aon transcript q4 08

F I N A L T R A N S C R I P T

AOC - Q4 2008 Aon Corporation Earnings Conference Call

Event Date/Time: Feb. 06. 2009 / 8:30AM ET

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C O R P O R A T E P A R T I C I P A N T S

Greg CaseAon Corporation - President, CEO

Christa DaviesAon Corporation - EVP, CFO

C O N F E R E N C E C A L L P A R T I C I P A N T S

Keith WalshCitigroup - Analyst

Dan FarrellFox-Pitt Kelton - Analyst

Brian MeredithUBS - Analyst

Jay CohenBanc of America Merrill Lynch - Analyst

Meyer ShieldsStifel Nicolaus - Analyst

Jay GelbBarclays Capital - Analyst

David SmallJPMorgan - Analyst

Mark WayneWilliam Blair - Analyst

Keith AlexanderJPMorgan - Analyst

Dan JohnsonCitadel - Analyst

Hani SabbaghViking - Analyst

P R E S E N T A T I O N

Operator

Good morning, ladies and gentlemen. Thank you for holding. Welcome to the Aon corporations fourth quarter and full year2008 earnings conference call. At this time, all parties will be in listen only mode until the question and answer portion of today'scall. I would also like to remind all parties that this call is being recorded. If anyone has an objection you may disconnect yourline at this time. It's important to note that some of today's comments may constitute certain statements that are forward-lookingin nature as defined by the private securities reform act of 1995. Such statements are subject to certain risks and uncertaintiesthat could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factorsthat could cause such differences are described in the press release covering our fourth quarter results as well as having beenposted on our website.

Now it's my pleasure to turn the call over to Mr. Greg Case, President and Chief Executive Officer of Aon Corporation. Sir, pleasego ahead.

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Feb. 06. 2009 / 8:30AM, AOC - Q4 2008 Aon Corporation Earnings Conference Call



Greg Case - Aon Corporation - President, CEO

Thank you, and good morning, everyone. Welcome to our fourth quarter 2008 conference call. Joining me here today is ourCFO, Christa Davies. Just as we've done in previous calls I'd like to cover three areas before turning the call over to christa forfurther financial review. First area is our performance against key commitments to shareholders. The second is our continuedareas of investment across Aon, and the third is our overall organic growth performance.

Start by saying that from our team's perspective, the results of the fourth quarter represent another solid quarter of continuedprogress and momentum and a strong finish to the year. Irrespective of marketplace or economic conditions, we continue toexecute on our plans to substantially strengthen our firm for long term growth and shareholder value creation. On the firsttopic, our performance versus commitments, as we do each quarter, we measure our performance against three metrics wecommitted to our shareholders: Growing organically, expanding margins, increasing earnings per share. Our operating plansare focused on achieving all three outcomes over the course of each year, not necessarily every quarter. Further, we said wewould not sacrifice one of these metrics for another.

As I've already commented, our results reflect a quarter of continued progress against our goals. Organic revenue growth was2% overall, with growth across all brokerage businesses, and our consulting services business. Adjusted pre-tax margin increased120 basis points and EPS on an adjusted basis increased 19%. When you look at our results across the organization, and comparedto the industry, they represent meaningful progress from Aon colleagues who are dedicated to building our firm while deliveringindustry leading capabilities to support our clients during an unprecedented time in the global economy; however, we're notimmune to the effects of the current turmoil, as we are a global firm with operations in more than 120 countries.

Our team is making tough decisions on multiple fronts to insure that we drive performance and continue to deliver results forour shareholders. Christa will talk more about that in a bit but let me be clear. We're also faced with a time when our clientsneed our help more than ever. Events over the last quarter alone continue to reinforce our conviction that the cost of volatilityis increasing and demand for the advice and service we provide is expanding.

On the second topic, further areas of investment, as commented, we will continue to make significant investments to supportour clients and build on our industry leading capabilities. A few examples during the quarter include: In reinsurance, we wantto officially welcome Graham Chilton and all colleagues across Benfield. During the quarter we work closely together to createa reinsurance franchise of unique capability and skill that is unmatched in the industry. The reaction from clients and colleaguesaround the world has been exceptionally positive and our development plans are well under way. We feel very fortunate tohave been able to bring together and create this level of unmatched capability at a time of arguably highest need ever for ourclients. It's an exciting opportunity for all involved. In retail brokerage, we continue to invest in and expand our affinity businessin Latin America while adding key talent in emerging markets such as China, India and the Middle East and areas that continueto deliver strong double digit growth.

In consulting, we added key leadership in our benefits business globally. In emerging markets and Asia Pacific and in our USleadership team. These categories highlight just a few of the investments we're making to further strengthen our capabilitiesand better serve our clients. One key point that we covered in our last call, as investors, it's important you understand theseinvestments are being made in the context of our overall margin improvement efforts. As we continue to build our firm, we'reremoving inefficiency and cost from non-client facing areas. Areas such as finance, HR, IT, to fund investment in client facingcapability and simultaneously improving margin over the course of the year. We can do this in ways other firms may not beable to given how we came together over the last 20 years. Christa will talk about our efforts in this area as we increased ouroverall cost savings committment by $70 million in the quarter. The key take away here is that we continue to make meaningfulinvestment in our firm and remain excited about how our fundamental client serving capability continues to strengthen aroundthe world.







And finally, on the third topic of growth. I will highlight organic growth for the quarter across each of our primary businesssegments, starting with brokerage. Overall brokerage growth for the segment was 2% with positive growth across all businesses.This marks the 13th consecutive quarter of organic growth despite weak economic conditions and a soft market globally. Forthe quarter, pricing was down on average low single digits globally in both retail and reinsurance, representing a modest changefrom the mid single digit declines on average globally in the prior quarter. These results reflect solid management of our renewalbook with retention rates at 90% or better on average, highlighting strong client satisfaction. And we continue to drive newbusiness from the investments we're making in many areas such as facultative reinsurance and our emerging markets. Withstrong double digit growth in several areas across the firm including Latin America, China, and the Middle East/Africa regions.

Turning to the individual regions across retail brokerage and reinsurance, on retail, in the americas, organic revenue increased3%. This was driven by management of our renewal book in the US retail segment and continued strength in Latin America.These results are especially remarkable given soft market conditions and the continued slowdown in both our constructionand private equity M & a sectors. Really solid work here by our colleagues that were focused on closing opportunities withexisting clients in a difficult economic market, and the results highlight the work put in place over the last year in our revenueengine effort to drive improved performance through pipeline management, productivity improvements and client service.

Now turning to Europe, Middle East and Africa. Organic growth increased 1% including the impacts of adjustments that weremade during the quarter to conform revenue recognition to Aon's overall accounting policies, excluding this impact, organicrevenue would have increased 3%. These results reflect strong retention rates, above 90% on average driven by our numberone position in most markets. Pricing was relatively flat similar to the prior quarter, and we achieved double digit growth inemerging markets such as Africa and the Middle East and we saw solid growth in continental Europe as we manage against aweakening economy. The results were driven by benefits from deployment of our revenue engine effort and local marketingcampaigns and we were able to achieve these results while we continue to invest across the region and the emerging markets.

Turning to Asia Pacific, organic growth was 3%, with significant growth in markets such as China, Hong kong, New Zealand, aswell as positive organic growth in Australia. Results continue to be affected by weakness in a specific part of Japan aroundcertain regulatory changes, but on this topic, we have a set of initiatives in place and closure of the issue is nearly complete.But overall, a solid platform of leadership positions across Australia, New Zealand, China and across the region as we continueto grow in this important area of the world. In the UK, organic growth was 1%. Retention rates held firm while pricing was downlow single digits. The result was really driven by growth in captives and our network business partially offset by a modest declinein our UK retail business.

Overall as you take a step back and look across retail brokerage, we feel very good about our progress. I'd like to remind ourinvestors that this call really marks the one year anniversary of the formation of ARS, our global operating committee under theleadership of Steve McGill and Ted Devine that coordinates our entire global retail business, over $60 billion in premium flowand this 25 person operating team has performed extremely well, as we're beginning to capture the full benefits of being aglobal firm for our clients and our shareholders. For me, it's been very exciting to watch our colleagues' progress. Not just whatwas accomplished in 2008 but for what we set the stage to accomplish in 2009 and the coming years.

Now turning to reinsurance. Organic growth was 2% for the quarter, driven by growth in facultative placements and new winsin treaty. To date, much of that progress has been offset by higher retentions and soft pricing but overall continued solid resultsthat lead the industry. Our Aon Benfield colleagues provide our clients with a unique and integrated solution around capitalmanagement, number one in treaty, number one in facultative, and the number one broker in capital markets. We stand in aprivileged position with more capability to help our clients at a time of highest client need.

Now turning to our consulting segment. Overall organic growth was 3%. Our team delivered 4% growth in our core servicesbusiness despite weak economic trends. And this growth was driven by solid results across most practices including retirement,health and benefits and human capital, and it really highlights the strength and diversity of our portfolio both from a productand geographic standpoint. in outsourcing, we saw modest growth in our benefits outsourcing business, offset by a decline







related to previously announced termination of a significant outsourcing contract, but overall, another solid quarter of leadershipin progress in the consulting group.

In summary, our team feels very good about the results for the fourth quarter and the progress we made as a team against ourkey commitments in 2008. For the year, 2008, organic growth was 2% in a very challenging market environment where pricingwas down 5 to 15% on average. Pre-tax margin for 2008 on adjusted basis increased 100 basis points to 15.9% with marginimprovement in each segment, and EPS for the year on an adjusted basis increased 24% to $2.90. As we look now forward to2009, we think about two distinct parts. One is the core business performance, and the second is the external market headwindsthat we're facing. In terms of the core business, we feel good about our industry leading position and are focused on deliveringon each of our key commitments to shareholders, while supporting our clients at a time when both their risk and cost of volatilityare increasing; however, as a global firm, operating over 120 countries, we're not immune to the external market challengesthat not only impact the global economy such as declines in GDP and unemployment but also in three specific areas.

The first is around pension expense, given the changes in asset values and discount rates. The second is around investmentincome, given the decline in interest rates, and the third is around foreign currency translation. I'm now pleased to turn the callover to Christa who will discuss these specific impacts in greater detail as well as provide further financial review. Christa?

Christa Davies - Aon Corporation - EVP, CFO

Thanks, Greg. Good morning, everyone. As Greg noted, our fourth quarter results reflect a strong finish to the year and continuedprogress against our initiatives. We delivered meaningful improvement across our three key financial metrics and took furthersteps to streamline our product portfolio around our core businesses, while reducing capital requirements and improving thefinancial flexibility of our balance sheet. Our results this quarter are complicated by the merger of Benfield, the divestitures ofthe U.S. efforts of Cananwill, the remaining property casualty run-off operations as well as the sale of the automobile insurancespecialist that was completed subsequent to the fourth quarter.

During the fourth quarter we completed the merger of Benfield for total consideration of $1.43 billion, a reduction of $320million before transaction costs of $46 million. As Greg discussed, the merger of Benfield creates an industry leading reinsurancefranchise with unparalleled resources and capabilities. The Management team in reinsurance is fully in place and our restructuringprogram is well under way. I'll discuss more about the program shortly. Additionally, during the fourth quarter we entered anagreement to sell the US assets of our Cananwill premium financing business and close that transaction earlier this week. Thisagreement does not include the international assets of Cananwill; however, we will continue to evaluate strategic alternativesthrough the remaining portion of this business.

Further, we entered an agreement to dispose of the remaining property casualty run-off insurance operations. Lastly, andsubsequent to the close of the quarter, we completed the sale of Automobile Insurance Specialists, receiving $120 million incash at closing and an additional potential consideration of $34.7 million over the next two years. These actions represent thefinal significant steps in transitioning from an insurance company to a professional services firm, fully focused on risk adviceand human capital solutions. It has also built a balance sheet that requires less capital committment and greater financialflexibility to drive long term shareholder value.

Turning now to continuing operations. EPS was $0.43 a share for the fourth quarter, down 26% from the prior year quarter.There were several items that we have highlighted which we think are important to understand in assessing core performance.First, restructuring charges in the fourth quarter were $87 million or $0.22 per share. Second, we incurred $46 million or $0.11per share of hedging and transactional cost related to the merger of Benfield. Third, we recorded $11 million or $0.03 per sharefor the previously disclosed review and compliance activities related to the foreign corrupt practice act. Lastly, we incurred $8million or $0.02 per share of curtailment costs related to freezing the US non-qualified pension plan. Consequently, we wouldview the core EPS performance of our continuing operations of $0.81 per share, up 19% over the prior year quarter.







Also included in the results, foreign currency translation had an unfavorable impact of approximately $0.01 per share due tofluctuations in the U.S. dollar against most major currencies. Before turning to the business segment, let me spend a momenton each of the restructuring programs, key initiatives that were enabling concurrent funding of investments and deliveringmeaningful margin expansions. The 2005 program is now complete and we believe that we've achieved our target of $270million in cumulative annual savings in 2008. Going forward. we will only highlight the 2007 and Aon Benfield restructuringprogram.

With respect to the 2007 restructuring program, we incurred $86 million of charges and achieved approximately $32 million ofsavings in the fourth quarter. As we manage against challenges in the broader global economy we are making tough decisionsaround expenses that will further streamline our cost structure globally. As a result of these actions, we expect to incur anadditional hundred million of costs to achieve an additional $70 million of annualized savings. The majority will be achieved inthe brokerage segment through workforce reductions. In total, the 2007 restructuring program is now anticipated to incurapproximately $550 million of total costs to achieve $370 million of annualized savings in 2010. We have only just began torealize the benefits of this program with $78 million or roughly 21% of the total annualized savings target achieved under thisprogram to date.

Regarding the Aon Benfield restructuring program, there were no restructuring charges or savings associated with the programthat we announced during the quarter; however, our integration plans are in place and we are now beginning to implementprojects related to the program. We expect the program to result in approximately $185 million of costs, of which a portion ofthese will be allocated to purchase accounting, while delivering $122 million of cumulative annual savings in 2011.

Now let me talk about each of the segments. In our brokerage segment, adjusted brokerage pre-tax income increased 5% or$14 million to $314 million and adjusted pre-tax margin increased 150 basis points to 19.9%. The benefits of the 2007 restructuringprogram continue to offset the inflationary portion expenses in our business, investments we're making additional talent andcapabilities and a $7 million or 14% decline in investment income. The operating results of Benfield for the month of Decemberwere included in our fourth quarter results. Results included $38 million of revenue and a $2 million pre-tax loss which had anunfavorable impact of 60 basis points of pre-tax margin and a $0.01 unfavorable impact on EPS. Although the month of Decemberis a seasonally weak period for Benfield, we believe the business is fairly similar to Aon's reinsurance seasonality when factoringin our revenue recognition pattern.

We realize there are a lot of moving parts here for you to understand. Overall, we remain pleased with our core operationalperformance and are fully on track with our long term targets of achieving a 20%- plus margin in brokerage, despite challengeswe face in the broader global economy. I would point out that adjusted margin for the full year increased 70 basis points, evenas we are now just beginning to ramp up savings related to the 2007 restructuring program.

Moving to the consulting segment. Adjusted pre-tax income increased 2% to $65 million, and the adjusted pre-tax marginincreased 180 basis points to 19% despite timing issues related to our compensation group that we discussed in the thirdquarter. Overall, a solid performance as benefits related to the 2007 restructuring program offset the inflationary put on expensesand investments we're making in the business. I would point out for the year, adjusted margins in consulting increased 220basis points to 17%. We believe these margins are industry leading, and would anticipate that margins in 2009 will be slightlylower than 2008 on an adjusted basis due to the headwinds we face with the global economy.

Now let me discuss a few specific items within the unallocated section. Unallocated investment income decreased $5 millionin the quarter due primarily to the timing of distributions in certain private equity holdings. Unallocated expenses increased$35 million from the prior year quarter including $44 million of hedging costs that were noted earlier as part of the Benfieldmerger. Interest expense declined $6 million from the prior year quarter due to fluctuations in foreign currency and the declinein average interest rates on outstanding debts. We would expect the unallocated section to be a loss of approximately $55million per quarter, including $5 million to $10 million of revenue and $60 million to $65 million of expense, essentially in linewith the fourth quarter of 2008. For Aon overall, we continue to invest in building our capabilities to drive future revenue growthwhile managing expenses and concurrently driving margin expansion, even as we face challenges in the broader economy. As







Greg said, we're committed to margin improvement over the course of each year and I would note the total adjusted pre-taxmargin for the year is up 100 basis points. Lastly the effective tax rate on continuing operations was 28.9% in the quarter. For2009, we anticipate that the effective tax rate of continuing operations will be 29%.

Now let me turn to capital management. Cash and short-term investments were approximately $1.2 billion at December 31,compared to $2.4 billion at September 30. Cash and short-term investments declined primarily due to $1.4 billion of cashconsideration paid to merge with Benfield during the quarter, partially offset by cash flow from operations. Total debt outstandingat December 31 was 2 billion and debt-to-capital was 27.1%, reflecting a solid balance sheet with significant financial flexibility.The next maturity date for outstanding debt is the Euro revolving credit facility that expires in October 2010. As we have discussedbefore, capital allocation decisions are driven by risk adjusted return on capital process, so potential uses of capital that mayinclude share repurchase, which has been our primary use of capital, mergers such as Benfield, organic investments, dividends,and pension commitments.

Moving to the outlook for 2009. As Greg mentioned, we look at 2009 in two distinct pieces: Core business performance andexternal market headwinds. We believe that the core business performance of Aon continues to improve but with respect tothe external headwinds we are faced with three specific forces that will likely impact 2009. I will outline the details for the threepotential headwinds that Greg outlined: Pension expense, investment income, and foreign currency translation.

Starting with pensions. I wanted to provide an update as of the 12-31-2008 measurement date. Unfunded status: At the end of2007, the unfunded status of the combined pension plans was $983 million. Weak asset performance in 2008, combined witha decline in discount rates in the U.S. and updated mortality tables have increased the overall unfunded status of the pensionplan to $1.5 billion. Pension contributions: We contributed approximately $177 million in 2008 and expect this number toincrease to approximately $242 million in 2009, depending on management discretion to contribute additional cash or non-cashfunds to the pension plans or any other factors that could influence potential contributions. Pension expense: Pension expensefor 2008 was $72 million. As a result of the performance of the pension plans in 2008, and changes in actuarial assumptions,pension expense would have increased to $230 million in 2009, an increase of $158 million in pension expense versus 2008.

In line with our philosophy to move compensation from fixed cost to performance based payments, we made the decision tofreeze the U.S. defined benefit plan accruals as announced earlier this week. This decision has resulted in pension expense for2009 of $115 million, an increase of $43 million versus 2008. You should expect that we're doing everything possible to managepension expense and the volatility overall in our pension plans. Freezing of the US plan will partially help manage future volatilityas participants will no longer be accruing additional years of service as well as deviation from expected returns and assets andliabilities will now be amortized over a longer period. During the quarter, we incurred $8 million of curtailment costs associatedwith freezing the US non-qualified pension plan that were adjusted for the press release schedules.

Turning to the second potential headwind, investment income. Investment income is interest earned primarily on fiduciaryfunds as well as cash and short-term investments. At 12-31-2008, we held approximately $3.2 billion of fiduciary funds and 1.2billion of cash and short-term investments as disclosed on our balance sheet with approximately 45% held in U.S. dollars and55% in other currencies. As a result of declines in short-term interest rates globally, we would anticipate incremental pressureon investment income in 2009. Given the uncertainty in the market, it is difficult to predict interest rates. We can explain thesensitivity as 100 basis point decrease in interest rates globally would have a $44 million negative impact on results. Similarly,a 100 basis point increase in interest rates globally would have a $44 million positive impact on results.

Turning to the third potential headwind of foreign currency. We're a global Company with local revenue and local expense inmost countries. Our four biggest exposures in order of sensitivity are the Euro, Pound, Australian Dollar and Canadian Dollar.As slightly more than half our revenue in PTI is non-U.S. dollar de nominated we generally prefer a weaker dollar versus theEuro, Australian Dollar and Canadian Dollar with the Euro as our largest exposure as approximately 40% of PTI. Offsetting ournormal translation exposure is our transactional exposure between the U.S. dollar revenue and Sterling expense, in which casewe generally prefer a stronger dollar versus the Sterling, which helps to reduce overall sensitivity to foreign currency fluctuation.We saw this relationship occur during Q4.







We hope that this update was helpful and we want to be clear that resulting uncertainties will not deter us from reaching our20%-plus target margin and brokerage. In summary, risk and the cost of volatility increasing globally and we continue tostreamline our assets around two of the most critical issues facing clients today: risk advice and human capital management.We continue to drive solid results against our three key financial metrics in a challenging market, while accelerating the benefitsof our cost saving programs. Our balance sheet is strong with excellent liquidity as we continue to drive value creation throughimproved business results and effective capital management. With that, I will turn the call back over to the Operator and wewould be delighted to take your questions.

Q U E S T I O N S A N D A N S W E R S

Operator

(Operator Instructions). The first question is from the line of Keith Walsh with Citi. Please go ahead.

Keith Walsh - Citigroup - Analyst

Good morning, everybody.


Good morning, Keith.


First for Greg, if we just think about revenues, thinking about for /09, looking at new business here, first if you could talk aboutare you still a marker share taker? I know in the past you said on your income statement you're seeing business at a two-to-onerate coming on versus leaving. Secondly, thinking about the investments you guys have been making for several years now, Ithink we're starting to see a real divergence in your results versus some of the others. Maybe if you can quantify those investmentsin the people you brought to Aon, what they've done on the revenue side, and then just the bottom line for '09. In this environmentassuming more deterioration in the economy, can you grow your top line and then I have a follow-up for Christa. Thanks.


Thanks, Keith. I appreciate it. I will try to get those. Start with your question around what's happening. I think we are really morein the share area and balance and trade, et cetera. I'll tell you what we've seen. We continue to be very fortunate and our winrate that we continue to track both in the RFP scenario as well as in situations where we initiate, and what I'm very pleased tosay is as we brought together global ARS and really thought about how we bring global capability of Aon into our clients in avery intimate local way, we are increasing our ability to get to clients, anticipate needs and address needs before their RFPs andthat showed up very clearly in the fourth quarter where on the renewal side we were able to do a number of things from arenewal standpoint that were actually quite compelling and showed up in the results.

I would tell you in terms offer just movement of business, it's interesting to watch the fourth quarter and 2008 versus what'shappening in 2009. The fourth quarter 2008 was very much like for us the post-katrina in which you saw clients were focusednot on their brokers as they should be. They are focused on their situations and their insurers so there was less movement inthe fourth quarter as they focused on their insurers and now much more movement in the first quarter as they focus on solutions,and so we're seeing a bit of a flight to quality or a flight to capability if you will in terms of just clients wanting to make sure asthe tough issues they face today get resolved they need the best capability in the world to do that and we've been very fortunate







in that context. We still continue to win at a very good clip and maintain the rates we've had in previous years and so from anew business standpoint and retention standpoint we're performing very well, and colleagues have really done a tremendousjob as we've rolled out the revenue engine in the US as well as rolled it out across Europe and the rest of the world, so does thatanswer your question on the first side in terms of balance the trade and market share?


Yeah, it does and just like about the investments how can we tell if these investments are paying off? What's the return you'regetting? Are you gaining share from these people you're bringing over and just about the top line for '09?


So I would take a step back and say from an investment standpoint, what we have been, and we said this before on the call.We've been incredibly fortunate in colleagues who have elected to come and be part of Aon and help us build our firm, andthat's true across every aspect of our business, it's true in retail, it's true in reinsurance and certainly true in consulting and it'sessentially what we're doing to build our firm. Our view is that build approach has served us extremely well and will with continueto serve us extremely well and we want to, as the economy changes over the course of the next few years emerge even strongerin terms of building the fundamental capability of Aon. What I would tell you is we have not historically broken out in detailkind of here is who we hired and here is what their impact is. What you can reflect on though Keith is really just look at ourresults versus peers and think about what's going on in the overall market and from a margin return standpoint what I wouldsay is look, take a step back. Look at us from '05 to '08 from a margin standpoint on the brokerage side. From '05 to '08 ourbrokerage margin increased 320, 330 basis points. It's a flat increase from 15.4 to 18.6 or 18.7, something like that, and on theconsulting side we've been able to increase almost 800 basis points in terms of margin from 9 to close to 17 as Christa describedin her comments.

So if you step back for us, the acid test is not just the incremental kind of did I get a return on somebody I brought in but arewe able to translate that into fundamental improvement in the Income Statement over the course of the long term period oftime and we believe we've been able to do that and demonstrate that very clearly and I'd also say as you're well aware thatthese investment returns in talent take years to develop. This isn't a one year cycle. It's really more like a two or three year cycleso these things are beginning to come on line for us in a very strong way and that's actually benefiting us, but from a pureinvestor standpoint we encourage you to look to exactly what we look to which is are we improving margin yes or no and arewe able to grow top line in the context of that and we believe we've been able to do that, so that we hope is your ultimate acidtest.

In terms of 2009, we like everyone are facing the impact on the global economy but what I would tell you is look, what'shappening in the global economy for Aon really reflects what's happening with our clients. There is just a tremendous amountof uncertainty out there. We see our clients struggling and suffering and we want to help them. That's our view is we're goingto do everything we can from a client service standpoint to help our client succeed and in the context of that, Aon will do verywell, and given the breadth and we're very unique position we have a very privileged franchise with incredible geographicbreadth, product breadth, capability, and we're well served to help our clients in the short-term and help Aon in the short-termand long term, some of the negative impacts that we're seeing, clients are thinking about increased retentions, thinking aboutways to reduce cost, they are looking, we're observing specific sectors that are facing tremendous challenges around construction,M&A, PE, et cetera, a lot of our consumer businesses are going through challenges as well and the global downturn may welldrive less activity in the marketplace, and that could have an impact on our business, but on the other hand, Keith if you takea step back, what we see happening is the fundamental risk levels in the economy today are going up, and the cost of volatilityis just flat outgoing up, and in the context of that, the value for great risk insight and capability is increasing tremendously, andwe're being asked by clients particularly in a lot of non-clients that are under stress to help them solve problems, to help themunderstand and get out of difficult situations to get placements done they wouldn't have been otherwise able to do, to resolveconflicts that between insurers and them that they haven't been able to get accomplished so from our standpoint, we see lots







of opportunity, and as we continue to come on line with the overall ARS group and the way we have and with what we've gotin reinsurance and consulting, our team continues to believe that the opportunity is quite substantial for us and which is whyas Christa described, our commitments to our shareholders around growing organically and improving margin and increasingEPS remain intact.


That's great and one quick one for Christa. You're approaching for first anniversary as CFO. Maybe if you could just talk aboutwhat you've accomplished versus the initial game plan and has that opportunity expanded and how has it changed theopportunity over the last year. Thanks.


Yeah, it's obviously been an incredible year of learning for me and the team here is just fabulous to work with, so it's been justa terrific first year. I think the things that we've really tried to sort of achieve in finance are around sort of three goals we set atthe beginning of the year. The first one is really improving the control and compliance environment and we spent a lot of timeover the past 12 months doing that. The second one is improving the quality and timeliness of management information andthe third is really improving the efficiency of how the operation or the finance organization runs globally, and we're makinggood progress in all three of those and you can see obviously the efficiency stuff come out in the restructuring plan. You cansee the improvement in controls come out in the compliance sort of changes we're making around EMEA and conformancewith our global accounting policy and we've been doing that throughout the year actually, and the quality and timeliness ofmanagement information is really sort of helping business leaders and CEOs make better decisions faster and the last thing I'dsay obviously and you've seen this in our portfolio changes throughout the year is driving through the focus in return on capital,as the method of making all decisions for the Company whether that's acquisitions or pensions or organic investment ordividends or whatever it is, and implementing that return on capital discipline through the business has been a very big sortof drive and obviously it's resulted in substantial portfolio change particularly during 2008. Where we're now in a very fortunateposition where we've completely exited the insurance underwriting business and have a very clean balance sheet with enormousfinancial flexibility.


That's great. Thanks a lot guys.

Operator

Our next question is from the line of Dan Farrell with Fox-Pitt. Please go ahead.

Dan Farrell - Fox-Pitt Kelton - Analyst

Good morning.


Hi, Dan.








Hi. I thought your Americas growth was particularly impressive given the current environment. Could you just give a little morecolor on some of the drivers of the growth there, maybe talk a little bit about how large sort of Fortune 500 businesses holdingup versus middle market, maybe you could give some color on line of business or also geography, Latin America versus NorthAmerica and then also, could you just refresh us on how much cash will be coming in from the sales of the auto business andthe Cananwill business?


Sure, let me start with the first and Christa will take the second piece. We were very pleased, very gratified with the progresswe continue to make across the Americas and the work done in U.S. retail has been terrific across the team as we put in theefforts around the revenue engine which I've described which are really nothing more than giving us very clear insight intoexactly what's happening today in our business so that our colleagues have better ammunition, better capability to go addressclient needs, and it allowed us to for example, see what was happening in our construction business, which is a phenomenalbusiness we've got but obviously under tremendous pressure within the context of what's happening in the global economyand enabled our construction business to react and do different things on behalf of clients and enable our colleagues acrossthe Americas to understand we've got to invest and drive indifferent areas. We're able to react to the same kinds of pressuresin M & A and in PE in which we face those challenges. We also have been able to react on a segment basis so as we watch thelarger companies, global companies that are domiciled in the U.S. seeing some of their challenges we've been able to anticipatethose, Dan, almost realtime and react with capability that has helped serve us very well.

It's also allowed us to react when you think about new business versus retention, and our existing book. As I said before, anumber of activities driving initiatives around how we build our new business and new capability on behalf of clients but we'vealso been able to as we watch the year progress as I said in the fourth quarter, clients really focused on my gosh, what's happeningin the world of insurance, what's my capital, am I well positioned, and much like a large cat had happened, when Katrinahappened a very large cat happened they weren't thinking about changing brokers nor should they be. They should be focusedon where they are and what their situation is and as we saw that happening, it enabled us to serve those needs of our existingclients but also broaden out from a retention standpoint, so what I'm really highlighting is our ability, our teams ability tounderstand the situation and react to it in almost a realtime way to serve client needs and what that's done for us is it helpedus tremendously in the US, it helped us tremendously in Latin America which continues to be exceptionally strong from anoverall growth and profitability standpoint and we really saw progress across the Americas. That answer your question?


That's very helpful.


And then let's talk about the cash piece, Christa?


Yeah, so Dan, on the automobile insurance specialist, we received $120 million in proceeds as I mentioned with potentialconsideration over time of $34.7 million. On the 120 million in proceeds we'll net to about an $85 million gain, so that's AutomobileInsurance Specialists. On the sale of the U.S. assets of Cananwill, we did complete that transaction earlier this week. We haven'tactually revealed the financial details around that transaction. What I can say is that as a result of the sale, we've reduced thecapital required for this business by $62 million so we've already freed up that capital to give us greater financial flexibility whichwe're very pleased about.








Great, thank you.

Operator

The next question is from Brian Meredith with UBS. Please go ahead.

Brian Meredith - UBS - Analyst

Yeah, good morning. A couple questions for you all. First one, share buyback, Christa, just trying to understand, I got yourdiscussion on kind of where capital and cash is going but I was under the impression that you're planning on finishing the sharerepurchase program. Is that still the case in 2009?


Yeah, so, we obviously have $850 million of share repurchase authorization remaining and we've got a very strong balancesheet with excellent liquidity and cash flow generation. While we believe in the underlying value of our stock and we're committedto our share repurchase program, we believe that it's prudent to manage our balance sheet appropriately in a period of extremevolatility in both the financial markets and the broader economy and there for we're not going to commit to when we actuallyexpect to complete the share repurchase program. We will continue to update you on our progress when we report quarterlyresults.


Okay. And then second one, Greg, there was a story out that your largest competitor got a little bit of a commission rate increasefrom AIG, and I'm wondering kind of what's happening with your commission rates out there. Are you having some success ingetting some additional compensation for the value you're delivering or is that more of a challenge in the current environment?


Brian, as we have always done, we took a step back and we think about overall remuneration and our strategy aroundcompensation really comes back to a simple philosophy and it really centers around client leadership. Our objective, our view,our approach is all around delivering highest value. We will be the highest value to price for anyone in our arena, not thecheapest but the highest value to price. You invest a dollar in Aon, you get a return to the likes of which you will not get anywhereelse. That's how we're trying and working very hard to build our organization and in the context of that, we start with that viewwith from compensation to make sure clients first of all understand and appreciate what we do and then we get fairly compensatedfor it so you can imagine within the context of that there are a number of initiatives we've been working on for quite some time,one of which is getting paid what's been agreed, ironically, back to kind of the impact of the global effort that I described leadby Steve McGill and Ted Devine, whether once was a time when Aon had a discussion with different carriers in many of the 120countries around the world.

You can imagine that that may not be occurring now given we've got a 25 person committee looking at this every day, andsome of the inequities that were out there in terms of getting paid a different price for the exact same product and the exactsame company SIC code with the exact same limits in the same city, from the carrier might not happen anymore, so just gettingpaid for what was been agreed is an initiative that's actually been working very very well for us and where appropriate, securingincreases in compensation and only where appropriate, but we've been working very hard to do that and we're seeing movements







there, and we're continuing to work on it but again all in the context of the right value for price on behalf of our clients, andthen also getting reimbursed for the services we provide. So Brian we have a whole range of activities that are less about gosh,can we get a higher commission, more about we are absolutely going to be the highest value to price and in the context ofthat, what is the right price and then how do we secure that so that's really how we thought about it.


I guess just do you think getting the right price and getting some price increases could offset some of the potential hurt froman exposure standpoint this year?


From our standpoint we see back to the three, now shifting from sort of pure client view from a shareholder view around organicgrowth, margin improvement and EPS improvement, we see lots of opportunities to coordinate our global business in a waythat can be more effective and more impact full for our clients and our shareholders, so we believe there are lots of ways to dothat and it's one of the reasons we're optimistic about the platform for 2009.


Thank you.


Our next question comes from Jay Cohen from Banc of America. Please go ahead.

Jay Cohen - Banc of America Merrill Lynch - Analyst

It's actually Banc of America/Merrill Lynch. They keep getting that wrong.


Jay, that's all right.


Three questions. First SKU talk about the pricing environment? You mentioned prices weren't down as much in the fourthquarter but what are you seeing early in January and if you want to look into your crystal balls, what do you think you'll see for2009? Second topic, the draft on transparency by the New York Commissioner, can you talk about that? And then the lastquestion is do you see from an economic standpoint, do you see your larger clients being impacted differently than your midmarket clients?


Okay, we'll take those in turn. Start on the pricing side, Jay. It really is two questions just as you described. One is the impact onprice through Q4 and we were very clear that this is a story on Q4 for us that's still decreasing but at a lesser rate of decrease,that story holds loud and clear. You can look at the external sources. I think CIAB and Market Scout if you want to pick those







two saw rates down in Q4, 9% from one, I think Scout was down 9% and CIAB was down 6% and those rates were actually lessthan they were throughout the year. Mid year they were down roughly 11% and early 2008 down 15, so the story that rateshave decreased at a lesser rate I think is there but they are still down. And what we saw in the quarter was exactly that. We sawrates down in low single digits that was an improvement for us but the rates were still absolutely down, and by the way wetrack placements now in very detailed level that gives a lot more detail than you can get for any market shores and we wouldtell you that holds exactly.

There are obviously a few notable exceptions around marine, aviation space and obviously D&O, but that clearly was the casein terms of the fourth quarter, and in terms of the crystal ball, I would still say, Jay, reflecting comments from our colleaguesacross the world, this is still relatively flat with my headline relatively flat with maybe limited evidence of increasing prices acrossthe market. They just aren't there. We just haven't seen them. Again there are clear exceptions. D&O was one, Mike Rice wholeads our practice there has done a tremendous job, tracks everything in the context of this and in case of D&O, we're seeingmovement in price. It's positive by the way for the first time in 21 straight quarters it's positive, and there are a few others in thepeak zones and reinsurance for example, but generally across-the-board there's lots of conflicting issues here.

A few examples. There's tremendous pressure on supply which would imply rates might move north. Lower investment yields,higher cat losses, et cetera, but there's also a lot of pressure Jay on the other side in terms of the ultimate behavior of the insurersand what they are doing and reacting and there's pressure on the economic slowdown and finally pressure on aggregatecapacity. The clients may have a need but if reinsurance capacity for example, isn't there and you can't raise it by capital markets,there's lots of pressure back and forth in terms of what's going to happen in the overall market and the overall pricing so I wouldsay for us for 2009, we're going to fight like heck for our clients, best terms, best price, everywhere, we'll see how it plays outbut it is for us, there's a lot being said that's yet to be seen. So that's where I would say to start on the overall pricing piece. Thatanswer your question on that?


Yeah, that's great.


And then on the draft comments, from Superintendent Denalo and the New York AG, I just want to say first of all we justappreciate the opportunity given to us to formally review these overall rules and look at them. As we said publicly, stronglysupport the Superintendent's effort to reinforce and improve transparency in the insurance sector. It's just absolutely criticalfrom our standpoint. I would come back to what we said before, this is really, this is really about clients. It's not about brokersand carriers, should have nothing to do with us, it's about clients and really two topics for clients. One is the client/s right orbenefit to understand who is working for them and what they are paying for the service and I'd kind of struggle to even saythat, but it seems so obvious but my God that's exactly what this is about. Clients have a right to understand who is workingfor them.

They have a right to understand what they are paying for the service and then what is the form of compensation across thefolks who provide it in a level playing field, and what we're asking for, what we're arguing for, what we're trying to support theSuperintendent on and AG on is everything around transparency. For us that's the number one issue. That's the most compellingissue, the most obvious. What producer, are they working for the client or working for the agent? What insurers is the producerapproaching? How much is the client paying, how much and how are producers going to be compensated? All those thingsare very obvious, very straightforward. We believe prerequisites for a healthy industry, and we are just encouraged by themovement, we're very excited to try to help in any way we can and as we said, what we want is a healthy robust industry inwhich clients know what they are getting, they can value what they are getting and make a judgment on whether it works ornot and if it doesn't they shouldn't be able to make choices around that, and so we're quite encouraged to try to do that andtry to drive that.







So that's on the second question you had and the third one literally I think you asked do large clients, are they acting differentlynow than middle market or smaller clients is that what you asked?


Yeah, exactly, Greg.


And look, this is, we talk about this every day. This is our focus. What's happening with our clients and how we can be supportiveand try to be helpful and what both Christa and I described as arguably the highest time of need ever when you think aboutwhat clients were up to and what they were struggling with and I would say there aren't really any particular patterns, Jay. Wehave, there are a lot of issues facing large clients facing smaller clients as well. There are a few obviously as you think aboutglobal clients that have interrelated global businesses and network businesses and so there are a lot of second order effectsthey have to deal with and obviously a domestic US player or domestic European player wouldn't have to deal with so in manyrespects those are the same.

We're seeing a huge amplification of day-to-day issues. Can I get the placement, can I get the placement at the right price. Ihave a conflict, I need resolution, who can help me do that? I'm in trouble and I actually need help in terms of in the bankruptcyor out of bankruptcy or in stress and out of stress and so it really is a lot of the same issues Jay with just lots of amplification.


Great, thank you.

Operator

Thanks, next we go to Meyer Shields with Stifel Nicolaus. Please go ahead.

Meyer Shields - Stifel Nicolaus - Analyst

Pardon me, thank you, good morning everybody.


Good morning.


If we look at Benfield's seasonality I guess from their filings in 2007, it looks like the revenues are about 70% in the first half and30 in the second. I was wondering if we could get a quarterly break down for modeling purposes?


Yeah, so the revenue pattern recognition is very similar to our reinsurance business where the first and the third quarter areslightly stronger than the second and the fourth quarter. If you really model revenue being 25% across every single quarter and







then bumped the first and the third quarter up slightly, you'd get pretty close to the way the revenue patterns given our revenuerecognition policy and the move from IFRS to US GAAP.


Okay that's helpful, thank you. And I think there was some comments also talking about how AIG's troubles specifically and Iguess in general the fact that the number of historically prominent insurers are in some trouble that insured are less comfortablehaving their counterparty credit risk consolidated with one carrier. I guess two part question for that. Are you seeing that trendand does that translate into higher revenues because you'd have to do more work?


The last part of that, can you just repeat that?


Sure. I'm just wondering if that trend is in fact showing up where clients want their insurance split up among multiple carriers,does that translate into higher revenues because it's presumably more effort involved.


Got it, sorry. Just didn't pick up the last part of the question. Yeah, look. We see lots of, both at the retail level as well as thereinsurance level, absolutely questions and comments and concerns around capital. Is it there, is it adequate, quality capital,how does it look? Again back to the issue of why we see in our view demand going up for the services we provide, the stakesare higher than ever before. As you think about the work that Aon Benfield does in the context of on the reinsurance side, thereonce was a time when we're helping clients fight for opportunity and now in many respects they are fighting for success, andso what we're doing is helping them think about the diversified capital of the access, how they do it, how it evolves over timeand it creates lots of opportunities to add value and when we add value, as we said before, that benefits Aon but it has to benefitclients in a disproportionate way and the current environment clearly highlights that need for clients and that opportunity forAon.


Okay and one last question if I can. You talked a little bit about Aon's specific pension issues. That's clearly representative ofalmost everyone. Is there a measurable impact on the demand within consulting for retirement that we should expect for 2009?


Yeah, the consulting business in terms of sort of again back to when we were asked the question before around what's happeningin the global economy we feel lots of pressures in lots of different ways but in the context of our business, again the need inmany respects in different areas of our business is in the demand is increasing, and so we have the number of clients that havereal requests and real urgency around this topic and we continue to look at it and help them through it.


The other thing I would say on our consulting business is we do face economic headwinds in certain areas of the consultingbusiness which we've mentioned in previous quarters, particularly in our global compensation benchmarking business and our







pallet consulting business, and the other thing obviously in a benefits brokerage business is if employment were to decrease,then benefits, health and benefits services would also similarly decrease, and so we have a couple of headwinds facing ourconsulting business that might be partially offset by the growth in certain areas of the business that you described.


Absolutely right.


That's very helpful. Thanks so much.

Operator

The next question is from the line of Jay Gelb with Barclays Capital. Please go ahead.

Jay Gelb - Barclays Capital - Analyst

Thanks and good morning.


Hi, Jay.


On the margin for 2009, Greg I think you've said every year, Aon was to expand the margin so with the headwind in consultingwhich you said will be lower probably in 2009 and 2008, the impact from pension, are expense saves going to more than offsetthat so that Aon can expand the overall margin for the Company in 2009 versus 2008?


Yeah. We have not as I mentioned and Christa reinforced, Jay, our objective, our committment to shareholders over the courseof 2009, over the course of any year but certainly 2009 is that we are absolutely focused on improving margin, increasingearnings per share, and growing organically, and we said on the brokerage side in particular we're going to exceed 20%. Thatis a very clear objective for our leadership team and we're marching toward that, and listen, this is a lot about trying to understandthe situation and react, and our leadership team is very respectful. The headwinds Christa is describing are real. They aresubstantial and our team will always look for ways to adapt to those and to react to those and I would just say to you, in particularif you look at the headwind around investment income, we run a very significant portfolio that has to be invested in a veryspecific way and rates have come down, so that's sort of an uncontrolled outcome that we can't really manage and we've gotto work for ways to manage around that and I'd highlight for you over the course of the last few years in a pricing market wesaid we're not going to back away from our objectives because pricing is down and we didn't and pricing has been down 5 to15% over the last three years and we've been able to move the performance and in the context of the current global economyas we said, there are lots of puts and takes with real headwinds in many respects and real opportunities in other respects andour team is committed to achieving the three outcomes that I described.








Fair point, thanks and then on Benfield I just want to clarify that the expenses were probably match up with the revenueseasonality, so essentially we're not going to see big shifts in seasonality of earnings in any given quarter because of the Benfielddeal, is that right?


That's a fair expectation, Jay.


Okay, and then Christa, I don't know if you can comment on the amount of expense savings that drop to the bottom line fromthe '05 program, and also the expectations for the '07 program?


Yeah, Jay, we've always said that with our restructuring program that we continue to invest approximately 20% of the savingsback into the business and that's probably a fair number to use.


Thanks.

Operator

Our next question is David Small with JPMorgan.

David Small - JPMorgan - Analyst

Yeah, hi. Two quick questions. Can you just help us understand the seasonality of margins in the business? There's just been somuch restructuring going on that it's hard to see, and I'm not talking within brokerage, what the seasonality of profitabilitywould be kind of on a normal year.


Well David clarify a little more, seasonality of profitability a little more on that?


Exactly, that would be helpful and then the second question would be shouldn't your long term margin objective be going upnow that you're adding Benfield given that reinsurance is a higher margin business?








Okay, David, let me take the first question on brokerage margins first. We've committed to shareholders as Greg mentionedthat we're going to grow PTI margin every year, during the course of any year, there are going to be puts and takes as you'vedescribed whether they are from restructuring and the impact of that or whether they are from certain headwinds we're facingaround investment income or pensions or FX, and so it's very difficult to predict margins during the year and that's why we'vecommitted to shareholders that we're growing margin on a yearly basis as opposed to any particular quarter.


I guess what I'm asking is without those puts and takes, if you had a normal year without so much volatility there would besome, I would imagine there would be some profitability seasonality to the business?


Yeah, without those puts and takes you should see Q4 as being the higher margin quarter during a year and that's really kindof simple as it gets.


But as Christa said, David, it actually varies around the world of Aon which is the reason Christa says, this is about a portfolio forus. Q4 really represents on average overall particularly acute in the US where the U.S. is really strong in Q4. Europe is strongerin Q1, so we really have a whole portfolio effect that Christa is describing that really comes to pass which is why it gets smoothedout a bit but generally that holds and with regard to your question around the target brokerage margin what we've said is look,we are going to, we want to meet commitments, period, and we said we're going to get north of the 20% brokerage marginand we'll get comfortably North of that and we'll step back and reevaluate and right now we haven't achieved that and whenwe do that we'll get back to you and tell you where we're going to go but right now we're marching toward north of 20.


Okay, thank you.

Operator

Our next question is from the line of Mark Wayne with William Blair & Company. Please go ahead.

Mark Wayne - William Blair - Analyst

Good morning, just a quick one on investment income. You framed the sensitivity as 100 basis point movement up or downequating to $44 million. What's the starting point? What yield level are you starting from in 2008?


Yeah, it's a great question. So obviously you can see our investment income for 2008 is around $250 million for the company,but if you focus on the brokerage number it's around $190 million for the full year 2008, so if you looked at that sort of, we'redown a little more than 200 basis points in terms of year-over-year declines in interest rates and so you can sort of factor thatthrough the numbers.








But the 190, see the fiduciary income, you don't see the balances, right? Because there's a lot of free float I guess out there?


So we do describe the balances on our Balance Sheet. It's $3.2 billion in fiduciary funds and then obviously we still earn interestincome on the cash and short-term investments we hold which is $1.2 billion so you can see both those numbers on our balancesheet which we report every quarter.


So what average yield did you see in 2008? How do you look at that?


Yeah, it's a bit of a complex answer, Mark, because we obviously have investments in multiple currencies around the world, andwe also as we've disclosed in our 10-Q's and K's, we hedge a portion of this, and so the net impact if you were to look at abenchmark is more like three months LIBOR and obviously we're investing in more like one month LIBOR, but once you includethe impact of hedging, the net results more like three-month LIBOR.


Okay, thank you.

Operator

We have a question from the line of Keith Alexander with JPMorgan. Please go ahead.

Keith Alexander - JPMorgan - Analyst

Hi, guys.


Hi, Keith.


Good morning. First question and I'm just looking for a correction if I'm wrong, but I thought before there was a mention therewould be a hedging gain on the Benfield transaction and if so, where was this realized on the Income Statement and how much?








Yeah. So, Keith, actually what we've described is that we paid less for the transaction, $320 million less because a pound wasworthless than the U.S. dollar so originally the transaction would cost $1.75 billion and it cost 1.43, that $320 million savingswas due to the change in the depreciation of the pound versus the U.S. dollar. Offsetting that as you can see in the schedulesis a $46 million hedging cost and transaction cost associated with that purchase.


Okay. I see. And have there been any changes to your hedging program this year or do you plan on any?


Not materially. As we sort of said, we tend to hedge transactional, on an F X side, transactional exposures which we've talkedabout previously, so we have this U.S. dollar pound mismatch which we talked about several times in our UK business. We'rearound $350 million to $400 million of our revenue is in US dollars and we have pound expenses and we hedge that mismatch,and then we do sort of hedge foreign currency translation to minimize cash flow volatility, and the last thing we hedge whichI have described briefly is interest rates because we have very long interest rates and we do go through them in quite a lot ofdetail and we'll update that in our filing of 10-K later this month.


Okay, and just another question. According to our estimates, the cost save program at Benfield should take out about a quarterof the G & A of that business. Is that right? And if so, where are these costs going to come from?


We've said that the overall cost savings of the Aon/Benfield restructuring program will be $122 million which will be the runrate savings by 2011. That's approximately 10% of the total cost base of Aon Re plus Benfield so Aon/Benfield combined, andwe've really said that those cost savings are primarily going to come from back office support and property overlap.


Okay. That's very helpful and one last question if I may. Can you break out the FX impact on risk insurance services betweenbrokerage or between comp and benefits and G & A?


We can certainly follow-up with that.


All right, great. Thank you.

Operator

Next we go to the line of Dan Johnson with Citadel. Please go ahead.







Dan Johnson - Citadel - Analyst

Great. Thanks for taking the call. Just one left. Greg, on the expense front, or Christa, you've talked about the incremental savingsfrom announced restructuring programs but if I recall in the past you've got more than a few other things going on outside ofthe announced programs. Can you talk a little bit about what's going on there and whether or not your outlook for savingsthere has changed, please?


Yeah, just generally our outlook has not changed. We have, as we said the restructuring programs we want to make sure weput in place. You can track down to the penny kind of investment for that and return so you can see exactly what that looks likeand to the extent that involves a number of colleagues, that's something we want to make sure you have in place and you cantrack so we finish the 05 program, done, in place, buttoned up, clear you can go back and look at that and do the same for theother programs for the '07 and the Benfield, Aon/Benfield program, and those are proceeding very well and then the otherefforts as we've described, Dan are going to continue, and have continued and make good progress on.

Dan Johnson - Citadel - Analyst

Very good. Thank you very much.


Sure.

Operator

And we have a question from the line of Hani Sabbah with Viking. Please go ahead.

Hani Sabbagh - Viking - Analyst

Yes, good morning, thanks. Most of my questions have been answered. Just one last question. Greg, maybe you could talk usthrough your emerging market business, obviously you've highlighted that as an area of growth for the past few quarters Iguess. We've started seeing slowdown in coming out of the areas whether it be China, Asia, Middle East, can you just talk throughwhat you're seeing in your own business and the outlook for those areas?


Yeah, this is great, really a great position for us. We've got a terrific brokerage business, human capital business that's reallyemerging very very well, and just a great part of the world for us when we think about everything around Asia Pacific. It is a tailreally of multiple different regions within the region if you will, so we've got Australia where we have an incredibly strong andprivileged position, New Zealand incredibly strong and privileged position, developed Markets doing extremely well on, samein Japan, and some of the results overall have been influenced from the situation in Japan we've described before that we'vehad to deal with based on the regulatory changes that really mask the overall growth that has happened in other areas andresults in other areas continue to be very very strong in China, in other developing areas across Asia, so it's just a very very strongbusiness for us across-the-board with tremendous opportunity. Obviously again like every place in the world today we're goingto fight different challenges and headwinds as our clients encounter different challenges but those challenges again areincreasing the need for risk advice, risk understanding, risk mitigation and human capital solutions. It just turns out from an







advisory standpoint that just a different kind of activity but an increase in demand overall so we're quite excited about theplatform there and what we think we can do with it.


You've not started seeing deceleration in growth in many of these emerging markets would you say?


Deceleration I would say we still see strong growth. We certainly seen some decrease. The growth is still quite quite extraordinary,but certainly seeing slowdown a bit in terms of what's happening with our clients.


Great and just finally on Japan, you said you're sort of looking at closure on that issue? Could you just talk a bit more about that?


Yeah, what we described before is we had a business in Japan which was really had been in place for a long period of time anda common practice in Japan around just group buying efforts so we started a business around group buying insurance, it wasa business in Japan and the regulatory changes actually have basically forced us to completely change direction in that andwhich we've been trying to do and our sense is we've got a plan in place that will largely get the issues revolved by the firstquarter, first or second quarter of this year.


I just wanted to follow-up on Keith's question on the foreign currency translation benefit to our brokerage expense. So if yourefer to page 4 of our press release you do see that we have incurred $124 million of favorable impact of foreign currencytranslation in the quarter.


We just wanted to make sure Keith got that.


Yeah.


Are you good?


Yes, I'm good, thanks.







Operator

Our final question comes from the line of Meyer Shields with Stifel Nicolaus.


Thanks, two quick follow-ups if I can. One, the incremental savings from the 2007 restructuring, is that primarily U.S.?


No, it isn't. The savings really split, if you did the 2007 overall charge, the $550 million, $186 million is in EMEA, $160 million isthe Americas, $154 million is the UK and $50 million is APAC so you can see actually the majority is coming outside of the U.S..


Okay, and are we done with the drag from CSE now?


The consulting outsourcing contract?


Yes.


We have seen the majority of that impact. It is continuing though.


Okay, do you know when that ends?


In the next year or so. But it's very small.


Okay, thanks so much.


Sure.







Operator

And that concludes today's call. Mr. Case do you have any final remarks?


I don't. Thank you for participating today. We appreciate it.

Operator

Ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.

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aon transcript q4 08

Economy & Finance