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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, 1998
OR
[ ] 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
------------------- -------------------
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 24, 1999 was $8,787,962,898.
Number of shares of $1.00 par value Common Stock outstanding as of February
24, 1999: 170,793,734.
Documents From Which Information is Incorporated By Reference:
Annual Report to Stockholders of the Registrant for the Year 1998
(Parts I, II and IV)
Notice of Annual Meeting of Holders of Common Stock and Series C Preferred
Stock and Proxy Statement for Annual Meeting of Stockholders on April 16, 1999
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 three distinct segments: (i) insurance brokerage and other services,
(ii) consulting, and (iii) 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.; Aon Group Limited; and Alternative Market Operations ("AMO")
provide reinsurance intermediary services, benefits consulting and commercial
insurance brokerage services. Aon Group revenues grew significantly in fiscal
1996, 1997, and 1998 when the Registrant acquired, among other companies, Bain
Hogg Group plc ("Bain Hogg") in 1996; Alexander & Alexander Services Inc.
("A&A"), The Minet Group, and Jauch & Hubener in 1997; and Le Blanc de
Nicolay, Gil y Carvajal and Auto Insurance Specialists, Inc. in 1998.
Combined Insurance Company of America ("Combined Insurance") engages in
the marketing and underwriting 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").
The Registrant hereby incorporates by reference pages 6 through 12 and
pages 17 through 23 of the Annual Report to Stockholders of the Registrant for
the Year 1998 ("Annual Report").
COMPETITION AND INDUSTRY POSITION
(1) INSURANCE BROKERAGE AND OTHER 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 Re Worldwide, Inc. ("Aon Re"); Aon
Group Limited ("AGL"); Alternative Market Operations ("AMO").
Aon Group is the holding company for the Registrant's commercial brokerage
and consulting operation. Aon Group companies have 550 offices around the world
in approximately 120 countries. In 1998, Aon Group employed over 34,000
professionals and support personnel to serve the diverse needs of clients.
Aon Risk Services Companies' 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 provide risk
management services, including insurance placement, claims management, loss
control and administrative services. It has also developed certain specialist
niche areas such as marine, aviation, directors and officers liability,
financial institutions, construction, energy, media and entertainment. In 1998,
significant investments were made in professional talent, technology and the
development of specialized products and services to meet the evolving needs of
clients.
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 acquisitions of Jauch & Hubener, Le Blanc de Nicolay and Gil
y Carvajal strengthened the Registrant's presence throughout Europe.
Aon Services Group addresses the highly specialized product development,
consulting and administrative needs of professional groups, service businesses,
governments, health-care providers and commercial organizations.
- 2 -
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 augmented
Aon Services Group's already strong expertise in wholesale brokerage and
professional liability programs. The 1998 acquisition of Auto Insurance
Specialists, Inc., an insurance broker specializing in automobile insurance
coverages, gives Aon Services Group a significant presence in that market with
opportunities for wide geographic application.
Aon's reinsurance brokerage activities are organized under Aon Re in the
United States and AGL in the United Kingdom. Aon Re is the largest reinsurance
broker in the world, offering reinsurance, analytical services and alternative
risk financing vehicles. 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.
AMO was established by Aon in late 1997 and is a leading provider of
custom-designed products and services which feature specialty underwriting
capabilities that produced an annual premium volume in excess of $1 billion.
Several of AMO's specialties include entertainment, public entities,
professional liability, workers compensation, and media business and financial
institutions.
(2) CONSULTING
Aon Consulting Worldwide, Inc. ("Aon Consulting")
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, job design and competency modeling; compensation and
reward systems; human resources compliance and risk management; and individual
and organizational change management. 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 strengthened
the Registrant's consulting expertise in Quebec.
- 3 -
(3) 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 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,
while 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's current product portfolio often allows policyholders the option of
paying premiums monthly through a pre-authorized check mechanism. Those
policyholders are still called on by an agent to add additional coverage.
Combined Insurance offers a wide range of accident-only and sickness-only
insurance products, including short-term disability, cancer aid, Medicare
supplement, disability income and long-term care coverage. Most of 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 has expanded its product distribution
through payroll deduction, worksite marketing programs. Combined Insurance's
business is conducted by the Registrant's operations in the United States,
Canada, Latin America, Europe and Asia Pacific.
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 1997.
The Registrant's extended warranty and specialty insurance business,
conducted by VSC subsidiaries in North America, South America, Asia Pacific 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 are among 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, Argentina, Brazil, Australia
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.
- 4 -
(4) 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 40 of the Annual Report.
A&A's Discontinued Operations
The Registrant hereby incorporates by reference note 3 of the Notes to
Consolidated Financial Statements on page 40 of the Annual Report.
LICENSING AND REGULATION
Regulatory authorities in the states or countries 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 in the United States and in most foreign countries, regulatory
authorities have relatively broad discretion with respect to granting, renewing
and revoking brokers' and agents' licenses to transact business in the state or
country. The manner of operating in particular states and countries may vary
according to the licensing requirements of the particular state or country,
which may require, among other things, that a firm operate in the state or
country through a local corporation. In a few states and countries, 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 or country.
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 statutory 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. Any 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.
- 5 -
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.
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. Congress is actively considering a
Financial Services Modernization Act commonly known as H.R.10. While H.R.10.
would make substantial changes in allowing financial organizations to diversify,
the Registrant does not believe the enactment of H.R.10 would have a material
affect on the business of its insurance institutions.
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 44,000 employees at the
end of 1998 of whom approximately 36,000 are salaried and hourly employees and
the remaining 8,000 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.
- 6 -
ITEM 3. LEGAL PROCEEDINGS.
The Registrant hereby incorporates by reference note 12 of the Notes to
Consolidated Financial Statements on page 50 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 17, 1998 to serve
until the meeting of the Board following the annual meeting of stockholders on
April 16, 1999. Ages shown are as of December 31, 1998.
For information concerning certain directors and executive officers of the
Registrant, see item 10 below. As of March 31, 1999, 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
--------------------- ----- ------------
Harvey N. Medvin, 62 1972 Mr. Medvin became Vice President and
Executive Vice President and Chief Financial Officer of the
Chief Financial Officer Registrant in 1982 and was elected
to his current position in 1987.
He also serves as a Director or
Officer of certain of the
Registrant's subsidiaries.
Daniel T. Cox, 52 1986 Mr. Cox was elected to his current
Executive Vice President position in 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, 51 1990 Mr. Conway was Vice President of
Senior Vice President and Combined Insurance from 1980 to
Senior Investment Officer 1984. Following other 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, 48 1987 Mr. O'Halleran was appointed
President and Chief Operating President and Chief Operating
Officer of Aon Group, Inc. Officer of Aon Group, Inc. in 1995.
Prior thereto, since joining the
Registrant in 1987, he held a
variety of senior positions in the
Registrant's insurance and
reinsurance brokerage operations. He
also serves as a Director or Officer
of certain of the Registrant's
subsidiaries.
- 7 -
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 53 of the Annual Report.
The Registrant had approximately 13,300 holders of record of its Common
Shares as of February 24, 1999.
The Registrant hereby incorporates by reference note 8 of the Notes to
Consolidated Financial Statements on pages 43 and 44 of the Annual Report.
ITEM 6. SELECTED FINANCIAL DATA.
The Registrant hereby incorporates by reference the "Selected Financial
Data" table on page 52 of the Annual Report.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The Registrant hereby incorporates by reference "Financial and Operations
Highlights - Management's Discussion and Analysis" on pages 14 through 30 and
"Information Concerning Forward-Looking Statements" on the inside back cover of
the Annual Report.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The Registrant hereby incorporates by reference "Market Risk Exposure" on
page 29 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)
-------
Consolidated Financial Statements ...................... 31 - 35
Notes to Consolidated Financial Statements .......... 36 - 50
Report of Ernst & Young LLP, Independent Auditors ...... 51
Quarterly Financial Data ............................. 53
ITEM 9. CHANGES IN AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
Not Applicable.
- 8 -
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 16,
1999, 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 10 through 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 1998 Fiscal Year" and
"Pension Plan Table" on pages 14 through 16 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 21 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, 1998,
1997 and 1996 31
Consolidated Statements of Financial Position - As of December 31,
1998 and 1997 32-33
Consolidated Statements of Stockholders' Equity - Years Ended
December 31, 1998, 1997 and 1996 34
Consolidated Statements of Cash Flows - Years Ended December 31,
1998, 1997 and 1996 35
Notes to Consolidated Financial Statements 36-50
Report of Ernst & Young LLP, Independent Auditors 51
Financial statement schedules of the Registrant and
consolidated subsidiaries not included in the Annual Report
but filed herewith:
Consolidated Financial Statement Schedules -
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Schedule
--------
Condensed Financial Information of Registrant I
Valuation and Qualifying Accounts II
All other schedules for Aon Corporation and Subsidiaries have been omitted since
the required information is not present in amounts sufficient to require
submission of the schedules or because the information required is included in
the respective financial statements or notes thereto. The following
supplementary schedules have been provided for Aon Corporation and Subsidiaries
as they relate to the insurance underwriting operations:
Schedule
--------
Summary of Investments Other than Investments in Related Parties II.1
Reinsurance II.2
(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 10-Q").
- 10 -
(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.
(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.
- 11 -
(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.
(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, 1998 (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 1998
Annual Report to Stockholders and into Aon's Registration Statement
Nos. 33-27984, 33-42575, 33-59037, 333-21237, 333-50607 and
333-55773.
(z) Annual Report to the Securities and Exchange Commission on Form 11-K
for the Aon Savings Plan for the year ended December 31, 1998 - 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.
- 12 -
(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.
(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, 1998.
- 13 -
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 24th day of
March, 1999.
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 24, 1999
- - - - - - - - - - - - - - - - - -------------------------- Executive Officer and Director
Patrick G. Ryan (Principal Executive Officer)
/s/ DANIEL T. CARROLL Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Daniel T. Carroll
/s/FRANKLIN A. COLE Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Franklin A. Cole
/s/EDGAR D. JANNOTTA Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Edgar D. Jannotta
/s/PERRY J. LEWIS Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Perry J. Lewis
/s/ANDREW J. McKENNA Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Andrew J. McKenna
/s/NEWTON N. MINOW Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Newton N. Minow
/s/RICHARD C. NOTEBAERT Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Richard C. Notebaert
- 14 -
Signature Title Date
--------- ----- ----
/s/DONALD S. PERKINS Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Donald S. Perkins
/s/JOHN W. ROGERS, JR. Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
John W. Rogers, Jr.
/s/GEORGE A. SCHAEFER Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
George A. Schaefer
/s/RAYMOND I. SKILLING Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Raymond I. Skilling
/s/FRED L. TURNER Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Fred L. Turner
/s/ARNOLD R. WEBER Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Arnold R. Weber
/s/CAROLYN Y. WOO Director March 24, 1999
- - - - - - - - - - - - - - - - - ----------------------------
Carolyn Y. Woo
/s/HARVEY N. MEDVIN Executive Vice President March 24, 1999
- - - - - - - - - - - - - - - - - ---------------------------- and Chief Financial Officer
Harvey N. Medvin (Principal Financial and
Accounting Officer)
- 15 -
SCHEDULE I
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF FINANCIAL POSITION
As of December 31
---------------------------
(millions) 1998 1997
----------- -----------
ASSETS
Investments in subsidiaries ................... $ 5,305.4 $ 4,667.8
Notes receivable - subsidiaries ............... 239.0 745.3
Cash and cash equivalents ..................... 5.5 9.5
Other assets .................................. 46.1 166.2
----------- -----------
TOTAL ASSETS ............................. $ 5,596.0 $ 5,588.8
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Short-term borrowings ......................... $ 436.2 $ 764.2
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 .............. 100.0 99.9
6.7% long-term debt securities ................ 149.8 149.7
Subordinated debt ............................. 800.0 800.0
Notes payable - subsidiaries .................. 588.1 488.8
Notes payable - other ......................... 70.0 70.0
Debt guarantee of employee stock ownership plan 17.5 33.1
Accrued expenses and other liabilities ........ 168.0 111.3
----------- -----------
Total Liabilities ........................ 2,529.3 2,716.7
----------- -----------
Redeemable Preferred Stock .................... 50.0 50.0
STOCKHOLDERS' EQUITY .......................
Common stock .................................. 171.5 171.5
Paid-in additional capital .................... 450.4 377.0
Accumulated other comprehensive income (loss) . (116.1) 103.4
Retained earnings ............................. 2,782.0 2,463.4
Less treasury stock at cost ................... (58.5) (93.2)
Less deferred compensation .................... (212.6) (200.0)
----------- -----------
Total Stockholders' Equity ............... 3,016.7 2,822.1
----------- -----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 5,596.0 $ 5,588.8
=========== ===========
See notes to condensed financial statements.
- 16 -
SCHEDULE I
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF INCOME
Years ended December 31
----------------------------------
(millions) 1998 1997 1996
--------- ---------- ----------
REVENUE
Dividends from subsidiaries ................... $ 351.2 $ 179.6 $ 1,026.6
Other investment income ....................... 68.5 51.8 33.1
----------------------------------
TOTAL REVENUE ............................ 419.7 231.4 1,059.7
----------------------------------
EXPENSES
Operating and administrative .................. 20.0 6.3 5.7
Interest - subsidiaries ....................... 94.2 85.3 20.6
Interest - other .............................. 75.6 61.7 43.2
----------------------------------
TOTAL EXPENSES (1) ....................... 189.8 153.3 69.5
----------------------------------
INCOME BEFORE INCOME TAXES AND EQUITY IN
UNDISTRIBUTED INCOME OF SUBSIDIARIES .......... 229.9 78.1 990.2
Income tax benefit .................................. 53.9 43.0 3.6
----------------------------------
283.8 121.1 993.8
EQUITY IN UNDISTRIBUTED INCOME OF SUBSIDIARIES ...... 256.7 177.7 (658.6)
----------------------------------
NET INCOME .................................... $ 540.5 $ 298.8 $ 335.2
==================================
See notes to condensed financial statements.
(1) Interest expense - other allocated to discontinued operations was $5
million for the year ended December 31, 1996.
- 17 -
SCHEDULE I
(Continued)
Aon Corporation
(Parent Company)
CONDENSED STATEMENTS OF CASH FLOWS
Years Ended December 31
-------------------------------
(millions) 1998 1997 1996
--------- --------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES .................... $ 445.5 $ 124.3 $1,016.9
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in subsidiaries ......................... (93.3) (1,354.8) (319.3)
Notes receivables from subsidiaries ................. (16.3) (135.2) (10.8)
--------- --------- ---------
Cash Used by Investing Activities .............. (109.6) (1,490.0) (330.1)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Treasury stock transactions - net ................... (18.4) 21.4 (40.1)
Issuance (repayment) of short-term borrowings - net . (328.1) 541.7 (139.2)
Issuance of company-obligated mandatorily redeemable
preferred capital securities of subsidiary trust - 800.0 -
Issuance (repayment) of notes payable and long-term
debt - net ..................................... 200.3 113.5 (105.6)
Retirement of preferred stock ....................... - (136.2) (14.2)
Cash dividends to stockholders ...................... (193.7) (182.1) (172.9)
--------- --------- ---------
CASH PROVIDED (USED) BY FINANCING ACTIVITIES ... (339.9) 1,158.3 (472.0)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS ........ (4.0) (207.4) 214.8
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .......... 9.5 216.9 2.1
--------- --------- ---------
CASH AND CASH EQUIVALENTS AT END OF YEAR ................ $ 5.5 $ 9.5 $ 216.9
========= ========= =========
See notes to condensed financial statements.
- 18 -
SCHEDULE I
(Continued)
Aon Corporation
(Parent Company)
NOTES TO CONDENSED FINANCIAL STATEMENTS
(1) See notes to consolidated financial statements incorporated by reference
from the Annual Report. Certain amounts in prior years' Condensed
Statements of Income have been reclassified to conform to the 1998
presentation.
(2) 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 $292 million may be subject to approval by regulatory
authorities.
(3) Subsidiary Guarantees
---------------------
In 1998, Aon guaranteed a committed bank credit facility under which
certain European subsidiaries can borrow up to EUR 400 million ($470
million). At December 31, 1998, loans of EUR 348 million ($408 million)
were outstanding under this facility.
Aon Financial Products, Inc. ("AFP"), an investment banking affiliate of
Aon Corporation ("Aon"), manages an $80 million investment portfolio held
in a collateral trust at Citibank related to catastrophe reinsurance notes
issued by Pacific Re, Ltd., a Cayman Islands based reinsurance company.
AFP is obligated to produce specified investment returns for the portfolio
and to back the losses produced in the portfolio. Aon Corporation has
unconditionally guaranteed the obligations of Aon Financial Products.
(4) During 1998, Aon Corporation (Parent Company) reclassified $523 million of
notes receivables-subsidiaries to investments in subsidiaries related to
its brokerage operations.
(5) Subsequent Event
----------------
On March 19, 1999, Aon's directors approved a three-for-two stock split,
payable on May 17, 1999 in the form of a stock dividend of one common
share for every two shares held, to stockholders of record as of the close
of business on May 4, 1999. Because the stock split was approved
subsequent to the distribution of Aon's 1998 Annual Report to
Stockholders, references to common stock and earnings per share data in
the Annual Report to Stockholders and in this Annual Report on Form 10-K
have not been retroactively adjusted. Retroactively adjusting such
information to give effect to the stock split for 1998, 1997 and 1996,
respectively, would result in dilutive net income per share of $2.07,
$1.12, and $1.27, basic net income per share of $2.11, $1.14 and $1.29 and
dividends per share of $0.73, $0.68 and $0.63.
- 19 -
SCHEDULE II
Aon CORPORATION
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
(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, 1998
----------------------------
Reserve for losses (3)
(deducted from mortgage loans on real estate) $ 0.3 $ - $ (0.1) $ - $ 0.2
Reserve for losses (3)
(deducted from other long-term investments) 8.7 - 0.5 - 9.2
Allowance for doubtful accounts (4)
(deducted from insurance brokerage and consulting
receivables) 81.5 20.5 (5.1) (3.4) 93.5
Allowance for doubtful accounts
(deducted from premiums and other) 5.0 0.4 0.1 - 5.5
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
receivables) 59.9 9.3 26.7 (14.4) 81.5
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
receivables) 47.4 9.5 13.4 (10.4) 59.9
Allowance for doubtful accounts (2)
(deducted from premiums and other) 3.9 2.1 (2.9) - 3.1
(1) Amounts deemed to be uncollectible.
(2) Amounts shown in additions credited to other accounts primarily represent
reductions due to sale of discontinued operations.
(3) Amounts shown in additions charged/(credited) to other accounts represent
income (losses) on disposals.
(4) Amounts shown in additions charged/(credited) to other accounts represent
reserves related to acquired business.
- 20 -
SCHEDULE II.1
Aon Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INVESTMENTS -
OTHER THAN INVESTMENTS IN RELATED PARTIES
AS OF DECEMBER 31, 1998
Amount shown
in Statement
Amortized Fair of Financial
(millions) Cost or Cost Value Position
------------ ----------- -------------
FIXED MATURITIES - AVAILABLE FOR SALE:
U.S. government and agencies ................ $ 95.5 $ 101.0 $ 101.0
States and political subdivisions ........... 485.2 517.4 517.4
Debt securities of foreign governments
not classified as loans ................ 740.1 801.2 801.2
Corporate securities ........................ 1,534.0 1,539.0 1,539.0
Public utilities ............................ 62.0 64.8 64.8
Mortgage-backed securities .................. 25.0 26.0 26.0
Other fixed maturities ...................... 53.3 53.5 53.5
----------- ----------- -----------
Total fixed maturities ................. 2,995.1 3,102.9 3,102.9
----------- ----------- -----------
EQUITY SECURITIES - AVAILABLE FOR SALE:
Common stocks:
Banks, trusts, and insurance companies .. 238.4 266.9 266.9
Industrial, miscellaneous, and all other 112.3 102.0 102.0
Non-redeemable preferred stocks ............. 404.9 398.8 398.8
----------- ----------- -----------
Total equity securities ................ 755.6 767.7 767.7
----------- ----------- -----------
Mortgage loans on real estate ................... 9.3 * 9.1 *
Real estate - net of depreciation ............... 10.9 * 10.9 *
Policy loans .................................... 58.7 * 58.7 *
Other long-term investments ..................... 290.5 * 281.3 *
Short-term investments .......................... 2,221.3 2,221.3
----------- -----------
TOTAL INVESTMENTS ...................... $ 6,341.4 $ 6,451.9
=========== ===========
* These investment categories are combined and are shown as other
investments in the Statement of Financial Position. Differences between
amortized cost and amounts shown in the Statement of Financial Position
for investments other than fixed maturities and equity securities result
from certain valuation allowances.
- 21 -
SCHEDULE II.2
Aon Corporation and Subsidiaries
REINSURANCE
Year Ended December 31, 1998
-----------------------------------------------------------------------------------
Ceded to Assumed Percentage of
other from other amount
(millions) Gross amount companies companies Net amount assumed to net
-----------------------------------------------------------------------------------
LIFE INSURANCE IN FORCE (1) ........... $ 10,653.0 $ 9,813.0 $ 5,509.9 $ 6,349.9 86.8%
=========== =========== =========== =========== ==========
PREMIUMS AND POLICY FEES
Life Insurance ....................... $ 235.1 $ 103.5 $ 7.2 $ 138.8 5.2%
A&H Insurance ........................ 1,133.7 235.0 46.4 945.1 4.9%
Specialty Property & Casualty (2) .... 734.6 241.0 95.6 589.2 16.2%
------------ ------------ ----------- ----------- ----------
TOTAL PREMIUMS AND POLICY FEES (3) . $ 2,103.4 $ 579.5 $ 149.2 $ 1,673.1 8.9%
============ ============ =========== =========== ==========
Year Ended December 31, 1997
------------------------------------------------------------------------------------
Ceded to Assumed Percentage of
other from other amount
(millions) Gross amount companies companies Net amount assumed to 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 (3) . $ 1,920.9 $ 609.5 $ 297.5 $ 1,608.9 18.5%
============ ============ =========== =========== ==========
Year Ended December 31, 1996
-----------------------------------------------------------------------------------
Ceded to Assumed Percentage of
other from other amount
(millions) Gross amount companies companies Net amount assumed to 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 (3) . $ 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.
(3) Insurance underwriting premiums written, net of reinsurance ceded, were
$1,667.6 million, $1,596.2 million and $1,581.6 million for the years
ended December 31, 1998, 1997, and 1996, respectively.
- 22 -
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 1998
("Annual Report") pages 6 through
12, 17 through 23 and 40.
Item 3. Legal Proceedings Annual Report page 50 (note 12 of
Notes to Consolidated Financial
Statements).
PART II
Item 5. Market for the Registrant's Annual Report pages 43 and 44 (note
Common Stock and Related Security 8 of Notes to Consolidated
Holder Matters Financial Statements) and page 53
("Dividends paid per share" and
"Price range").
Item 6. Selected Financial Data Annual Report page 52.
Item 7. Management's Discussion and Annual Report pages 14 through 30
Analysis of Financial Condition and inside back cover ("Information
and Results of Operations Concerning Forward-Looking
Statements").
Item 7A. Quantitative and Qualitative Annual Report page 29 ("Market Risk
Disclosures about Market Risk Exposure").
Item 8. Financial Statements and Annual Report pages 31 through 51
Supplementary Data and 53.
PART III
Item 10. Directors and Executive Proxy Statement For Annual Meeting
Officers of the Registrant of Stockholders on April 16, 1999
of the Registrant ("Proxy
Statement") pages 3, 7, and 10
through 12.
Item 11. Executive Compensation Proxy Statement pages 14 through
16.
Item 12. Security Ownership of Proxy Statement pages 2, 9 and 10.
Certain Beneficial
Owners and Management
Item 13. Certain Relationships and Proxy Statement page 21
Related Transactions ("Transactions With Management").
PART IV
Item 14. Exhibits, Financial Statement Annual Report pages 31 through 51.
Schedules, And Reports on
Form 8-K
- 23 -
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.
- 24 -
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.
- 26 -
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, 1998.
(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 1998 Annual Report to Stockholders and into Aon's
Registration Statement Nos. 33-27984, 33-42575, 33-59037,
333-21237, 333-50607 and 333-55773.
(99) Annual Report to the Securities and Exchange Commission on Form
11-K for the Aon Savings Plan for the year ended December 31,
1998 - to be filed by amendment as provided in Rule 15d-21(b).
- 27 -