Aon Securitizes Limited Partnership Interests; Provides Update on Non-Operating Segment Revenue for Fourth Quarter 2001.

Business Editors

CHICAGO--(BUSINESS WIRE)--Jan. 16, 2002

First-Of-Its-Kind Transaction To Reduce Earnings Variability 

Aon Corporation (NYSE: AOC) today announced it has securitized $450 million of limited partnership investments and associated limited partnership commitments. These partnership interests were previously held by the Company's insurance underwriting subsidiaries, Combined Insurance Company of America and Virginia Surety Company, Inc., as part of their general account invested assets.

The transaction was the first-ever securitization of an existing portfolio of limited partnership interests that received stand-alone credit ratings from Standard & Poor's (S&P). Aon's subsidiary, Aon Capital Partners, Inc., acted as financial advisor.

Patrick G. Ryan, Aon's chairman and CEO, said, "We plan to spin-off our insurance underwriting businesses under Combined Specialty Corporation in Spring of this year, and we believe the securitization will be desirable to investors, rating agencies, and regulators. Importantly, the transaction enables a less variable investment income stream and increased liquidity. We will also retain a substantial interest in the economic potential of the investments, which we believe will be favorable over the long-term."

In the transaction, which closed on December 31, 2001, Aon's insurance underwriting subsidiaries sold 53 limited partnership interests, constituting the vast majority of the limited partnership portfolio, to a newly created entity, Private Equity Partnership Structures I, LLC ("PEPS I"). In return, Aon's insurance underwriting subsidiaries received approximately 40% of the $450 million net asset value in cash, and the remainder in securities issued by PEPS I.

"We have worked closely with S&P and investors in the transaction to structure a securitization that improves the overall risk-based capital position of our insurance underwriting subsidiaries and reduces the variability of investment income," said John Casey, president of Aon Capital Partners. "We are delighted S&P has rated the securities on a stand-alone basis. We believe this innovative securitization may similarly benefit other companies with limited partnership investments."

Soody Nelson, managing director and head of Standard & Poor's Structured Finance market value group, said, "This is the first securitization of an existing limited partnership portfolio to receive stand-alone ratings from S&P, and the majority of the securities under the transaction were rated."

Fourth Quarter 2001 Corporate and Other Segment Revenue

Aon's non-operating Corporate and Other segment revenue is comprised predominantly of investment income from the Company's equity portfolio that includes limited partnership investments, as well as directly-owned public and private securities. The Company expects Corporate and Other segment revenue will be negative by approximately $70 million for fourth quarter 2001, compared with a negative $6 million in fourth quarter 2000.

This decline in revenues is attributable mostly to reduced valuations in the limited partnership investments through year-end 2001. The closing date for the securitization was December 31, 2001, and the transaction itself will not have a material effect on the Company's 2001 fourth quarter results.

Starting in first quarter 2002, Corporate and Other segment revenue is expected to be less variable due to the securitization of nearly all limited partnership investments. The securities received under the transaction will be accounted for similar to other directly-held public and private securities, with temporary changes in the fair value of these securities recorded directly in stockholders' equity.

Aon plans to release full fourth quarter and year 2001 earnings on Tuesday, February 12, 2002 and host a webcast conference call at 10:00 a.m. CST the same day. Both will be available on Aon's web site at www.aon.com.

Aon Corporation (www.aon.com) is a holding company that is comprised of a family of insurance brokerage, consulting and insurance underwriting subsidiaries. Aon's common stock is listed on the New York, Chicago, Frankfurt and London stock exchanges.

This announcement is not an offer to sell securities or a solicitation of an offer to buy securities. The securities referred to in this release have been privately placed in a transaction exempt from the registration requirements of the federal securities laws.

This press release may contain certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated, depending on a variety of factors such as general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, changes in commercial property and casualty premium rates, the competitive environment, the actual cost of resolution of contingent liabilities, the final form of the business transformation plan, the ultimate cost and timing of the implementation thereof, the actual cost savings and other benefits resulting therefrom, whether the Company ultimately implements the proposed spin-off of its underwriting operations, and the timing and terms associated therewith, and events surrounding terrorists attacks of September 11, 2001, including the timing and resolution of related insurance and reinsurance issues. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, are contained in the Company's filings with the Securities and Exchange Commission.