Phil Zinkewicz analyzes Aon's development to date & finds it's very much a “family” affair.
Growth through acquisition, integration of services, and sensitivity to local cultures and business environments are at the core of the Chicago, Illinois-based Aon Corp.'s global expansion strategy and, to date, the strategy appears to be working. “We succeed by bringing together different companies and diverse people into a common culture dedicated to excellence,” says Patrick G. Ryan, chairman and ceo of Aon. “The name ‘Aon' is Gaelic and it connotes unity or ‘oneness' and signifies what we want our company to always be: united in purpose and action to achieve our mission of being the premier global provider of innovative insurance and consulting services.” Aon executives are fond of referring to the units that make up their various and sundry operations as “a family.” And what a family it is!
Today, Aon Corp. has within its structure four major entities addressing commercial business and three addressing consumer business. On the commercial business side, there is Aon Risk Services which provides insurance brokerage and risk management services; Aon Consulting Worldwide, which provides human resources consulting; Aon Services Group, which provides affinity programs and wholesale brokerage; and Aon Re, which provides reinsurance and specialty brokerage.
On the consumer side, Aon Corp. owns Combined Insurance Co., which offers accident, life and health products; Aon Warranty Group, for extended consumer warranty products; and Virginia Surety Co., that does extended warranties underwriting. But within these companies, there are various and sundry smaller satellites which have been adopted by “the family” over the years. Aon Corp. may have started out in humble beginnings, but its move to the top was rapid, beginning in the eighties.
Actually, Aon's history can be traced back to 1964, when Mr Ryan founded Ryan Insurance Group, pioneering the sale of insurance products and warranties sold through automobile dealerships. The group continued along that way until 1982, when two major developments occurred: Ryan Insurance Group merged with Combined International Corp., the company founded by W. Clement Stone for the direct selling of supplemental accident and health and life policies to individuals; and then The Ryan Group significantly expanded its brokerage and consulting services with the purchase of Rollins Burdick Hunter Co., a major US broker. In 1986, the company acquired Life Insurance Co. of Virginia, positioning itself as a major player in the life insurance field. Then, in 1987, Ryan Insurance Group was re-named “Aon.”
It was then that Aon began its decade-plus-long journey of global expansion, beginning with becoming a large minority shareholder in the Lloyd's brokerage firm, Nicholson Chamberlain Colls Ltd., a firm of which it now boasts 100% ownership. In 1996, Aon acquired Bain Hogg Group allowing it, Aon executives say, to become the “preeminent commercial broker in the United States and in Asia.” Global expansion continued with Aon completing a tender offer for Alexander & Alexander Services Inc. in 1997, purchasing The Minet Group, making it the leading wholesale broker worldwide, and acquiring Socarcan Inc., increasing Aon's Canadian brokerage and human resources consulting presence and making it the largest broker in Canada. Also in 1997, Aon's operations in Austria, Switzerland and Central Europe combined with Germany's premier broker to form Aon Jauch & Hubener.
The year 1998 was also a big year for Aon's global expansion. Gil y Carvajal, the foremost broker in Spain, joined Aon to become Aon Gil y Carvajal; France's premier brokerage firm, LeBlanc de Nicolay, joined Aon's French operations to form Aon Holdings France; and Aon acquired Grieg Insurance, Norway's largest broker.
Moreover, Aon's mergers and acquisitions (M&A) activity did not let up this year. In March, the firm acquired Resource Financial Corp., headquartered in Dallas, Tx. Through its principal subsidiaries, Resource Dealer Group and ReServe Corp., Resource Financial distributes and administers auto credit life insurance and extended warranty products to auto dealers in the US and Canada. In April, Aon acquired Presidium Holdings, Inc., a Sacramento-based third party insurance claims administration firm that specializes in all aspects of workers' compensation claims. Presidium is now part of Cambridge Integrated Services Group, a subsidiary of Aon, which also provides third party claims administration and loss cost management services to insurance carriers, self-insureds, reinsurers and managing general agents.
In May, Aon, Royal & SunAlliance Insurance Group plc, London, and ACE Bermuda Insurance Ltd., Hamilton, Bermuda, announced the formation of a new insurance and reinsurance entity, Intrepid Re Ltd., and its holding company parent, Intrepid Re Holdings Ltd. The new firm will provide alternative risk capacity. At the same time, Aon and Royal & SunAlliance, US, and ACE, US, entered into a strategic partnership through the creation of an insurance and reinsurance underwriting facility known as Custom Risk Solutions. Based in Princeton, N.J., the new facility will work with clients, agents and brokers in crafting custom-tailored insurance and reinsurance products in the area of alternative risk transfer.
Finally, in July, Aon Corp. acquired Nikols Group, a leading Italian insurance and reinsurance broker headquartered in Milan. The broker also has offices in Spain, Portugal, Switzerland, Luxembourg, Turkey, Greece, Argentina, Brazil, Chile Colombia and Uruguay. Aon's existing company in Italy will be merged with Nikols to form a new company named Aon Nikols.
One of the top movers and shakers in the Aon family is Michael D. O'Halleran, president and chief operating officer of Aon Corp. He also serves as president and chief operating officer for Aon Group Inc. A man boasting more than 26 years in the insurance and reinsurance industries, Mr O'Halleran joined Aon in 1987 after having served in executive positions with such firms as Wausau Insurance Cos., General Reinsurance and Alexander Re.
Mr O'Halleran says that Aon's whirlwind M&A activity during recent years has been and will continue to be consistent. “We have three main criteria,” he remarks. “There must be a strategic fit, a cultural fit and it must make financial sense. Having decided that a merger or acquisition makes strategic sense, we then look at the cultural aspects, which are of the utmost importance. We respect the cultural environment of the company we're working with and only ask that they work within Aon's global network approach.”
Another element to be considered when a merger takes place, according to Mr O'Halleran, is who will call the shots. Is it in Aon's M&A strategy to bring in their own top people or work with current talent? Mr O'Halleran says that Aon has no prejudice either way. “The idea is to make a determination as to who are the best people to keep or put into decision-making positions. We want the best leaders, the best technical people.”
For Aon it appears that this sense of “cultural fit” in M&A deserves more than just lip service. “It is important that our employees worldwide share common values,” says Mr O'Halleran. “An important milestone in 1998 was the establishment of Aon University. This new unit focuses on training and development as well as helping employees build an even greater sense of unity and they learn more about our company and its culture.”
Also, according to Mr O'Halleran, the Aon culture of interdependence promotes cross-fertilization between Aon units for the benefit of clients. For example, Combined Insurance is working with Aon Risk Services to deliver supplemental health and accident coverages to employees of corporate clients of Aon Risk Services. Aon Re provides reinsurance support for Aon's wholesale units. Aon Warranty is expanding its market by distributing its products through Aon Risk Services. “We are combining the talents of our health and welfare consultants with the skills of our workers' compensation specialists to help our clients control their medical and disability costs across their organizations,” says Mr O'Halloran. “We believe our culture differentiates us from our competitors, as does our one-third employee stock ownership. Both help us to achieve new levels of growth and profitability year after year.”
Aon's earnings picture seems to reflect this. In 1998, total revenues amounted to $6.5 billion, an increase of 13% over 1997. This increase was largely attributable to growth in brokerage commissions and fees resulting from business combination activities. Brokerage commissions and fees increased 16% to $4.2 billion. US revenues increased 9% in 1998, compared to 1997, primarily due to organic growth. European revenues increased 27% in 1998 to $2 billion, primarily due to acquisitions and internal growth. Approximately 43% of 1998 income before income tax was derived from operations outside the US.
“Overseas investment is definitely part of our global expansion strategy,” says Mr O'Halleran. “We have to have scale all over the world. We are now number one in Germany and Spain. We want to be either number one or number two in all parts of the world's economies.” And dollars spent in that expansion demonstrate that goal. In 1998, Aon invested approximately $374 million in business combinations in its brokerage and consulting businesses. These business combinations were financed primarily by bank loans, internal funds and the reissuance of common stocks from treasury. A year earlier, Aon invested approximately $1.6 billion in business combinations and its brokerage activities.
So the strategy for growth is apparent, but what about the future? Mr O'Halleran says emphatically that Aon believes the insurance industry is the “foundation of our business,” and that it will continue to be. He admits, however, that the insurance industry is becoming broader every day. “The competitive landscape is constantly changing. New entrants include investment banks, accounting firms and other consultants, most with a core business focus that differs from ours. We recognize that certain of the world's largest insurance companies have demonstrated a willingness to compete head to head not only with retail carriers, but with intermediaries. We are prepared to capitalize on this changing environment because of our vision, our structure, and our unique execution capabilities.”Moreover, Mr O'Halleran says that Aon recognizes that its clients are demanding a “broader menu” than in the past in terms of financial services. Commenting on H.R. 10, the current bill before Congress intended to break down the barriers in the US between banks, insurers and securities firms, Mr O'Halleran says: “My view of H.R. 10 is not ‘whether' it will happen but that it certainly ‘will' happen. We are becoming involved in capital markets because that's what our clients are looking for and it is our clients' vision that we wish to satisfy.
“To this extent, we are hiring experts from the investment and accounting arenas,” he adds. Will this mean more M&A in areas of the financial world outside of insurance? Mr O'Halleran says that Aon is always looking at M&A opportunities provided they fit the three criteria: a strategic fit, a cultural fit and good financial sense.
Phil Zinkewicz is a freelance journalist, specializing in covering the insurance industry. He is a regular contributor to Global Reinsurance.