data Annual Report page 44.
Item 7. Management's Discussion and Analysis of Annual Report pages 18 through 24.
Financial Condition and Results of
Operations
Item 7A. Quantitative and Qualitative Disclosures Annual Report page 24 ("Market Risk Exposure").
about Market Risk
Item 8. Financial Statements and Supplementary Annual Report pages 25 through 43 and 45.
Data
Part III
Item 10. Directors and Executive Officers of the Proxy Statement For Annual Meeting of Stockholders
Registrant on April 17, 1998 of the Registrant ("Proxy
Statement") pages 3, 7, 11 and 12 .
Item 11. Executive Compensation Proxy Statement pages 14 through 17.
Item 12. Security Ownership of Certain Beneficial Proxy Statement pages 2, 9 and 10.
Owners and Management
Item 13. Certain Relationships and Related Proxy Statement page 22 ("Transactions With
Transactions Management").
Part IV
Item 14. Exhibits, Financial Statement Schedules, Annual Report pages 25 through 43.
And Reports on Form 8-K
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EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(3) Articles of incorporation and bylaws:
(a) Second Restated Certificate of Incorporation of the Registrant
incorporated by reference to Exhibit 3(a) to the 1991 Form
10-K.
(b) Certificate of Amendment of the Registrant's Second Restated
Certificate of Incorporation - incorporated by reference to
Exhibit 3 to the First Quarter 1994 Form 10-Q.
(c) Bylaws of the Registrant - incorporated by reference to
Exhibit (d) to the 1982 Form 10-K.
(d) Certificate of Designation for the Registrant's Series C
Cumulative Preferred Stock - incorporated by reference to
Exhibit 4.1 to the Registrant's Current Report on Form 8-K
dated February 9, 1994.
(4) Instruments defining the rights of security holders, including
indentures:
(a) Indenture dated September 15, 1992 between the Registrant and
Continental Bank Corporation (now known as Bank of America
Illinois), as Trustee - incorporated by reference to Exhibit
4(a) of the Registrant's Current Report on Form 8-K dated
September 23, 1992.
(b) Resolutions establishing terms of 6.875% Notes Due 1999 and
7.40% Notes Due 2002 - incorporated by reference to Exhibit
4(d) to the 1992 Form 10-K.
(c) Resolutions establishing the terms of 6.70% Notes Due 2003
incorporated by reference to Exhibit 4(c) to the 1993 Form
10-K.
(d) Resolutions establishing the terms of 6.30% Notes Due 2004
incorporated by reference to Exhibit 4(d) to the 1993 Form
10-K.
(e) Junior Subordinated Indenture dated as of January 13, 1997
between the Registrant and The Bank of New York, as trustee -
incorporated by reference to Exhibit 4.1 of the Registrant's
Amendment No. 1 to Registration Statement on Form S-4 No.
333-21237 dated March 27, 1997 (the "Capital Securities
Registration").
(f) First Supplemental Indenture dated as of January 13, 1997
between the Registrant and the Bank of New York, as trustee -
incorporated by reference to Exhibit 4.2 of the Capital
Securities Registration.
(g) Certificate of Trust of Aon Capital A - incorporated by
reference to Exhibit 4.3 of the Capital Securities
Registration.
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EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(h) Amended and Restated Trust Agreement of Aon Capital A dated as
of January 13, 1997 among the Registrant, as Depositor, The
Bank of New York, as Property Trustee, The Bank of New York
(Delaware), as Delaware Trustee, the Administrative Trustees
named therein and the holders, from time to time, of the
Capital Securities - incorporated by reference to Exhibit 4.5
of the Capital Securities Registration.
(i) Capital Securities Guarantee Agreement dated as of January 13,
1997 between the Registrant and the Bank of New York, as
guarantee trustee - incorporated by reference to Exhibit 4.8
of the Capital Securities Registration.
(j) Capital Securities Exchange and Registration Rights Agreement
dated as of January 13, 1997 among the Registrant, Aon Capital
A and Morgan Stanley & Co. Incorporated and Goldman, Sachs &
Co. - incorporated by reference to Exhibit 4.10 of the Capital
Securities Registration.
(k) Debenture Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. -
incorporated by reference to Exhibit 4.11 of the Capital
Securities Registration.
(l) Guarantee Exchange and Registration Rights Agreement dated as
of January 13, 1997 among the Registrant, Aon Capital A and
Morgan Stanley & Co. Incorporated and Goldman, Sachs & Co. -
incorporated by reference to Exhibit 4.12 of the Capital
Securities Registration.
(10) Material Contracts:
(a) Aon Stock Option Plan (as amended and restated through 1997)-
incorporated by reference to Exhibit 10(a) to the Registrant's
Quarterly Report to the Securities and Exchange Commission on
Form 10-Q for the quarter ended March 31, 1997 (the "First
Quarter 1997 Form 10-Q").
(b) Registration Rights Agreement by and among the Registrant and
certain affiliates of Ryan Insurance Group, Inc. (Including
Patrick G. Ryan and Andrew J. McKenna) - incorporated by
reference to Exhibit (f) to the 1982 Form 10-K.
(c) Deferred Compensation Agreement by and among Registrant and
Registrant's directors who are not salaried employees of
Registrant or Registrant's affiliates - incorporated by
reference to Exhibit 10(i) to the 1987 Form 10-K.
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EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(d) Aon Stock Award Plan (as amended and restated through 1997)-
incorporated by reference to Exhibit 10(b) to the First
Quarter 1997 Form 10-Q.
(e) Amendment and Waiver Agreement dated as of November 4, 1991
among the Registrant and each of Patrick G. Ryan, Shirley
Ryan, Ryan Enterprises Corporation and Harvey N. Medvin -
incorporated by reference to Exhibit 10(j) to the 1991 Form
10-K.
(f) Registration Rights Agreement dated November 2, 1992 by and
between the Registrant and Frank B. Hall & Co., Inc. -
incorporated by reference to Exhibit 4(c) to the Third Quarter
1992 Form 10-Q.
(g) Aon Corporation 1994 Amended and Restated Outside Director
Stock Award Plan - incorporated by reference to Exhibit 10(b)
to the First Quarter 1994 Form 10-Q.
(h) Aon Corporation 1995 Senior Officer Incentive Compensation
Plan - incorporated by reference to Exhibit 10(p) to the 1995
Form 10-K.
(i) Aon Deferred Compensation Plan and First Amendment to the Aon
Deferred Compensation Plan - incorporated by reference to
Exhibit 10(q) to the 1995 Form 10-K.
(j) Aon Severance Plan - incorporated by reference to Exhibit 10
to the Registrant's Quarterly Report to the Securities and
Exchange Commission on Form 10-Q for the quarter ended June
30, 1997.
(k) Asset Purchase Agreement dated July 24, 1992 between the
Registrant and Frank B. Hall & Co. Inc. - incorporated by
reference to Exhibit 10(c) to the Registrant's Quarterly
Report on Form 10-Q for the period ended June 30, 1992.
(l) Stock Purchase Agreement by and among the Registrant, Combined
Insurance Company of America, Union Fidelity Life Insurance
Company and General Electric Capital Corporation dated as of
November 11, 1995 - incorporated by reference to Exhibit 10(s)
of the 1995 Form 10-K.
(m) Stock Purchase Agreement by and among the Registrant; Combined
Insurance Company of America; The Life Insurance Company of
Virginia; Forth Financial Resources, Ltd.; Newco Properties,
Inc.; and General Electric Capital Corporation dated as of
December 22, 1995 - incorporated by reference to Exhibit 10(t)
to the 1995 Form 10-K.
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EXHIBIT INDEX
Exhibit Number Page Number of
Regulation Sequentially
S-K, Item 601 Numbered Copy
- ------------- -------------
(n) Agreement and Plan of Merger among the Registrant, Purchaser
and A&A dated as of December 11, 1996 - incorporated by
reference to Exhibit (c)(1) to the Registrant's Schedule 14D-1
filed with the SEC on December 16, 1996.
(o) First Amendment to Agreement and Plan of Merger dated as of
January 7, 1997 among the Registrant, Purchaser and A&A
incorporated by reference to Exhibit (c)(3) to Schedule 14D-1
filed by the Registrant with the SEC on January 9, 1997.
(p) Employment Agreement dated June 1, 1993 by and among the
Registrant, Aon Risk Services, Inc. and Michael D. O'Halleran.
(12) Statements regarding Computation of Ratios.
(a) Statement regarding Computation of Ratio of Earnings of Fixed
Charges.
(b) Statement regarding Computation of Ratio of Earnings to
Combined Fixed Charges and Preferred Stock Dividends.
(13) Annual Report to Stockholders of the Registrant for the year ended
December 31, 1997.
(21) List of subsidiaries of the Registrant.
(23) Consent of Ernst & Young LLP to the incorporation by reference into
Aon's Annual Report on Form 10-K of their report included in the 1997
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-59037 and 333-21237.
(99) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1997 - to be
filed by amendment as provided in Rule 15d-21(b).
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