Aon CEO: Growth to Continue Despite Uncertain 2009 Economic Climate

CHICAGO, Jan 05, 2009 (A. M. Best via COMTEX) -- AIG | Quote | Chart | News | PowerRating -- Aon will continue expanding its broad consulting business into the next decade, but the firm's risk and brokerage franchises will remain the "powerful foundation" of Aon as it grows, Chief Executive Officer Greg Case said in an interview with BestWire.

Case said he was unsure how the "unprecedented" global economic situation will affect insurance rates in 2009. He also noted American International Group should remain an important Aon partner in the years ahead, and that some of the criticism of AIG actions in fighting to retain business is unwarranted.

Case said the essential elements of Aon's business will not change, even as it expands and adapts to worldwide economic problems and opportunities.

"The absolute, powerful foundation of Aon is very much rooted in, grounded in, risk ? risk understanding, risk management, insurance brokerage," said Case. "That foundation will continue to be absolutely important and primary to all of Aon's efforts. In addition to that ? not as much a substitute for, but in addition to, that ? we will try very hard to continue to broaden our ability to advise clients. "

As part of that effort, over the past 12 months Aon has been shedding underwriting and personal lines businesses, and made a huge investment in reinsurance brokering ? acquiring Benfield Group Ltd. and Gallagher Re in 2008. Case also has been significantly reorganizing the company (BestWire, Dec. 2, 2008).

"We've repositioned Aon to focus on what we believe are two of the most important issues in the global economy today, risk and human capital ... We believe that's a tremendous space in the global economy, with great opportunity," Case said.

Included in that focus is the ability to provide clients with expertise in "capital management and capital leadership," but Case suggested there is a limit to how far away from its core business Aon will move.

"We think there's just so much opportunity in these two arenas that we don't need to go much more beyond that," he said.

As part of the $1.43 billion Benfield acquisition, Aon announced between 500 and 700 positions will be eliminated in the combined reinsurance operation. Case said that "obviously there is some overlap" in combining the units, but that the effort will focus on "costs other than salary and benefits, so as to minimize the impact on our colleagues."

"Any decisions made regarding colleagues will be based strictly on a meritocracy across the combined organization," he said.

In 2009, Case said, Aon is likely to add capabilities that are "much smaller, add-on acquisitions."

"The pace will wind up being what it winds up being," he said. "We're not so concerned about that."

Case said the insurance industry worldwide is facing a combination of the global economic downturn and "tremendous pressure, not just on the liability side of the balance sheet but also on the asset side, the investment side, of the balance sheet."

"In talking to clients around the globe, hearing words like, 'unprecedented,' 'not seen before,' 'never in my lifetime,' are actually the norm right now, unfortunately," he said.

Case said "capital in the industry continues to be under tremendous pressure," but uniquely "not from the wind blowing and the earth shaking, but rather on the asset side of the balance sheet."

"The overall global capital pool supporting insurance is down significantly, and that's what's putting pressure on the overall system," he said. "We'll see how rates progress as we finish the year and get into 2009."

Case said that, as have other major intermediaries, Aon has incurred significant costs in dealing with client questions and issues in the wake of AIG's near bankruptcy and federal rescue in the past few months (BestWire, Dec. 24, 2008).

"It is a significant amount of incremental work, but we believe we've go to do it," he said.

He said, historically, AIG has been "in the lower quadrille" of insurers in terms of compensating intermediaries, and that Aon and AIG are negotiating about compensation issues.

"How that evolves is going to be their challenge," Case said. "What we're happy about is that we're going to be able to find solutions for clients. That's what Aon's role is. Hopefully that will include AIG."

However, Case said his intent is to continue the Aon-AIG relationship.

"Our goal and objective is to get the best value for price for our clients as they consider their risk needs, and AIG continues to be a very important source for that," he said.

Case questioned complaints from the leadership of some competing insurers that AIG is irresponsibly cutting rates to retain business.

"There are lots of motivations out there," he said. "In the context of AIG, one would suspect that they would want to earn a return on capital over time, particularly in the current environment, which would make it very difficult to universally do what (they are) describing."

He said that "for sure" there are situations in which AIG is severely cutting rates to hold onto business, but "there are also situations where others are doing the same."

Aon is the largest broker in the world based on 2007 brokerage revenue, according to the Best's Review annual ranking of global brokers.

(By Alyn Ackermann, senior associate editor, BestWeek: Alyn.Ackermann@ambest.com)

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