Canadian Underwriter

Risk solutions revenue up 1% at Aon

August 2, 2016   by Canadian Underwriter

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Aon plc reported a 1% increase in retail brokerage revenue for the three months ending June 30 compared to the same period in 2015.

London-based Aon released Friday its financial results for the second quarter. In risk solutions (which includes its retail brokerage and reinsurance brokerage), Aon reported revenue of $1.847 billion in the most recent quarter, up 1% from $1.833 billion in Q2 2015. All figures are in United States dollars.

The 1% increase was “driven by 3% organic growth in commissions and fees, partially offset by a 2% unfavorable impact from foreign currency translation,” Aon reported.

Retail brokerage revenue was $1.508 billion during the three months ending June 30, 2016, up 1% from $1.498 billion during the same period in 2015.

Revenue in reinsurance was up 1%, from $330 million in Q2 2015 to $334 million in the most recent quarter.

The increase was “due primarily to growth in facultative placements, cedent demand in treaty placements, and new business generation, partially offset by an unfavorable market impact internationally,” Aon stated.

For risk solutions, Aon’s major offices are in Chicago (the corporate headquarters before the move to London in 2012) and New York City. Aon operates Toronto-based Aon Reed Stenhouse.

In addition to its retail and reinsurance brokerages, Aon also operates Aon Securities Inc., which underwrites insurance-linked securities, arranges for financing of insurers and provides advice on strategic and capital alternatives.

Aon also operates Aon Hewitt, whose services include benefits administration, global actuarial services and defined contribution consulting, among others.

In human resources solutions, Aon reported revenue of $931 million in the most recent quarter, down 5% from $979 million in Q2 2015.

Company-wide, Aon reported net income of $280 million on revenue of $2.77 billion in Q2 2016, compared to net income of $188 million on total revenue of $2.8 million in Q2 2015.

The 1% drop in revenue was “driven primarily by a 2% unfavorable impact from foreign currency translation and a 2% decrease in commissions and fees related to net divestitures, partially offset by 3% organic revenue growth,” Aon stated.

The 49% increase in Q2 net income was due in part to a 7% drop in operating revenues, “due primarily to a $176 million decrease in expense related to certain legacy litigation settlements in the prior year quarter, a $52 million decrease in expenses related to net divestitures, a $49 million favorable impact from foreign currency translation, and an $11 million decrease in intangible asset amortization, partially offset by $62 million of expense related to certain non-cash pension settlements and an increase in expense to support 3% organic revenue growth.”

In June of 2015, Aon had paid $150 million due under an agreement to settle a lawsuit, Aon reported July 31, 2015, in its Q2 2015 financial report. Aon had placed property insurance for Northrop Grumman Corp. In 2005, Northrop Grumman’s shipbuilding facilities were damaged during Hurricane Katrina, which inundated much of New Orleans at the time.

“Northrop’s excess insurance carrier denied coverage for storm surge damage pursuant to a flood exclusion in the excess policy. Northrop sued that carrier but subsequently settled its claims,” Aon reported in 2015. Then in 2011, Northrop filed a lawsuit in California against an Aon subsidiary claiming “negligence, breach of contract and negligent misrepresentation in connection with the placement of Northrop’s property insurance program for the period covering 2005 and subsequently amended the complaint to add additional claims for intentional misrepresentation and concealment,” Aon added in 2015. “Northrop sought compensatory damages of approximately $340 million, which included prejudgment interest and attorneys’ fees, and punitive damages that were a multiple of the compensatory damages sought.”

In May, 2015, Aon entered a settlement agreement, under which Aon paid $150 million to Huntington Ingalls Industries Inc., Northrop’s successor in the lawsuit.

On July 29, 2016, Aon reported that for the first 6 months of 2016, its risk solutions revenue was $3.719 billion, essentially unchanged from $3.728 billion in the first six months of 2015.

Total revenue for the six months ending June 20 was $5.558 billion in 2016, essentially unchanged from $5.652 billion in the first half of 2015. Net income was $607 million for the first six months of this year, up from $529 million during the first six months of 2015.