northern district of illinois m n f +ylfl p.f f! : eastern...

UNITED STATES DISTRICT COURT

NORTHERN DISTRICT OF ILLINOIS n f M~ 2005+ylfL p.F F! :

EASTERN DIVISION (7)Uj T~iC1 COURT '

DAVID ROTH , On Behalf of Himself and All )Others Similarly Situated, }

}Plaintiff, )

VS . )}

AON CORPORATION, PATRICK G. RYANMICHAEL D. O'HALLERAN and DAVID P .')

BOLGER, )

Defendants .

Lead Case No . 04-C-683 5

CLASS ACTIO N

Judge NorgleMagistrate Judge Denlow

DEMAND FOR JURY TRIA L

CONSOLIDATED COMPLAINT FOR VIOLATIONS OFTHE FEDERAL SECURITIES LAWS

INTRODUCTION

Nature of the Action

1 . Lead Plaintiffs, Monroe County Employees Retirement System, Teamsters Local 40 8

Pension Fund, Western Pennsylvania Electrical Employees Pension Fund and Hawaii Reinforcing

Iron Workers Pension Trust Fund, bring this action on their own behalf and on behalf of all persons

who purchased the publicly traded securities of Aon Corporation ("Aon" or the "Company")

between May 3, 2003 and October 13, 2004 (the "Class Period") . The action is brought against Aon

and the Company's senior officers and directors who directed and approved the fraud, Patrick G .

Ryan, Michael D . O'HaIleran and David P. Bolger, for violations of §§10(b) and 20(a) of the

Securities Exchange Act of 1934 ("1934 Act") .

2. Throughout the Class Period defendants mislead investors and the market about th e

improper and illegal basis of Aon's financial results and business performance and failed to disclos e

the Company's direct participation in the now infamous insurer-broker contingent commission ,

steering and bid-rigging schemes . While defendants were receiving tens of millions of dollars per

quarter in undisclosed kickbacks from large insurance companies in an effort to improperly an d

illegally boost revenue and income growth, shareholders were left in the dark . The hidden collusio n

between Aon and the insurance companies was designed to create an image of growth and business

success, albeit temporary, as defendants used contingent commissions, steering and "clawback"

schemes to pump up reported revenue and income .

Aon's Business

3 . Aon is the world's largest reinsurance broker and second largest insurance broker .

Aon serves its clients through three operating segments: Risk and Insurance Brokerage Services ,

Consulting and Insurance Underwriting . Defendants operated their contingent commission and

steering schemes through the Risk and Insurance Brokerage Services and Consulting segments .

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4. Aon's Risk and Insurance Brokerage Services ("Risk Services") segment acts as an

advisor and insurance broker, hired by clients to advise them as to needed coverage and to find

insurers offering that coverage . This segment purports to represent the client, obtaining price quotes ,

presenting the quotes to the client and making recommendations to the client based on many factor s

such as price, differences in coverage, an insurance company's financial security or an insurer' s

reputation for service or claims payment. This segment is Aon's largest, accounting for nearly 60 %

of Aon's Class Period revenues . Included within this segment are the Aon Risk Services, Aon R e

Global (reinsurance) and Aon Private Risk Management divisions .

5 . Aon's Consulting segment provides clients with advice on employee benefits ,

compensation, management consulting, communications and human resources outsourcing .

Background to the Fraudulent Schem e

6. Aon's business was faltering in the months leading up to the Class Period . On

August 2, 2002, Aon announced its results for second quarter 2002.1 Aon's reported earnings pe r

share ("EPS") for the quarter dropped 41 % compared to 2Q01 and were, according to defendan t

Ryan, "the worst in Aon's history ." Defendants blamed the disastrous showing, in part, o n

"compressed operating margins ." Defendant Ryan stated that Aon "must do a better job of

controlling expenses and improving margins" before Aon's financial performance would improve .

7. The market reacted swiftly to this news with Aon's stock price falling 30% . One

analyst stated that "Aon stock has been a tremendous disappointment" because of its depressed

earnings and slashed his 12-month price target from $43 per share to $20 per share . Another analyst

noted that Aon had reported "messy and disappointing 2Q results" that were in keeping with the

' At all relevant times, Aon's fiscal year ran from January 1 to December 31 . Hereinafter, fiscal yearwill be abbreviated "FY" (i.e ., FY2003 for fiscal year 2003 ) and fiscal quarter will be abbreviated "Q" (i.e .,2Q02 for second quarter of fiscal year 2002) .

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Company's pattern of reporting "lackluster results" during the previous two years . Analysts

surmised that "most of the issues relating to Aon's [poor performance] are company specific . "

8 . Analysts continued their assault on Aon's business performance even after Ao n

announced more positive 3Q02 results on October 31, 2002 . Frustrated by Aon's lack o f

information concerning its earnings , one analyst concluded that Aon' s "earnings visibility [was]

poor." Suspicious of Aon's ability to achieve its earnings projections for FY2003 , this analys t

concluded that, "we find it difficult to rely on [the 2003 earnings] guidance, given the frequenc y

with which the company has failed to meets its own projections in the past . We tried to pursue what

the directional guidance (minus prospective dilution) adds up to in terms of the direction of 200 3

EPS, but got no answer besides `up .' This leaves us with little basis for, and little confidence in ,

[Aon's] earnings projections . . . . "

9. Analysts were also less than impressed after Aon announced its 4Q02 and FY2002

results on February 12, 2003 . One analyst again called the results "lackluster" noting that the slowe d

growth in Aon's brokerage business was due in part to Aon's "cost structure" being "too high for it s

current revenue base ." Another analyst opined that the "primary risk in Aon shares [was] that o f

near-term revenue or earnings disappointments, given the company's erratic operating history ."

10 . Defendants realized that they needed to do something immediately to change th e

market ' s perception of Aon' s disappointing financial performance , failure to meet EPS projection s

and out-of-control expenses . While Aon' s use of undisclosed contingent commission agreement s

was established within the Company prior to the Class Period, defendants needed to arrest thei r

significant problems with reducing expenses and the market's increasingly negative opinion of

Aon's business results and prospects . The contingent commissions Aon collected were an expense-

free source of revenue. The more revenue in contingent commissions Aon collected, the highe r

Aon's reported earnings were since this revenue was pure-profit . As such, the maximization of

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contingent commissions became critical to defendants' need to portray Aon's business results an d

prospects in a positive manner .

Aon's Business Model Was Dependant Upon ContingentCommission Agreements and Steering Schemes to GenerateIncreased Business Performance

11 . In the usual course of business a client would make two types of payments to an

insurance broker such as Aon : (1) an advisory fee or commission for locating the best insurer; and

(2) premium payments for the coverage itself which go to the chosen insurance company . In

addition to these usual costs, Aon utilized undisclosed "contingent commission" arrangements whic h

required insurance companies to make payments to Aon for one or more of the following: (a) how

much business Aon's clients placed with the insurance company ; (b) how many of Aon' s clients

renewed policies with the insurance company; and (c) the profitability of the business Aon placed .

These were strictly volume or profit-based arrangements for which Aon provided no services . Aon

utilized contingent commissions in its Risk Services and Consulting segments .

12 . Because the contingent commission revenue was a pure-profit item , Aon structured

its business model during the Class Period to maximize this type of revenue . Robert Needle, wh o

reported directly to defendant O'Halleran instructed his subordinates in the Aon Risk Service s

division to "continue to grow our book with Chubb and also Hartford and Wausau based on ou r

favorable contingency agreements ." In fact, officer and employee bonus payments were dependan t

on reaching certain contingent commission goals . As another of O'Halleran's subordinates in Ris k

Services acknowledged : "The revenue that arrives from the [contingent commissions] are [sic ]

integral to our budget and profit . . . . When we are being evaluated, they look at the full picture o f

earnings . Our bonus pool is set as a percent of revenue . . . . In short, [contingent commission

revenue] is a critical factor in our business and has a direct impact on how much we pay

people . . . ."

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13 . Aon's business growth was also dependant upon the "steering" of business to

preferred insurance companies which had entered into contingent commission agreements with

defendants. Unbeknownst to Aon's clients, the clients would be steered to take contracts wit h

certain insurance companies by manipulating the purportedly fair bidding for insurance contracts .

Similarly, defendants leveraged Aon's retail insurance services over insurers by demanding that th e

insurers use Aon's reinsurance services in exchange for Aon's agreement to increase retai l

placements with the carrier. These arrangements became so routine at Aon that they wer e

memorialized in contracts known informally as "clawbacks ." The clawback agreements, lik e

contingent commission deals, were governed by confidentiality clauses to ensure that Aon's retai l

clients did not know of Aon's incentive to steer their retail business to certain insurance carriers .

14. Between steering and contingent commission arrangements, Aon could collect a s

much as five different payments from one account : (1) the standard commission ; (2) undisclosed

payment on a national contingent commission agreement; (3) undisclosed payment on a local

contingent commission agreement; (4) reinsurance brokerage fees arising from the insurer's

undisclosed commitment to use Aon Re's reinsurance services for policy- specific reinsurance ; and

(5) reinsurance brokerage fees associated with the insurer's commitment to use Aon for its multipl e

policy reinsurance needs .

15. Aon left no stone unturned in its efforts to steer business to its preferred clients and

went so far as to manipulate bids in order to effectuate the steering of business to its benefit. For

example, in September 2003, Aon acted as broker for Fieldstone Investment Corp . ("Fieldstone" )

which was seeking coverage for its workers' compensation business . Previously, Aon had promise d

the insurance company Zurich North American Insurance Companies ("Zurich") additional business .

Presented with the Fieldstone coverage, Zurich initially bid a quote of $246,922 for the workers '

compensation coverage . Shortly after the initial bid, Aon contacted Zurich and suggested that

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Zurich could raise its quote without losing the bid . Eventually, Zurich won the Fieldstone account

with a bid nearly $40,000 higher than the original quote . Zurich was able to earn additional

premiums and Aon pocketed even more contingent commission revenue, all at the expense of Aon's

client . As an internal company e-mail later bragged, "[t]his is an example of AON letting Zurich

have more rate and premium when we could have held them at a cheaper price . "

16. Defendants Ryan and O 'Halleran not only knew about the contingent commissio n

arrangements and clawback agreements, but were instrumental in the negotiation of these

agreements . This senior-level involvement was no secret to the insurance companies Ryan deal t

with. As one executive from Chubb Corporation noted , "Pat Ryan is well-known for leveraging th e

scope of Aon's brokerage relationships ."2 Indeed, after protracted negotiations between Ryan ,

O'Halleran and the CEO of Chubb, Dean O 'Hare, Ryan told O 'Hare that he was "willing to put hi s

personal credibility and friendship with Dean on the line to make sure Chubb receive [ d] preferential

treatment from Aon" in exchange for giving Aon Chubb's reinsurance business .

Defendants' Violations of the Federal Securities Law s

17. Throughout the Class Period defendants misrepresented that Aon 's business growth

and increasing revenues and income were due to "continued client demand for our products an d

services" and "new business development and be tter retention rates ." Quarter after quarte r

defendants repo rted strong or increasing revenues and income with Ryan boasting that "[t]he

financial outlook for Aon, we believe, is strong . I'd like to reiterate that Aon's fundamenta l

businesses are doing well . "

18 . Defendants also told investors in each quarterly filing with the Securities an d

Exchange Commission ("SEC") that Aon's management, including specifically defendants Ryan and

2 All emphasis added unless otherwise noted .

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Bolger , had performed an "evaluation" of the effectiveness of Aon' s "disclosure controls and

procedures" and "determined that such controls and procedures are designed in such a way to ensur e

that all material information" was contained in Aon's quarterly filings .

19. Defendants Ryan and Bolger gave investors an additional assurance that Aon's public

financial disclosures were truthful and did not omit any material information . Each executed

certifications in compliance with §§302 and 906 of the Sarbanes-Oxley Act of 2002 attesting that

after a review of each of Aon's SEC filings that the reports did not "contain any untrue statement o f

material fact or omit to state a material fact necessary to make the statements made, in light of th e

circumstances under which such statements were made, not misleading ."

20. Despite these assurances, defendants' statements throughout the Class Period were

false and misleading , and omitted material information about Aon' s financial results and busines s

operations. Specifically, defendants failed to disclose that each quarter they were able to repor t

income and revenue growth that met or exceeded the market's expectations directly as a result of the

booking of tens of million of dollars in contingent commission revenue generated as a result o f

defendants improper business practices .

21 . When pressed during the Class Period , defendants maintained that revenue generate d

from insurance companies was well-disclosed and based on actual "services ." Only after the Clas s

Period did defendants admit that the contingent commission revenue had not been disclosed, had n o

basis in any service and was simply a kickback for steering business to certain insurance companies .

22. Without this cost-free income , Aon would have missed the market' s earnings

expectations for each quarter during the Class Period rendering their reported EPS figures false and

misleading :

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Reported EPS Analysts ' Consensus Actual EPS(tax effected )

1 Q03 $0 . 48 $0.47 $0.402Q03 $0.46 $0 .45 $0.383Q03 $0 . 36 $0.45 $0 .284Q03 $0 . 67 $0.56 $0.57FY2003 $1 .97 $1 .97 $1 .631Q04 $0 . 53 $0.53 $0.462Q04 $0 . 54 $0.52 $0.45

23 . Defendants also failed to disclose that the revenue and income generated by Aon' s

largest business unit, Risk Services, was artificially inflated by the "clawback" agreements Aon used

to improperly generate reinsurance revenue and the corresponding contingent commission revenues

generated as a result of the additional business placed with certain insurance companies .

24. As a result of these omissions , defendants caused Aon to issue materially false an d

misleading financial statements that were incomplete and failed to comply with Generally Accepte d

Accounting Principles ("GAAP") . Among other matters, defendants failed to rese rve for contingent

losses associated with the commission kickbacks , steering and clawback schemes . All told, during

the Class Period, Aon's financial statements overstated its earnings by as much as 27% .

The Truth Is Reveale d

25 . Defendants' scheme came crashing down on the morning of October 14, 2004, whe n

the Office of the New York Attorney General ("NYAG") filed a lawsuit in the Supreme Court of th e

State of New York against insurance brokers Marsh & McLennan Companies , Inc. and Marsh, Inc .

("Marsh") . The complaint detailed the undisclosed commission pay-offs and bid-rigging scheme s

that a cartel of large insurers and insurance brokers, including Aon, were using to prop up thei r

businesses and cause customers to purchase insurance at higher prices and less favorable terms tha n

the market otherwise would have dictated .

26. In response to the NYAG complaint , on October 14, 2004, defendants quickly

admitted that Aon participated in contingent commission agreements, but asserted that thes e

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commissions were earned for "services provided to insurers," were a "long-standing and well-

known" industry practice and were fully disclosed by Aon to its clients .

27 . Despite defendants' attempt to legitimize their conduct, investors reacted swiftly an d

strongly to these revelations . On October 14, 2004 alone, Aon's stock price plummeted $4 .42 per

share - a 16% drop - on a massive volume of 14 .1 million shares, and continued to spiral downwar d

in the following days as the market absorbed this information .

28. In the succeeding days more information was revealed about Aon's pervasive use of

contingent commissions, and steering and clawback schemes . Indeed, Aon was the focus of another

NYAG investigation. On October 18, 2004, the Wall Street Journal published a front-page art icle

on the scandal in which Eliot Spitzer remarked that Aon's behavior was "the same kind of cartel-lik e

behavior carried out by organized crime" and that he was probing Aon's practice of "direct[ing ]

business to insurers willing to use its services when buying ` reinsurance,' or insurance for insurance

companies," and that this policy could result in policyholders "getting an inferior deal ." Aon, it was

reported, was "[n]ext on the hot seat . "

29. The following day the Wall Street Journal again reported that the NYAG was

investigating Aon's use of steering schemes to generate lucrative business for itself. Again, it wa s

reported that Aon's "back- scratching could have disadvantaged Aon's corporate clients , which paid

the firm to find them the best deals without regard to its own business needs . "

30. All of this information caused a precipitous decline in Aon's stock price on an

incredibly high trading volume . By October 19, 2004, Aon's stock closed at $18 .94. In the four

trading days between October 14 and October 19, 2004, Aon's stock price collapsed 30%, a total of

$8 .35 per share, as illustrated in the following stock chart :

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AON Corp .Dally Share Pricing : May 3, 2003 to October 19, 2004

$30

$28

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$24

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$20

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sndyst BPS pro$ctlans and dwr*M reports of contingentconwi sslon kickbacks and stow" atlIvItles .

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05/03/2004 05f2712004 06124/2004 07/21/2004 06116/2004 09110/2004 10106!200405114!2004 06/10/2004 07/08/2004 08/03/2004 08127/2004 08/1912004 10/19(200 4

Defendants' Admissions of Wrongdoing

31 . Finally, on October 22, 2004, defendants admitted, in absolute contradiction to their

earlier statements, that "[c]ontingent commissions are non-service-specific, volume- or profit based

compensation arrangements." Aon cancelled all contingent commission agreements and defendan t

Ryan acknowledged that Aon's business model depended upon the revenue generated by defendants '

illicit schemes promising that Aon would "establish a new business model that ensures appropriate

linkage of compensation to specific measurable services in a way that is transparent, accepted an d

understood by our clients . "

32. One week later, on October 28, 2004, Aon announced its financial results for 3Q04 .

In a press released issued that day, defendants, for the first time, quantified the material impact of the

contingency commission kickbacks, acknowledging that Aon recorded $117 million in contingent-10-

commissions for the first three quarters of FY2004 . During their conference call with analysts the

following day, defendants admitted that they recorded $169 million in contingent commissions

during FY2003 and, prior to the filing of the NYAG complaint, had expected to receive $50 million

in contingent commissions in 4Q04 . During this call defendants admitted, in contrast to their Class

Period statements, that the contingent commission revenue was a "pure profit item" with 100%

margins whose elimination had a "dollar to dollar hit to the pre-tax income line ."

33. Thereafter , on March 3 , 2005 , the NYAG, together with the A ttorneys General o f

Illinois and Connecticut, filed a detailed complaint against Aon outlining its pervasive use o f

contingent commission agreements, and steering and bid-rigging schemes to enhance its financia l

results and business performance . See Exhibit 1 (complaint in People of the State of New York v .

Aon Corporation (without exhibits)) . On March 4, 2004, defendants announced that they had settle d

the regulatory investigations initiated by the states of New York , Illinois and Connecticut for $190

million, setting aside these funds to repay its clients for the illicit commissions they had paid, an d

agreeing to a prohibition from entering into future contingent commission arrangements o r

participating in steering or bid-rigging schemes .

34. Included in the settlement was a "Statement of Patrick G . Ryan" in which defendan t

Ryan acknowledged :

As these investigations have revealed, Aon and other insurance brokers andconsultants entered into contingent commission agreements and other agreementsthat created conflicts of interest. I deeply regret that we took advantage of thoseconflicts . This conduct violated the long-standing principle embedded in our Codeof Conduct and Aon's Values Statement that our clients must always come first .Such conduct was improper and I apologize for it .

Aon believes that these investigations have done the industry a great service .Aon looks forward to working with regulators, insureds, insurance companies, andother stakeholders to put in place new business practices for the entire industry thateliminate the improper practices exposed by these investigations .

See Exhibit 2 (Statement of Patrick G, Ryan) .

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JURISDICTION AND VENUE

35 . The claims asse rted herein arise under and pursuant to §§10(b) and 20 (a) of the 193 4

Act, 15 U .S .C . §§78j(b) and 78t(a), and Rule I Ob-5 promulgated thereunder by the SEC, 17 C .F.R.

§240.1 Ob-5 .

36. This Court has jurisdiction over the subject matter of this action pursuant to 28 U .S.C .

§ 1331 and §27 of the 1934 Act, 15 U .S .C. §78aa . Venue is proper in this District pursuant to §27 of

the 1934 Act, 15 U .S.C. §78aa, and 28 U.S.C. § 1391(b) . Most of the acts and omissions giving ris e

to the violations of securities laws complained of herein, including the preparation and disseminatio n

of false and misleading statements, occurred in this District . In addition, Aon maintains its principal

place of business in this District at 200 East Randolph Street, Chicago, Illinois .

37. In connection with the acts alleged in this complaint, defendants, directly o r

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to ,

the U . S . mails, interstate telephone communications and the facilities of the national securitie s

markets .

THE PARTIE S

38. By Court Order dated March 24, 2005, the Monroe County Employees Retirement

System, Teamsters Local 408 Pension Fund, Western Pennsylvania Electrical Employees Pensio n

Fund and Hawaii Reinforcing Iron Workers Pension Trust Fund were appointed as Lead Plaintiffs i n

this action.

(a) Lead Plaintiff Monroe County Employees Retirement System is a pensio n

fund headquartered in Monroe, Michigan and established for the benefit of current and former publi c

employees of Monroe County, Michigan. The Retirement System purchased and held shares of Ao n

common stock during the Class Period as detailed in its certification filed with the Court o n

December 22, 2004 in support of its motion to be appointed lead plaintiff. As a result of the

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defendants' conduct detailed herein, the Retirement System suffered damages in connection with its

purchases of Aon securities .

(b) Lead Plaintiff Teamsters Local 408 Pension Fund is a fund headquartered i n

Union, New Jersey for the benefit of current and retired heavy highway and utility vehicle operators .

The Local 408 Pension Fund purchased and held shares of Aon common stock during the Clas s

Period as detailed in the Local 408 Pension Fund's certification filed with the Court on Decembe r

22, 2004 in support of its motion to be appointed lead plaintiff . As a result of the defendants '

conduct detailed herein, the Local 408 Pension Fund suffered damages in connection with its

purchases of Aon securities .

(c) Lead Plaintiff Western Pennsylvania Electrical Employees Pension Fund is a

pension fund headquartered in Pittsburgh, Pennsylvania established for the benefit of approximatel y

4000 current and former Western Pennsylvania engineers and electrical workers . The Pension Fund

purchased and held shares of Aon common stock during the Class Period as detailed in it s

certification filed with the Court on December 22, 2004 in support of its motion to be appointed lea d

plaintiff. As a result of the defendants ' conduct detailed herein , the Pension Fund suffered damage s

in connection with its purchases of Aon securities .

(d) Lead Plaintiff Hawaii Reinforcing Iron Workers Pension Trust Fund is a

pension fund headquartered in Waipahu, Hawaii established for the benefit of current and forme r

ironworkers . The Pension Trust Fund purchased and held shares of Aon common stock during th e

Class Period as detailed in its certification filed with the Court on December 22, 2004 in support o f

its motion to be appointed lead plaintiff. As a result of the defendants' conduct detailed herein, th e

Pension Trust Fund suffered damages in connection with its purchases of Aon securities .

39 . Defendant Aon is the world 's largest reinsurance broker and second largest insuranc e

broker. Aon, through its various subsidiaries worldwide, serves its clients through three operatin g

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segments : (a) Risk Services, which acts as an advisor and insurance broker, helping clients manage

their risks and negotiates and places insurance risk with insurance carriers through its globa l

distribution network ; (b) Consulting, which provides advice and services to clients for employee

benefits, compensation , management consulting , communications and human resources outsourcing ;

and (c) Insurance Underwriting, which provides specialty insurance products, includin g

supplemental accident, health and life insurance, credit life, accident and health insurance, extende d

warranty products, and select property and casualty insurance products and services . Aon's common

stock traded in an efficient market under the symbol AOC on the New York Stock Exchang e

("NYSE") .

40. Defendant Patrick G. Ryan ("Ryan"), at all relevant times, served as Chief Executiv e

Officer and Chairman of the Board of Aon . Ryan, at all relevant times, also served as Chairman of

the Executive Committee of Aon's Board of Directors and as a Director of the Aon Foundation.

41 . As part of the duties of his senior positions at Aon, Ryan was chief among th e

executives who oversaw Aon's business, dealt with the Company' s largest clients , including Chubb

and Fireman's Fund, and would have known about, negotiated and approved the contingent

commission agreements with Aon's clients, as well as related steering and clawback agreements .

During the Class Period, Ryan participated in the issuance of false and misleading statements an d

failed to disclose material information about Aon' s involvement in and reliance on the commissio n

kickbacks, steering and clawback schemes . As detailed in %¶105-155, Ryan prepared and signed the

Company's SEC filings, and issued statements in press releases and was a speaker on the Company' s

conference calls with investors and analysts, representing himself as one of the primary persons wit h

knowledge about Aon's financial results, business and business practices .

42 . In conjunction with each of Aon's public financial statements filed with the SE C

during the Class Period, (¶¶109, 117, 124, 132, 145, 153), Ryan provided to investors a signe d

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certification pursuant to §302 of the Sarbanes-Oxley Act of 2002 attesting that he reviewed the

contents of the filing to confirm the "report does not contain any untrue statement of a material fac t

or omit to state a material fact necessary to make the statements made, in light of the circumstance s

under which such statements were made, not misleading ." To assure that the certification was not

simply a hollow gesture, Ryan was required to and did further confirm that he, along with defendan t

Bolger, was responsible for establishing and maintaining Aon's disclosure controls and procedures ,

had designed such controls to assure that material information relating to Aon's business , including

subsidiaries , was promptly made known to Ryan and the Company' s senior executives and had

routinely evaluated the effectiveness of the Company's policies with regard to assuring that he an d

other executives were made aware of material information . At no time during the Class Period di d

Ryan or any other defendant assert that they were not aware of material aspects ofAon's business o r

finances or that the Company's disclosure controls and procedures were ineffective .

43 . On September 30, 2004, two weeks before the NYAG exposed defendants '

contingent commission kickbacks and steering schemes, Ryan announced that he would resign as

Chief Executive Officer of Aon after more than 40 years as head of the Company . On April 4, 2005 ,

after Aon sett led charged brought by the Attorneys General and regulatory authorities of New York,

Illinois and Connecticut, Ryan was replaced as Chief Executive Officer .

44. Defendant Michael D. O'Halleran ("O'Halleran"), at all relevant times, served a s

President and ChiefOperating Officer and a director of Aon. Since 1995 he served as President an d

Chief Operating Officer of Aon Group, Inc., Aon's global insurance brokerage and consulting arm .

He has also served in other significant senior management positions within the Aon group o f

companies since 1987 and has more than 31 years of experience in the insurance and reinsuranc e

industries .

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45 . In his roles as President and Chief Operating Officer - the second highest officer a t

Aon - O'Halleran was responsible for managing the overall operations of Aon's various busines s

segments, with Aon's largest business unit, Risk Services, reporting directly to him, and would hav e

known about, negotiated and approved the contingent commission agreements with Aon's clients, a s

well as related steering and clawback schemes . Specifically, as one of the top executives at Aon an d

one of two management directors on Aon's Board, O'Halleran was required to not only keep himsel f

informed of the Company's day-to-day business and finances, but also to keep Aon's non-

management directors apprised of the state of Aon's business and finances, including interaction s

and agreements with the Company's clients' primary insurance vendors . During the Class Period ,

O'Halleran participated in the issuance of false and misleading statements and failed to disclos e

material information about Aon's involvement in and reliance on the commission kickbacks, steerin g

and clawback schemes . As detailed in 11¶105-155, O'Halleran participated in the preparation of th e

Company's SEC filings and statements in press releases and was a speaker on the Company' s

conference calls with investors and analysts, representing himself as one of the persons wit h

knowledge about Aon' s business and business practices , including commission payments .

46. In the wake of disclosures about Aon' s contingent commission, steering and

clawback practices and O'Halleran's involvement in those schemes, it was reported in the Wall

Street Journal that, after defendant Ryan announced he would resign as Chief Executive Officer,

O'Halleran "considered by analysts to be Mr . Ryan's heir apparent, asked not to be considered to

succeed Mr. Ryan . "

47 . Defendant David P. Bolger (`Bolger"), at all relevant times, served as the Executive

Vice President, Chief Financial Officer and Chief Administrative Officer.

48 . Bolger was responsible, in his role as Chief Financial Officer, for overseeing Aon' s

financial reporting, accounting and day-to-day finances . As Executive Vice President and Chief

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Administrative Officer, Bolger worked directly with defendant Ryan in overseeing Aon's business ,

dealing with the Company's largest clients, including Chubb and Fireman's Fund, and would hav e

both known about and approved the recognition and reporting of revenue derived from th e

contingent commission agreements entered into by the Company . During the Class Period , Bolge r

participated in the issuance of false and misleading statements and failed to disclose materia l

information about Aon's involvement in the commission kickbacks, steering and clawback schemes .

As detailed in ¶¶105-155, Bolger prepared and signed the Company's SEC filings, participated in the

issuance of statements in press releases and was a speaker on the Company's conference calls with

investors and analysts, representing himself as one of the persons with intimate knowledge about

Aon's finances and business .

49. In conjunction with each of Aon' s public financial reports filed with the SEC during

the Class Period, (J 109,117, 124, 132, 145, 153) Bolger provided to investors a signed certificatio n

pursuant to §302 of the Sarbanes -Oxley Act of 2002 attesting that he reviewed the contents of th e

filing to confirm the "report does not contain any untrue statement of a material fact or omit to stat e

a material fact necessary to make the statements made, in light of the circumstances under which

such statements were made, not misleading ." To assure that the certification was not simply a

hollow gesture, Bolger was required to and did further confirm that he, along with defendant Ryan ,

was responsible for establishing and maintaining Aon's disclosure controls and procedures, had

designed such controls to assure that material information relating to Aon's business, includin g

subsidiaries , was promptly made known to Bolger, Ryan and the Company' s senior executives and

had routinely evaluated the effectiveness of the Company's policies with regard to assuring that h e

and other executives were made aware of material information . At no time during the Class Perio d

did Bolger or any other defendant assert that they were not aware of material aspects of Aon' s

business or finances or that the Company's disclosure controls and procedures were ineffective .

-17-

50. Defendants Ryan, O'Halleran and Bolger are collectively referred to herein as th e

Individual Defendants .

51 . By reason of their direct and substantial management positions and responsibilitie s

during the Class Period, the Individual Defendants were "control persons" of Aon within th e

meaning of §20 of the 1934 Act, 15 U .S.C. §78t, and had the power and influence to control Aon

and exercised that control to cause the Company to engage in the violations and improper practice s

complained of herein . Each of the Individual Defendants was directly involved in the day-to-da y

operations of Aon, including the receipt of hundreds of millions of dollars in undisclosed contingen t

commission kickbacks, and privy to undisclosed information concerning Aon, the Company's illici t

relationship with large insurance companies and Aon's financial reporting .

52. As senior officers and controlling persons of a publicly-held company whos e

common stock was, and is , registered with the SEC pursuant to the 1934 Act, traded on the NYSE

and governed by the provisions of the federal securities laws, the Individual Defendants had a dut y

to disseminate promptly, accurate and truthful information with respect to Aon's finances, risks an d

business that could effect valuation, growth and earnings, as well as to correct or amend an y

previously issued statements that had become materially misleading or untrue, so that the marke t

price of the Company's publicly traded securities would be based upon truthful and accurate

information . The Individual Defendants' misrepresentations and omissions during the Class Perio d

violated these specific requirements and obligations .

53 . Each of the defendants is liable as a pa rticipant in a fraudulent scheme and course of

business that operated as a fraud or deceit on purchasers of Aon securities by disseminatin g

materially false and misleading statements and concealing material adverse facts. The scheme :

(a) deceived the investing public regarding Aon's business, business practices, finances, financial

statements and the intrinsic value of Aon's common stock; and (b) caused Lead Plaintiffs and other

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members of the Class to purchase of Aon securities at artificially inflated prices and be damaged

when the artificial inflation came out of the stock price .

DEFENDANTS ' ROLE IN THE UNDISCLOSED COMMISSIONKICKBACKS, STEERING AND CLAWBACK SCHEMES

54. Throughout the Class Period, defendants were directly involved in contingent

commission kickbacks, client steering and clawback schemes that artificially boosted Aon's reporte d

financial results, improperly generating reported revenue and distorting the market for insuranc e

products . Unknown to investors, Aon's financial results and business growth were predicated o n

hundreds of millions of dollars in commission kickbacks and manipulation of the Company's actua l

clients .

Defendants ' Use of Contingency Commission Kickbacks to Boost Financial Results

55. As an insurance broker, Aon held itself out as a trusted advisor that could help it s

clients assess their insurance needs and locate the best available insurance . Aon's brokerage

segment purports to represent the client, obtaining price quotes, presenting the quotes to the clien t

and making recommendations to the client based on many factors such as price, differences i n

coverage, an insurance company's financial security or an insurer's reputation for service or claim s

payment . Clients, in turn, paid Aon an advisory fee or commission for locating the best insurer .

56. Following the end of the Class Period, defendants acknowledged that Aon als o

collected undisclosed fees from selected insurance companies, taking money from both sides of eac h

transaction . Known variously as "placement service agreements" ("PSAs"), "market servic e

agreements ," "override agreements" or "compensation for services to underwriters " ("CSUs") ,

Aon's hidden arrangement with insurance underwriters promised the Company substantial kickbacks

based on one or more of the following : (a) how much business the broker' s clients placed with the

insurance company ; (b) how many of the broker's clients renewed policies with the insurance

company; and (c) the profitability of the business placed by the broker .

-19-

57. Class Period statements to the contrary, defendants have now admitted that th e

contingent commission agreements were a material aspect of Aon' s business model - a model that

had to be changed after defendants ' schemes were disclosed - and that the "[c]ontingent

commissions are non-service-specific, volume- or profit-based compensation arrangements . "

Defendants further admitted that the contingent commission kickbacks had been hidden from Aon' s

clients, allowing the Company to report an additional $245 million in income during the Class

Period and boost reported EPS by up to 27% . As the NYAG described in its complaint, "the effort

to obtain compensationfrom these improper schemes has been central toAon's business model . "

58. The contingency commission scheme was devised and executed at the highest level s

of Aon's executive structure . Beginning prior to the Class Period, Aon reconfigured its primary

brokerage business in an effort to consolidate control over contingent commissions in the hands o f

the "Syndication Group," a small number of senior executives -Robert Needle (Managing Principal

of Retail Syndication), Carol Spurlock (Managing Director of Commercial Risk) and Ronald Moye r

(Managing Director of Financial Services) - who worked for defendant O'Halleran and reported t o

O'Halleran and Ryan . For example, defendant O'Halleran worked with Robert Needle in Marc h

2003 negotiating new contingency commission agreements with Chubb, including separate

agreements for kickbacks related to Chubb's commercial, directors and officers and personal

insurance lines . See Exhibit 3 (AON-19-006333) .

59. The contingency commission agreements were so prevalent at and important to Aon,

that the Syndication Group ranked certain underwriters as "premiere" or "partner" insurers based

not on the price or se rv ice those insurers could provide to Aon' s clients , but on the amount of money

those insurers paid in contingent commissions . These Company-wide agreements , negotiated at the

senior executive level, were originally called PSAs or override agreements . By early 2004, however,

defendants instituted a global change and misleadingly renamed the agreements "compensation fo r

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services to underwriters" or "CSUs ." Internal Aon e-mails, uncovered in the NYAG investigation,

evidence the broad efforts to cover up defendants' nefarious activities: "We would like to get away

from the use of terms like `contingents,' `overrides,' and 'PSAs' throughout Aon ." See Exhibit 4

(AON-12-012682) .

60. In addition to the contingency commission agreements being negotiated at a senio r

executive level and specifically with defendant O'Halleran's oversight, the hundreds of millions of

dollars in revenue and income were paid in large lump sums directly from the insurers to Aon .

Because the contingency kickbacks were based on annual or semi-annual total business, insurers

would provide Aon with millions of dollars in 100% margin (i.e., all income with no associated

costs) revenue in a single lump sum. As described in an internal Aon e-mail written by Carol

Spurlock, "[w]e have always had an extremely nice contingency with the excess folks at Zurich . We

received a huge check from them on umbrella business last year ." See Exhibit 5 (AON- 1 3-000446).

61 . Within Aon, the materiality of the contingency commission revenue was well

recognized. Internal, senior management Aon e-mails repeatedly highlighted the importance of the

kickbacks, including :

To provide commentary on the [contingent commissions] . The revenue that

arrives from the [contingent commissions] are [sic] integral to our budget andprofit derived from FSG [Financial Services Group] . When we are being evaluated,

they look at the full picture of earnings . Our bonus pool is set as a percentage of

revenue . . . . If our [contingent commissions] fall, our ability to use the percents thatwe use to pay individual brokers would need to be changed . In short, it is a critical

factor in our business and has a direct impact on how much we can paypeople in

FSG .

See Exhibit 6 (AON- 1 -0 00 106) .

[I]t is safe to say that, over the past couple of years, [contingent commission] money

has funded our entire bonus pool as well as our investment hires and still

contributedsignificantly to the bottom line of the company . Anyone who does notsee that as advantageous for them personally is looking through the wrong end oftheir telescope .

See Exhibit 7 (AON- 1 -00 0 110) .

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Contingency Commission Kickbacks and the Improper Steering Schemes

62. Insurance companies , obviously, would not agree to pay tens of millions of dollars in

kickbacks without something in return . Defendants, in turn, were looking for a way to maximize th e

illicit revenue to be reaped from the undisclosed contingency commission agreements. Defendants '

solution was to clandestinely and improperly "steer" Aon's clients to specific "premiere" o r

"preferred" insurance underwriters . Regardless of the costs to the clients, who, like investors, had n o

idea this practice occurred, or the benefits of the insurance terms, Aon promoted the interests o f

insurance companies with whom it had contingency commission agreements .

63 . Internal Aon e-mails again tell the story :

With our override agreements with Ch ubb and Fire Fund, we need to directall new business exclusively to them for the next month and beyond . Chubb shouldbe the first choice for any risk with Fireman's Fund a second thought .

See Exhibit 8 (AON-32-015217) .

[I]n the short term, we need to steer all submissions to Chubb . I am finding thatmost submissions are submitted to all three carriers and we all now [sic] what AIGwill do to buy market share . We need to emphasize that AIG should only be used ifthere is an underwriting issue with Chubb, which we can address . If we approachAIG on all submissions, the reason for carrier chosen will always be rate and it willslow submission process .


64. Within Aon, Company executives repeatedly emphasized that business had to b e

steered to those insurance companies with which Aon had contingent commission agreements . For

example, in March 2003, Carol Spurlock, who at the time was the head of Aon's middle market

accounts, wrote to a colleague who had inquired whether business should be directed to Zurich, as i t

had not paid contingent commissions to the middle markets department during the prior year :

"Going forward, we are going to push Zurich . I just today negotiated our incentive so that we wil l

get paid next year ." See Exhibit 10 (AON- 13-000228 ) . Spurlock confirmed: "We did not have a

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middle market contingency last year, we do this year . So yes place lotz [sic] of business with

[Zurich] . . . ." See Exhibit 5 (AON-13-000446) .

65 . Defendants also used Aon's ability to steer as a means of pressuring and in som e

cases punishing insurers . In December 2003, The Hartford Financial Services Group ("Hartford")

decided to no longer use Aon as its broker for placing its own directors and officers ("D&O")

insurance. In a discussion between Needle and top Hartford executives, however, Hartford offere d

to "make it up to [Aon]" by using Aon as its broker on Hartford's owner property insurance whic h

had been previously placed without a broker .

66. Defendant O'Halleran, Mr. Needles' boss, was not satisfied with this offer. In a

December 1, 2003 e-mail to Needle, O'Halleran stated "[i]s this a good trade off. Let's also tak e

some business from them." See Exhibit 11(AON-6-004314) . In response , Needle examined Aon' s

contingent commission agreements with Hartford, and suggested to O'Halleran that Aon keep it s

clients with Hartford only in insurance lines where Hartford paid Aon favorable contingent

commissions . Further, Needle suggested that Aon could punish Hartford for the D&O decision b y

steering business away from it in the insurance lines where Hartford's contingent commissions wer e

less favorable :

In terms of taking business from [Hartford] our commercial [contingent commission]is favorable and I don't want to negatively impact . However, the D&O [Director andOfficer] deal is not that attractive and Eric [Andersen, co-head of the FinancialServices Group] and I have discussed trying to drive more end of year premium toour major partners in that line - AIG, XL and Chubb .

See id.

67. Aon also used its ability to steer business as a way of pressuring insurance companies

to sign contingent commission agreements . As one Aon executive informed an insurer that had not

yet signed a contingent commission agreement :

We have been operating on the good faith that this [contingent commissionagreement] would be mutually agreed quickly after our meeting here in NY .

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Based on the fact that we are almost half way through the year, I will beadvising our people in the field that we in fact don't Have a [contingent commissionagreement] with [Industrial Risk] . "


68. Aon, in confidential communications, let it be known that they could easil y

manipulate which insurance underwriters received business :

Let me further confirm our ability to effect (sic] placement behaviors . Oursyndicators are evaluated on the percentage of their books that are with our"premier" markets. Each Regional Syndication Director is held accountable as well .This is a measurable, compensated item that each syndicator is financially motivatedto drive .

See Exhibit 13 (AON-6-O18789) .

You asked me to [sic] other day why would Endurance want to become astrategic partner with Aon's investment in Endurance and the potential that yourcosts could increase slightly. We think there are a number of good reasons but acouple of the major reasons areas follows . Firstyou would enjoyfavored treatmentover non-strategic partners . As mentioned previously you would have theopportunity to personally review the entire listing of all current treaty abstracts . Thisgive you a unique opportunity to pre-select programs you are interested inparticipation [sic] as a reinsurer . Second on new programs you would have the f rstopportunity to quote and participate on the programs . On renewal business wewould attempt to make room on a program you are interested in and or if an existingreinsurer declined to participate you would have the first crack at replace [sic] theexpiring reinsurer .

See Exhibit 14 (AON-F-009696) .

69. Defendants' steering schemes did not simply mean giving ce rtain insur ance

underwriters "favored treatment" or the ability to preview other bids, but went so far as rigging the

entire process of bidding for specific contracts . In total disregard for the interests of Aon' s clients ,

Aon would manipulate the bidding process to push business to a preferred insurance company . For

example, in September 2003, Aon instructed Zurich that its quote of $246,922 for the worker s

compensation business of Fieldstone was "too low" an d suggested that Zurich raise its bid before the

bids were shown to the client . In this way, Aon sought to generate additional contingent commissio n

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revenue and help Zurich recoup funds Zurich had expended on an unrelated client's account ,

Pearistine Distributors, Inc . ("Pearlstine") .

70. Three months earlier, Aon had sought insurance coverage for Pearlstine . After the

contract was bound, Zurich became concerned that it had provided coverage for a poor risk and t o

protect itself against that risk, paid $18,000 for an excess insurance policy . Zurich was upset about

this additional cost and Aon offered to make up the $18,000 through future transactions with Zurich,

a strategic partner . Thus, in an e-mail, Spurlock promised Zurich that Aon would "re-imburse [sic ]

you folks for the Additional Reinsurance costs associated with umbrella coverage on Pearlstin e

through 9-1 ." See Exhibit 15 (AON-PL-000041) . In a subsequent conference call, Aon's middl e

market employees were told of Aon's undertaking on the Pearlstine account and were told to loo k

for "opportunities" for Zurich, presumably as a means of "reimbursement ."

71 . An opportunity presented itself when Fieldstone retained Aon to obtain a variety of

coverages, including workers' compensation insurance . On September 18, 2003, Zurich provided a

form quote to Aon that was broken down by coverage area . Zurich bid $246,922 for the workers '

compensation insurance portion .

72. Shortly after the initial bid was submitted to Aon, Aon contacted Zurich and

suggested that Zurich could raise its quote without losing the bid. On September 26, 2003, Zurich

provided a revised quote of $290,005 for the workers' compensation portion . Later, that bid was

raised again to account for an increase in the number of Fieldstone employees covered . Nonetheless ,

Zurich's adjusted bid remained artificially inflated because it incorporated the revised inflated quote .

73 . On November 13, 2003, after the account was bound with Zurich, the Aon employee

assigned to the Fieldstone account wrote to Spurlock to explain what had occurred:

[W]e wanted to let you know that when we first started negotiating this deal with [theZurich underwriter], his initial WC premium came in at $246,922. The expiringpremium with the same payroll was $283,532. He quoted $36,610 less than expiring .We came back to him and allowed him to increase his initial WC quote to approx .

-25-

same as expiring, $283,532. We allowed Zurich to get more money on this . . . .This is an example ofAON letting Zurich have more rate and premium when wecould have held them at a cheaper price .

See Exhibit 16 (AON-FM-000208) .

74. The next day Spurlock wrote to the Zurich executive who had negotiated th e

agreement on the Pearlstine account . She attached the November 13, 2003 e-mail and stated :

[T]his one deal gave you twice the amount compromised on the Pearlstine account.Are we in agreement that we have now met that obligation?


75. On January 5, 2004, Spurlock again wrote to Zurich and attached both the Novembe r

13 and 14, 2004 e- mails :

I never heard from you or [the Zurich executive] on this subject and we assumed thatyou are in agreement with the statements made below [the November 13 and 14 e-mails]. To refresh the circumstances surrounding this topic, remember that weagreed at a senior management level to forgive the additional premium generated bybuilding the primary limit to $2M to Pearlstine with the promise that we would makeit up to you in other business . This was done twice over on [Fieldstone] .


76 . A subsequent Aon internal e-mail noted that the inflated bid not only settled th e

Pearl stine debt to Zurich but helped Aon get closer to achieving payout on its contingent commissio n

goal :

Congrats again on Fieldstone . Not only was that a nice new hit, it certainlyhelped us on two fronts . It obviously helps to get us closer to our premium goalwith Zurich and also to make the $18K in premium that they helped us out on[Pearlstine], go away. As I recall you were able to get them $36K more in premiumthan they originally quoted to more than make up for what we owed them. That isthe way a National operation should work .


77 . The insurance companies recognized that, with defendants directing business an d

manipulating the bidding process, the cost of the contingency commission kickbacks could simpl y

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be born by Aon's own clients, the same clients paying Aon to get them the most favorable insuranc e

policy . As one insurance industry e-mail described under the subject title "Aon PSA":

Have now processed the PSA on the above . They will have to work at it, butit appears their PSA could hit 2 .5% this year. Let's load an additional 2.5% ontheir premiums .

See Exhibit 18 .

78. Under defendants ' direction, Aon's Consulting segment , like the Risk Service s

segment, also entered into undisclosed national and local contingent commission or "override "

agreements that created incentives to steer business to maximize Aon's revenue . In 2003 alone, Aon

Consulting earned in excess of $20 million from such contingent commission payments . Aon

Consulting deceived its clients by telling them that contingent commission payments had no impac t

on their rates . See Exhibit 19 (AON-12-012972-87) . In fact, Aon knew insurers factored the

undisclosed contingent payments directly into their premiums . For example, one Aon Consulting

executive suggested that contingent commission agreements rewarding new business caused Aon

Consulting "to move cases to other carriers just to generate [contingent commissions ] ." See Exhibit

20 (AON-14-000253) . Another Aon Consulting executive declared that the intent of its contingent

commission agreement with the Guardian Life Insurance Company "was and still is to incent our

people to place business with the Guardian." See Exhibit 21 (AON-14-001024) .

79. Contingent commission agreements could function as a stick as well as a carrot fo r

the insurers . Defendants threatened insurers with fewer business opportunities when they sought t o

reduce contingent commissions . For example, in an August 2002 e-mail, an Aon Consultin g

executive warned UNUM Provident Insurance Company ("Unum") that "[d]ecreasing your renewal

compensation levels may have an adverse affect on how often our producers show your product . "

See Exhibit 22 (AON-14-000477) . The following year, when Unum again sought to lower Aon

Consulting's contingent commission compensation, Aon replied :

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4

If we were to accept the proposed reduction, our compensation from Unum would beabout 80% of the compensation we receive from Met and Mass Mutual . It's almostlike you are telling us that we should place our new business with a carrier other thanUnum so that we can make [more] money ?


80 . The centralized effort to steer business to specific insurance companies with whom

the Company had contingent commission agreements was done with the knowledge and direc t

participation of the Individual Defendants. The defendants, in turn, relied on revenue generated b y

the undisclosed commission agreements and steering schemes to report quarterly income growth an d

strong EPS numbers and stave off further debt and credit ratings .

Reinsurance Clawback and Leveraging Agreement s

81 . Defendants' steering and contingent commission spread, in their own unique form, t o

Aon's reinsurance ("Aon Re") business . In sum , defendants would clandestinely sell out the bes t

interests of the Company's clients in order to get insurance companies to purchase reinsurance fro m

Aon Re . As one insurer, reviewing an Aon compensation scheme, commented, "I can think of 5

ways we potentially pay aon [sic] on the same account ." See Exhibit 24 (LM 006157) . These

included: (1) the standard commission, which would be disclosed to the client ; (2) a nationa l

contingent commission agreement ; (3) a local contingent commission ; (4) reinsurance brokerag e

arising from the insurer's undisclosed commitment to use Aon Re's reinsurance services fo r

facultative (policy-specific) reinsurance ; and (5) a similar commitment to use Aon for the insurer' s

treaty (multiple policy) reinsurance . In addition, although not mentioned in the e-mail, when Aon

Re placed the insurer ' s reinsurance business with one of Aon's partner reinsurers , Aon could also

receive a reinsurance contingent commission .

82. Aon's practice of leveraging its retail brokerage arrangements to obtain reinsuranc e

business became so routine that it memorialized these arrangements in a variety of contracts know n

informally as "clawbacks."

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83 . Many of these "clawback" arrangements shared a similar pattern . Initially, the

insurer would express displeasure at Aon Re's brokerage commissions and would threaten to sho p

around for competitive rates. In order to retain the reinsurance account, Aon Re would negotiate a

"clawback," allowing it to reduce or eliminate the reinsurance brokerage discounts by steering retai l

insurance business to the insurer.

84. These "clawback" arrangements were governed by confidentiality clauses, see

Exhibit 25 (AON0014304), and, therefore , Aon's retail clients were not informed that Aon steered ,

or had incentives to steer, business to selected insurers in return for the insurers' commitment to us e

Aon's reinsurance services. In addition, through steering or promises of steering retail business, Ao n

Re gained a competitive advantage over competing reinsurance brokers that did not operate retai l

insurance brokerage units .

85 . Defendant O'Halleran was in a unique position to make sure Aon capitalized on th e

relationship between Aon Re and Risk Services because both business units repo rted to him and he

personally negotiated many of the "clawbacks . "

86. Liberty Mutual, for example, entered into "clawback" agreements with Aon in 200 2

and 2003. In 2002, Liberty Mutual expressed conce rn that Aon Re 's brokerage fees in prope rty

reinsurance were too high and began exploring using a co-broker or moving its property reinsurance

business to another broker . To retain the business, O'Halleran negotiated an agreement whereby

Aon promised increased retail premium placement to Liberty Mutual in return for Liberty Mutual' s

continued use of Aon Re for its property reinsurance . See Exhibit 25 (AON0014304-09) . As an

added incentive, Aon Re provided Liberty Mutual with reduction on its reinsurance brokerage fees .

See id at AON0014307-09 . Aon then had the opportunity to recapture or "clawback" its los t

reinsurance brokerage revenue, based on the volume or profitability of retail property busines s

placed with Liberty Mutual . See id. . The terms of the agreement were secret , so purchasers of

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Liberty Mutual property insurance through Aon did not learn of Aon's incentives to funnel mor e

business to Liberty Mutual in return for reinsurance brokerage commissions . See id. at

AON0014306 .

87 . Prior to ente ring into or renewing its "clawback" agreements with Liberty Mutual ,

Aon executives, on both the retail and reinsurance sides , including O'Halleran, discussed Aon' s

ability to steer significant business to Liberty Mutual . See Exhibits 26 (AON-19-003790) and 2 7

(AON-F-008723) . In one e-mail, Scott Clark wrote, "I'll speak with [head of Aon prope rty retai l

department] about the reality of putting significant business into [Liberty Mutual] in order to trigge r

the partnership dividend ." See Exhibit 26 (AON-19-003790) .

88. In 2001, Aon entered into a similar clawback agreement with RLI Insurance compan y

("RLI") that combined incentives for Aon to steer retail placements to RLI with incentives for RLI

to use Aon Re for its reinsurance needs. The agreement, again negotiated by O'Halleran, called for

Aon Re to pay RLI a 20% rebate on all brokerage it paid to Aon Re for placing its reinsuranc e

agreements . As an added incentive, Aon Re promised to pay RLI an additional 5% rebate on it s

reinsurance brokerage commissions if Aon did not produce 20% growth in annual retail premium t o

RLI . See Exhibits 28 (RLI 000993), 29 (RLI 001000-01) and 30 (RLI 001291-92) . Thus, the

arrangement permitted Aon to "clawback" the 5% reinsurance rebate by producing 20% growth in

retail business to RLI. See Exhibit 30 (RLI 001291-92). As RLI's president and chief operating

officer explained in a July 27, 2001 letter to O'Halleran, linking the reinsurance rebate to retai l

growth provided "a very strong incentive for us to utilize AON Re as our primary reinsuranc e

intermediary ." See Exhibit 29 (RLI 001000-01) .

89. In 2003, Aon Re further linked the relationship between its retail and reinsuranc e

brokerages . On March 25, 2003, RLI's president and Chief Operating Officer spoke with Aon Re' s

vice chairman, David Kelley, concerning the reinsurance business for RLI's executive protectio n

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group. Kelley "committed to Aon's delivering more [retail] business to RLI" in exchange for which ,

Aon would retain RLI's reinsurance business . See Exhibit 31 (RLI 001149-51) . In a follow-up e-

mail, RLI also confirmed Aon's promise "to produce $25M in retail premium production for th e

product line ." Id. Neither Aon's retail incentives under its reinsurance agreements with RLI nor its

commitment to produce $25 million in retail business to RLI was disclosed to Aon's retai l

customers .

90. Aon entered into yet another "clawback" agreement with Travelers Insurance

Company. In 2001, Travelers Bond communicated to Aon that it was considering moving it s

reinsurance brokerage business to Guy Carpenter, Aon Re's competitor . Aon Re offered a strategic

partnership under which it would increase its placement of retail business to Travelers Bond if Ao n

Re maintained the reinsurance brokerage business .

91 . In a series of meetings with Travelers Bond executives, O'Halleran stated that i f

Travelers Bond continued to use Aon Re, Aon would commit to increasing its retail placements with

Travelers. These meetings were followed by an formal offer sent from O'Halleran to the Chie f

Executive Officer and Chief Financial Officer of Travelers Bond, see Exhibit 32 (STP 00002-05) ,

providing that if Travelers maintained the reinsurance relationship, Aon would pay Travelers Bon d

$1 .5 million and that Aon could eliminate or "clawback" Aon's payment if it increased its retai l

business to Travelers Bond . Ultimately, Aon and Travelers Bond entered into a clawback agreemen t

on slightly different terms. Aon never informed its retail clients of any clawback agreement or it s

incentives to steer retail business to Travelers Bond .

92. Aon's longstanding relationship with Chubb is illustrative of both the Individual

Defendants' involvement in the commission, steering and clawback schemes, as well as th e

interrelation of those schemes . In the summer of 2000, Chubb Executive Risk, a newly acquired

Chubb subsidiary focusing on the insurance needs of business executives , conducted an extensive

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4

review of its insurance lines to determine how to structure its reinsurance purchases . Prior to being

acquired by Chubb in 1999, Executive Risk had used Carvill America, Inc . as a reinsurance broker

for its D&O reinsurance program .

93 . On June 19, 2000, Aon's chief reinsurance officer from its Philadelphia office wrote a

memorandum to defendant O'Halleran desc ribing his conversations with top Chubb executives about

Aon Re's desire to handle Chubb Executive Risk' s reinsurance . Chubb Executive Risk' s president

reacted negatively to the "One Aon" message , explaining , "Aon Re originally received the Chub b

casualty reinsurance program some three years ago because of commitments made by

O'Halleran/Ryan to Dean O'Hare regarding increased retail growth ." Chubb believed that "this di d

not happen and, therefore, [Chubb's] attitude was so much for the leverage card ." See Exhibit 33

(AON-F-020487) .

94, Two months later, the same Aon executive wrote a second memorandum t o

O'Halleran describing his meeting with three top Chubb executives about reinsurance . Once again,

the Aon executive said that "any conversations we would have would be in the context of the overall

Aon/Chubb corporate trading relationship ." See Exhibit 34 (AON-F-020379). This time, Chubb' s

chief underwriting officer "became extremely angry and animated," and "strongly advised me `not t o

go there . "' Id. The Chubb executive explained , "[fl n Chubb ' s mind , Aon did not deliver on original

promises made when [Chubb] awarded Aon Re the casualty reinsurance some three years ago ." The

Chubb executive raised a number of other areas of contention between Aon and Chubb, includin g

that the "Aon/Chubb relationship is deteriorating ," noting that "[o]verall premium volume betwee n

AonlChubb down some $90,000 ,000." Id.

95. Chubb had voiced similar complaints earlier that year . See Exhibits 35 (2CHUBB

000951) and 36 (2CHUBB 000962-63) . In other correspondence, an executive from Chubb

Executive risk complained, "Pat Ryan is well-known for leveraging the scope of Aon's brokerag e

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relationships . Can you ask him why they just moved $15,000,000 in non-profit D&O . . . business

from me in Washington, DC . . . when at the same time you were soliciting [Chubb Executive Risk' s

reinsurance ] business here in Simsbury?" See Exhibit 37 (AON-F-020514) .

96. On September 13, 2000, Ryan and Chubb's Chairman and CEO, Dean O'Hare, me t

for dinner at the Four Seasons Hotel in Chicago . See Exhibit 38 (2CHUBB 000984) . At some point

prior to the meeting, Ryan had called O'Hare by telephone to inquire about Aon Re's bid to obtain

Chubb Executive Risk's D&O reinsurance . O'Hare said he would look into the matter, but stresse d

to Ryan that Chubb was not happy with the current Aon relationship, as Aon was not giving enoug h

retail business to Chubb .

97. In preparation for the Four Seasons dinner, a Chubb executive spoke with O'Hallera n

and then briefed O'Hare on the issues to be discussed . Chubb's first priority was to stop the

"bleeding" in new retail business by highlighting its contingent commission with Aon : "We need to

tell them we are open for business (e.g., their new business production) and are paying them extra

for it." See Exhibit 39 (2CHUBB-000978) (emphasis in original) . The Chubb executive also tol d

O'Hare that Aon Re would like to "quote" Chubb Executive Risk's reinsurance program . See id at

2CHUBB-000979 .

98. At the Four Seasons , Ryan stressed that Aon Re could do abetter job for Chubb on it s

reinsurance business . O'Hare complained that Aon was not giving Chubb enough retail placements .

With regard to personal lines, O'Hare told Ryan that he was concerned that AIG, a new entrant t o

the high-end segment of the market, was "trying to burn into the market" by offering lower price s

than Chubb. After the meeting , O'Hare told his executives to look at the reinsurance business to

"see what Aon can do for us . "

99 . Despite these conversations, on October 11, 2000 Chubb Executive Ris k

recommended continuing with Carvill as the broker for the placement of a layer of the D& O

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reinsurance . See Exhibit 40 (2CHUBB 000906-911) . Chubb' s management in Warren, New Jersey

agreed with Chubb Executive Risk's recommendation to keep the business with Carvill .

100. On or about October 17, 2000, Ryan tracked down O'Hare, who was traveling in

Brazil at the time, to discuss Chubb Executive Risk' s reinsurance . After the call O'Hare - without

consultation with other Chubb staff- told his secretary to notify his senior executives, who were stil l

recommending Carvill, that Aon Re would receive the Chubb Executive Risk D& O reinsurance

business . One Chubb executive recalls later joking with O'Hare about his decision to overrule hi s

staff: "[Y]ou [sure] complicated my life as to timing" as Chubb Executive risk had alread y

recommended Carvill, and the January 1, 2001 renewal date for the D&O reinsurance program was

fast approaching .

101 . Notes taken by a participant in a conference call between Chubb and Carvill on th e

next day, October 18, 2000, purport to describe the conversation between Ryan and O'Hare :

Dean O'Hare has promised Pat Ryan Aon will get the lion share of [ChubbExecutive Risk's] reinsurances . Promise made some time ago and Ryan called Dean[O'Hare] in S.A. earlier this week to make sure promise being upheld . Told Deanthat Aon handling [reinsurance] is critically important to Aon and Chubb havingpositive relations and if Chubb give [reinsurance] to Aon Ryan willing to put hispersonal credibility and friendship with Dean on the line to make sure Chubb receivepreferential treatment from Aon .

[Four Chubb executives] all opposed to the decision but believe this is a donedeal and do not believe they can convince Dean to change his min d

See Exhibit 41 .

102 . A second set of notes relates a conversation between a Chubb executive and an Aon

executive on October 23, 2000 and were taken by the Aon employee upon being notified that Ao n

Re would get the D&O reinsurance . The notes state that the Chubb executive intended to talk to

O'Hare about why he believed O'Hare had made the wrong decision . See Exhibit 42 (AON-F-

020510). The notes add : "Dean made decisions w/out talking to anybody ." Id.

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n y

103 . On October 30, 2000, O'Halleran wrote to Chubb to extend his gratitude for Chubb' s

D&O reinsurance business, and noted: "As promised, I am arranging a conference call with ou r

financial services people, you and Executive Risk and also checking on personal issues ." See

Exhibit 43 (CHUBB-035506) .

104. O'Halleran continued to monitor the Aon/Chubb relationship . On May 6, 2003 ,

Robert Needle wrote to O'Halleran : "there is quite a bit of attention being paid to the Chubb

relationship. We have 3 areas of focus and 3 corresponding PSA agreements," notably in the

commercial insurance , D&O and personal lines areas . See Exhibit 3 (AON- 19-006333) . Other to p

Aon executives also monitored the Chubb/Aon relationship . On October 6, 2003, Eric Andersen

reported to Chubb :

I can tell you unequivocally that we have maintained a very aggressive pro-Chubbposition as you have repositioned your book of business based on your allocationposition . The growth in the middle market area, for example, has been very strong(much to the angst of your competitors who call weekly, pay a larger commissionpercentage and demand a greater share of that business based on their more activerole on the primary placements for the large accounts) .


FRAUDULENT SCHEME AND FALSE AND MISLEADINGSTATEMENTS AND OMISSIONS DURING THE CLASS PERIO D

105 . On May 5, 2003, defendants issued a Company press release entitled "Aon Report s

First Quarter 2003 Results ; Operating Segment Pretax Income Grows 10%." The press releas e

reported Aon's 1 Q03 financial results, including EPS/net income per share3 of $0 .48, net income of

$ 152 million, consolidated revenues of $2 .388 billion and Risk Services revenue of $1 .374 billion .

The press release further reported that Aon's Risk Services segment, which represented 90% of th e

3 EPS and "net income per share" are synonymous terms in financial statement accounting and wereused interchangeably by Aon .

-35-

Company's pre-tax income, grew pre-tax income "22% to $230 million and pre-tax margin s

expanded to 16.7%," driven by "new business development and better retention rates ." The press

release quoted defendant Ryan touting the Company's positive results : "We achieved double-digit

organic revenue growth in our operating segments driven by continued client demand for ou r

products and services ."

106. That same day, May 5, 2003 , defendants hosted a conference call with analysts and

investors to discuss Aon's business operations , prospects and 1 Q03 results . The call repeated and

addressed the information previously made public in Aon's May 5, 2003 press release . Defendants

Ryan, O'Halleran and Bolger spoke during the call and had an opportunity to address analysts' an d

investors' questions and concerns . In his remarks to the analysts and investors participating on th e

call, defendant Ryan stated, "[w]e achieved 10-percent growth in our operating segment pre-tax

income, driven by improved brokerage results ." Ryan continued, "[t]he financial outlook for Aon ,

we believe, is strong . I'd like to reiterate that Aon's fundamental businesses are doing well ."

107. On May 15, 2003, defendants filed Aon's quarterly report with the SEC on Form

10-Q. The Company's Form 10-Q was signed by defendant Bolger and contained Aon's previously

announced 1 Q03 consolidated financial statements . In the Management ' s Discussion and Analysis

of Financial Condition and Results of Operations section of the Form 10-Q, defendants reported that

"an increase in brokerage commissions and fees, reflecting the growth in new business, stron g

renewal rates of existing products and outsourcing contracts" allowed the Company to announc e

strong overall growth of 14% quarter to quarter .

108. Aon's Form 10-Q for 1 Q03 also confirmed the following :

Aon's management, including the Chief Executive Officer [defendant Ryan]and Chief Financial Officer [defendant Bolger], performed an evaluation (the"Evaluation") of the effectiveness of Aon's disclosure controls and procedures as ofa date within 90 days of the filing of this Quarterly Report on Form 10-Q and havedetermined that such controls and procedures are designed in such a way to ensurethat all material information required to be filed in this Form 10-Q has been made

-36-

known to them in a timely fashion. There were no significant changes in Aon'sinternal controls, or in other factors that could significantly affect these controls,subsequent to the date the Evaluation was completed .

109 . Filed together with Aon's 1 Q03 Form 10-Q were certifications from defendants Ryan

and Bolger in compliance with §§302 and 906 of the Sarbanes -Oxley Act of 2002 . Included in the

certifications were statements by Ryan and Bolger asserting that they had reviewed the Company' s

1 Q03 Form 10-Q and that the public report "does not contain any untrue statement of a material fact


under which such statements were made , not misleading" as of May 15, 2003 .

110 . Aon's May 5, 2003 press release and conference call and 1Q03 Form 10-Q filin g

were false and misleading when made and failed to disclose material information concerning Aon' s

financial results, business and business practices . Defendants knew or recklessly disregarded, bu t

failed to disclose, the following :

(a) As detailed in ¶¶54-104, for 1 Q03 defendants were able to report income an d

revenue growth and $0.48 EPS, exceeding analyst expectations , directly as a result of booking

approximately $39 million in 100% margin, improper contingent commission revenue . But for the

improper contingent commission kickbacks, defendants would have been forced to disclose 1 Q0 3

EPS of only $0 .40, 20% less than reported and missing expectations by $0.07 per share .

(b) As detailed in ¶¶189-224, Aon' s financial statements for 1Q03 were

incomplete , misleading and failed to comply with GAAP ;

(c) Aon's Risk Services revenue and income were also artificially inflated by the

use of "clawback" agreements to improperly generate reinsurance revenue (through Aon's Aon R e

subsidiary) and income ;

-37-

(d) The nature and magnitude of Aon's contingent commission scheme, despite

the fact that the commission kickbacks were a material source of revenue and earn ings and th e

commission kickbacks were based on proceeds from defendants' steering practices ;

(e) The improper steering of clients in order to maximize contingent

commissions, which caused many of the Company's clients to pay more in insurance premium s

and/or obtain insurance coverage with less desirable terms than they would have if Aon conducted a

genuine competitive bidding process on behalf of its clients ;

(f) As detailed in ~¶216-219, Aon's earnings were overstated because defendant s

failed to reserve for contingent losses associated with the commission kickbacks, steering an d

clawback schemes ; and

(g) The material risk that, as a result of relying on improper business practices t o

generate substantial revenues and earnings, these revenues, which constituted a material portion of

Aon's income, were contingent on continued nondisclosure and obfuscation and that disclosure o f

these practices would likely have an adverse, negative impact on the Company's client relationships

and subject Aon to fines, penalties , claims for restitution and damages .

111. Defendants' statements beginning on May 5, 2003, which were misleading and

omitted material information, had a direct effect on Aon's stock price, which increased $1 .13 per

share on heavy volume on May 5, 2003 and rose more than 10% to $23 .79 per share by the close o f

May 15, 2003

112. On August 5, 2003, defendants issued a Company press release entitled "Aon Reports

Second Quarter and Six Months 2003 Results ." The press release reported Aon's 2Q03 financial

results, including EPS/net income per share of $0 .46, net income of $146 million, consolidate d

revenues of $2 .438 billion and Risk Services revenue of $1 .424 billion . For the first six months o f

2003, the press release reported EPS/net income per share of $0 .94, a 62% increase over 2002, net

-38-

income of $298 million, an 87% increase over 2002, consolidated revenues of $4 .826 billion and

Risk Services revenue of $2 .798 billion . The release asserted that "[c]ontinued demand for Aon' s

services and products and improved investment income drove the increases ." Defendant Ryan was

quoted claiming, "[s]econd quarter results showed steady improvement in our risk management an d

insurance brokerage operations" and "[c]lient demand for our services and products continues to b e

robust, as evidenced by our solid organic revenue growth ." The press release further stated that

Aon's Risk Services segment grew 17% in 2Q03 with the Consulting segment growing 19% durin g

the same period and quoted Ryan :

"We had solid organic revenue growth in the quarter and brokerage marginshave improved year-over-year," Mr. Ryan said . "We have recruited some excellentnew talent into our organization, and our franchise has never been stronger in termsof delivering valuable services and products to our clients . "

113. The following day, August 6, 2003, defendants hosted a conference call with analyst s

and investors to discuss Aon's business operations, prospects and 2Q03 results . The call repeated

and addressed the information previously made public in Aon's August 5, 2003 press release .

Defendants Ryan, O'Halleran and Bolger participated on the call and had an opportunity to addres s

analysts' and investors' questions and concerns . During the conference call, Ryan made th e

following remarks conce rn ing Aon's 2Q03 financial results-

I'd like to start-off by saying that I think we had a good fundamentaloperating performance in each of our business segments in the second quarter . . .We had double digit organic revenue growth for our combined operating segments,which I think illustrates very good client demand for our services and our products .

New business development was good. Higher retention rates drove thisimprovement in Americas' brokerage .

114. On August 13, 2003, defendants filed Aon's quarterly report with the SEC on For m

10-Q . The Company's Form 10-Q was signed by defendant Bolger and contained Aon's previously

announced 2Q03 and six month consolidated financial statements . In the Management's Discussion

-39-

and Analysis of Financial Condition and Results of Operations section of the Form 10-Q, defendants

attributed Aon's increased revenues and earnings, in part, to :

• an increase in brokerage commissions and fees for both the quarter and year-to-date, reflecting the growth in new business, strong renewal rates ofexisting products and higher revenue from outsourcing contracts

• very good results from the reinsurance and international brokerage area s

improvement on America's brokerage through new business developmentand improved retention rate s

115. In the Form 10-Q, defendants also attributed improvements in 2Q03 and first hal f

2003 income to "improving margins in Risk and Insurance Brokerage Services, driven by organic

growth, new business initiatives and improving retention rates . "

116. Aon's Form 10-Q for 2Q03 also confirmed the following :

Aon's management, including the Chief Executive officer [defendant Ryan]and Chief Financial Officer [defendant Bolger], performed an evaluation (the"Evaluation") of the effectiveness of Aon's disclosure controls and procedures as ofJune 30, 2003, and have determined that such controls and procedures are designedin such a way to ensure that all material information required to be filed in this Form10-Q has been made known to them in a timely fashion . There were no changes inAon's internal controls over financial reporting that were identified during theEvaluation that occurred during Aon's last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, Aon's internal controls overfinancial reporting .

117. Filed together with Aon's 2Q03 Form 10-Q were certifications from defendants Rya n

and Bolger in compliance with §§302 and 906 of the Sarbanes-Oxley Act of 2002. Included in the


2Q03 Form I 0-Q and that the public report "does not contain any untrue statement of a material fact


under which such statements were made , not misleading" as of August 13, 2003 .

-40-

118 . Aon's August 5, 2003 press release , August 6, 2003 conference call and 2Q03 Form

10-Q filing were false and misleading when made and failed to disclose material informatio n

concerning Aon's financial results, business and business practices . Defendants knew or recklessly

disregarded, but failed to disclose, the following ;

(a) As detailed in ¶¶54-104, for 2Q03 and the first six months of 2003, defendants

were able to report income and revenue growth and $0 .48 and $0.94 EPS, respectively, exceedin g

analyst expectations, directly as a result of booking approximately $39 million in 100% margin ,

improper contingent commission revenue in 2Q03 and approximately $78 million in the first si x

months of 2003 . But for the improper contingent commission kickbacks, defendants would hav e

been forced to disclose 2Q03 EPS of only $0 .38, 20% less than reported and missing expectations b y

$0.07 per share ;

(b) As detailed in ¶1189-224, Aon's financial statements for 2Q03 were

incomplete, misleading and failed to comply with GAAP ;

(c) Aon's Risk Services revenue and income were also artificially inflated by th e

use of "clawback" agreements to improperly generate reinsurance revenue ;

(d) The nature and magnitude of Aon 's contingent commission scheme , despite

the fact that the commission kickbacks were a material source of revenue and earnings and th e






-41-

(f) As detailed in ¶1216-219, Aon's earnings were overstated because defendant s




generate substantial revenues and earnings, these revenues, which constituted a material portion o f

Aon's income, were contingent on continued nondisclosure and obfuscation and that disclosure of

these practices would likely have an adverse, negative impact on the Company's client relationship s

and subject Aon to fines, penalties, claims for restitution and damages .

119. Defendants' statements in August 2003, together with the earlier false and misleadin g

statements identified herein, caused Aon's stock to continue to trade at artificially in flated prices .

120. On November 4, 2003, defendants issued a Company press release entitled "Ao n

Reports Third Quarter and Nine Months 2003 Results ." The press release included Aon's 3Q03

financial results, including EPSlnet income per share of $0 .36, net income of $140 million ,

consolidated revenues of $2.391 billion , an increase of 7% compared to 3Q02 , and Risk Services

revenue of $1 .370 billion . For the first nine months of 2003, defendants reported EPS/net income

per share of $1 .41, up 30% compared to 2002, net income of $448 million, up 49% compared t o

2002 consolidated revenues of $7 .209 billion, up 12% compared to 2002, and Risk Services revenue

of $4.168 billion . Defendant Ryan was quoted in the release , noting "[w]e have an outstanding tea m

of professionals, a tremendous client franchise and industry-leading resources. We intend to impose

a dramatically increased level of discipline around our operations with a clear goal of increasin g

financial returns for our stockholders . "

121 . That same day, November 4, 2003, defendants hosted a conference call with analyst s

and investors to discuss Aon's business operations, prospects and 3Q03 results . The call repeated

and addressed the information previously made public in Aon's November 4, 2003 press release .

-42-

Defendants Ryan, O'Halleran and Bolger each spoke on the call and had an opportunity to addres s

analysts' and investors' questions and concerns . Defendant Ryan, commenting on Aon's financia l

results and his involvement at the Company, stated "the buck stops with me" and "I've orchestrated

the global growth ofAon, and 1 plan to direct the actions designed to get our financial returns and

growth rates back the levels that our shareholders deserve . "

122. On November 13, 2003 , defendants filed Aon' s quarterly repo rt with the SEC on

Form 10-Q. The Company' s Form 10-Q was signed by defendant Bolger and contained Aon' s

previously announced 3Q03 and nine month consolidated financial statements . In the Management' s

Discussion and Analysis of Financial Condition and Results of Operations section of the Form 10-Q ,

defendants attributed Aon's increased revenues and earnings, in part, to :

an increase in brokerage commissions and fees for both the quarter and year-to-date, reflecting the growth in new business and improved renewal rates formost of our businesses and, for the nine-month period, higher revenue fromoutsourcing contracts

• very good results from the reinsurance and inte rnational brokerage area s

• improvement in America's brokerage through new business development andimproved retention rate s

123 . Aon's Form 10-Q for 3Q03 also confirmed the following :

Aon's management, including the Chief Executive Officer [defendant Ryan]and Chief Financial Officer [defendant Bolger], performed an evaluation (the"Evaluation") of the effectiveness of Aon's disclosure controls and procedures as ofSeptember 30, 2003, and have determined that such controls and procedures aredesigned in such a way to ensure that all material information required to be filed inthis Form 10-Q has been made known to them in a timely fashion . There were nochanges in Aon's internal controls over financial reporting that were identifiedduring the Evaluation that occurred during Aon's last fiscal quarter that havematerially affected, or are reasonably likely to materially affect, Aon's internalcontrols over financial reporting .

124 . Filed together with Aon's 3Q03 Form 10-Q were certifications from defendants Rya n

and Bolger in compliance with §§302 and 906 of the Sarbanes -Oxley Act of 2002 . Included in the

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3Q03 10-Q and that the public report "does not contain any untrue statement of a material fact o r

omit to state a material fact necessary to make the statements made, in light of the circumstance s

under which such statements were made , not misleading" as of November 13, 2004 .

125 . Aon's November 4, 2003 press release and conference call and 3Q03 Form 10-Q

filing were false and misleading when made and failed to disclose material information concernin g

Aon's financial results, business and business practices . Defendants knew or recklessly disregarded ,

but failed to disclose, the following :

(a) As detailed in ¶¶54-104, for 3Q03 and the first nine months of 2003

defendants were able to report income and revenue growth and $0.36 and $1 .41 EPS, respectively,

directly as a result of booking approximately $39 million in 100% margin, improper contingen t

commission revenue in 3Q03 and $117 million in the first nine months of 2003 . But for the

improper contingent commission kickbacks, defendants would have been forced to disclose 3Q0 3

EPS of only $0 .28, 27% less than reported and widely missing expectations by $0.17 per share .

(b) As detailed in ¶¶189-224, Aon's financial statements for 3Q03 were

incomplete, misleading and failed to comply with GAAP ;



(d) The nature and magnitude of Aon' s contingent commission scheme , despite

the fact that the commission kickbacks were a material source of revenue and earnings and the




-44-



(f) As detailed in ¶216-219, Aon's earnings were overstated because defendants





Aon's income , were contingent on continued nondisclosure and obfuscation and that disclosure of

these practices would likely have an adverse, negative impact on the Company' s client relationships


126. Defendants' statements in November 2003, together with the earlier false and

misleading statements identified herein, caused Aon's stock to continue to trade at artificiall y

inflated prices .

127. On February 10, 2004, defendants issued a Company press release entitled "Aon

Reports Fourth Quarter and Twelve Months 2003 Results ." The press release included Aon's 4Q03

financial results, including EPS/net income per share of $0 .67, up 14% compared to 2002, net

income of $215 million, up 21% compared to 2002, consolidated revenues of $2 .601 billion, up 10%

compared to 2002 , and Risk Services revenue of $ 1 .509 billion . For 2003 , defendants reported

EPS/net income per share of $1 .97, up 20% compared to 2002, net income of $628 million, up 35 %

compared to 2002, consolidated revenues of $9 .810 billion and Risk Services revenue of $5 .67 7

billion. The press release asserted that "[s]olid demand for Aon's services and products drove the

increases ."

128 . The following day, February 11, 2004, defendants hosted a conference call with

analysts and investors to discuss Aon's business operations , prospects and 4Q03 and FY2003 results .

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The call repeated and addressed the information previously made public in Aon's February 10, 200 4

press release. Defendants Ryan, O'Halleran and Bolger each participated on the call and had an

opportunity to address analysts' and investors' questions and concerns . During the call, defendant

Ryan addressed a question regarding PSAs, which were later disclosed to be contingent commissio n

agreements :

Dave MacGown (Citigroup analyst) : The second question, we've seen a little bit ofnoise lately around this topic of PSAs for the insurance brokers. I don't think I'veheard you talk about this before . If you have, l missed it . Could you give us somefeel of how much this type of business you've been doing ?

Patrick Ryan: You know, PSA is a term that Marsh has used to describerelationships that they have with underwriters . We have had, for many years,relationships where we provide services to underwriters - as a matter of fact, wehave business managing underwriting businesses for carriers, so it has beensomething that we've been doing for a very long time . We've talked openly about it .We have had disclosure to our clients around the world that we do provide services,and we do get compensated from the carrier for those services and we havedisclosure in our billing statements , we have disclosure in our fee agreements, wehave disclosure on our web site . This is not something new and this is not a mystery .It's just the relationship we have with underwriters . It's a revenue item for us andthat's something we've had for a long time . We expect to continue that .

Dave MacGown (Citigroup analyst) : So Pat, it doesn't sound like you see alot of potential regulatory risk surrounding the types of arrangements at least youhave set up .

Patrick Ryan : I don't want to anticipate what regulators might do . I'll tellyou that I have no embarrassment whatsoever about our relationships with thecarriers and the services that we provide for them . They are value-added, theyenhance, I think do enhance the client relationship by virtue of the fact we areproviding these services to carriers, so I don't know what regulators might do, but I'lltell you this is a long and well-established and well-substantiated, in my judgment,range of services that we provide in compensation for those .

129. On March 11, 2004, defendants filed Aon' s annual report with the SEC on Form

10-K. The Company's Form 10-K was signed by defendants Ryan, O'Halleran and Bolger and

contained Aon's previously announced 4Q03 and FY2003 consolidated financial statements . In the

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Management's Discussion and Analysis of Financial Condition and Results of Operations section o f

the Form 10-Q, defendants make the following statements :

In 2003, consolidated revenue grew 11% to $9 .8 billion driven by solddemand for our services and products, along with the positive influence of foreignexchange rates . Furthermore ,

• Risk and Insurance Brokerage Services (previously called InsuranceBrokerage and Other Services), our largest segment , exhibited good growthin most major business units .

Brokerage commissions and fees increased 1 I% to $6 .9 billion as a result of-

0 the growth in new busines s

• improved renewal rates for most of our businesse s

130. For Aon's primary Risk Services segment, the 2003 Form 10-K included th e

following description of Aon 's compensation for services:

Revenues are generated through commissions, fees from clients, andcompensation from insurance and reinsurance companies with whom we placebusinessfor services provided to them . Commission rates and fees vary, dependingupon several factors which may include the amount of premium, the type ofinsurance or reinsurance coverage provided, the particular services provided to aninsurer or reinsurer , and the capacity in which the broker acts . We also receiveinvestment income on funds held on behalf of clients .

131 . In the "Notes to Condensed Financial Statements " section of the 2003 Form 10-K ,

defendants confirmed that :

[Aon] has established disclosure controls and procedures to ensure thatmaterial information relating to the Registrant, including its consolidatedsubsidiaries, is made known to the officers and certify the Registrant's financialreports and to other members of senior management and the Board of Directors .

132. Filed together with Aon's 2003 Form 10-K were certifications from defendants Rya n

and Bolger in compliance with §§302 and 906 of the Sarbanes-Oxley Act of 2002. Included in the


2003 Form 10-K and that the public report " does not contain any untrue statement of a material fact

-47-


under which such statements were made, not misleading" as of March 11, 2004 .

133. Aon's 2003 Form 10-K also referred investors and the market to the Company' s

"Code of Ethics for Senior Financial Officers" and "Aon Code of Business Conduct," both availabl e

for investors on Aon's public website . The Code of Ethics, signed by each of the defendants,

required : "I provide full, fair, accurate, timely and understandable disclosure on SEC reports and

other public communications ." In a letter accompanying the Aon Code of Business Conduct ,

defendant Ryan asserted "Aon's reputation rests on the unwavering commitment of each and ever y

one of us to act with the highest ethical standards . . . . We act with the highest level of integrity at

all times ." The Code of Business Conduct further provided : "AtAon we are committed to making

full, fair, accurate, timely and understandable financial disclosures to governmental agencies an d

the public . "

134. Aon's February 10, 2004 press release , February 11, 2004 conference call an d

FY2003 F orm 10-K filing were false and misleading when made and failed to disclose materia l

information concerning Aon's financial results , business and business practices . Defendants knew

or recklessly disregarded, but failed to disclose, the following :

(a) As detailed in f154-104, for 4Q03 and FY2003 defendants were able to repor t

income and revenue growth and $0.67 and $1 .97 EPS, respectively, greatly exceeding analys t

expectations directly as a result of booking $52 million in 100% margin, improper contingent

commission revenue in 4Q03 and $ 169 million in FY2003. But for the improper contingent

commission kickbacks, defendants would have been forced to disclose 4Q03 EPS of only $0 .57 ,

18% less than reported and FY03 EPS of only $1 .63, 20% less than reported and missing

expectations by $0 .34 per share ;

-48-

(b) As detailed in ¶J189-224, Aon's financial statements for 4Q03 and FY200 3

were incomplete, misleading and failed to comply with GAAP ;



(d) The nature and magnitude of Aon's contingent commission scheme, despit e



(e) The contingent commission kickbacks were not based on any legitimat e

"service" to insurance underwritersor for "managing underwriting business for carriers," but related

solely to steering business to insurance carriers paying these fees ;

(f) The improper steering of clients in order to maximize contingen t




(g) As detailed in %216-219, Aon' s earnings were overstated because defendant s



(h) The material risk that, as a result of relying on improper business practices to





135 . Defendants' statements beginning on February 10, 2004, which were misleading and

omitted material information, had a direct effect on the Aon's stock price, which increased nearl y

-49-

$1 .00 per share from February 9 to February 13, 2004 and, together with the earlier false an d


inflated prices .

136 . On April 22, 2004, defendants issued a press release disclosing that Aon had received

a subpoena from the NYAG . The press release stated only that the subpoena sought " information

regarding certain compensation agreements between insurance brokers and insurance companies, "

and asserted "[sluch compensation agreements between insurance companies and brokers are a

longstanding and common practice within the insurance industry . "

137. Aon's April 22, 2004 press release was misleading when made and failed to disclos e

the nature and magnitude of Aon' s contingent commission and stee ring schemes , the material impact

on the Company's financial results as a result of revenue and income booked as a result of the

contingent commission agreements or defendants' efforts to obfuscate the agreements from

investors, the market and Aon's consumer clients .

138. While the April 22, 2004 press release, released after the close of the market, did no t

disclose the nature or magnitude of the contingent commission agreements, the partial disclosur e

resulted in Aon's stock price dropping $2 .20 per share from the April 22 closing price to the end o f

April 25, 2004, two trading days later, on heavy volume of over four million shares per day .

139. On May 3, 2004, defendants issued a Company press release entitled "Aon Reports

First Quarter 2004 Results ." The press release included Aon's 1 Q04 financial results , including

EPS/net income per share of $0.53, net income of $170 million, consolidated revenues of $2.573

billion and Risk Services revenue of $1 .473 billion, all of which were reported to have increase d

compared to 2003 .

140. The following day, May 4, 2004, defendants hosted a conference call with analyst s

and investors to discuss Aon's business operations , prospects and 1Q04 results . The call repeated

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and addressed the information previously made public in Aon's May 3, 2004 press release .


analysts' and investors' questions and concerns . During the call, defendants again addresse d

questions about the existence, nature and magnitude of contingent commission agreements :

Patrick Rte : I'm sure as many of you know, Aon issued a press releaseabout two weeks ago to let investors know that Aon had received a request forinformation from the State of New York. After our announcement, some of ourpeers then acknowledged that they too had received requests for information . We arefully cooperating with the New York inquiry .

Some of you may recall that I received a question on our fourth quarterconference call about this topic, and I said at that time that these compensationagreements are a common, long-standing industry practice and that we havedisclosed their existence to our clients through our invoices, through our feeagreements and on our website for some time . We provide valuable services tounderwriters that we need to be compensatedfor, and the underwriters obviouslyagree . We continue to believe that these agreements are entirely appropriate .

Jay Cohen (Merrill Lynch analyst) : [C]an you somehow identify the amountof contingent commissions that you receive from volume-based agreements? And Iknow it's not something you have disclosed in the past, I'm hoping you will . And ifyou won't, why not?

Patrick Ryan : Well, Jay, you broke the rules, but we're going to answer allyour questions. And let me start out by saying that it's a fair and reasonablequestion. I was saying that we want to keep one question at a time .

So you did say "volume-based ." I'd like to qualify the answer by saying thatwe get compensatedfor a wide range of services and they are not all volume-based .But I don't want to split hairs, but I wanted to put that out there . Providing a precisenumber is not really possible at this stage because Aon, and we believe otherbrokers, are still attempting to pin down the scope of what is being talked about .And as I have said in the past, we have many different kinds of relationships withunderwriters, ranging from acting as a managing underwriter to placing insurancecoverage with them as retail brokers and so on. We have, as we said, multiplerelationships and services .

However, for what we believe is the focus of the public discussion the pastcouple of weeks - that is, compensation thatAon receivesfrom underwriters for theservices we provide to underwriters in connection with our brokerage orcommercial and industrial clients - and I think that's the essence of your question .As you know, there's a J .P . Morgan paper out there, and they estimated

-51-

approximately 200 million . What we're saying is that J .P . Morgan's estimate ofapproximately 200 million, given what I just said prior to that, is reasonable estimatefor Aon in 2003 . Now, this estimate, for those who are not familiar with it, was setforth in a January 13, 2004 report entitled "Insurance Non-Life ." So we're sayingthat based on that description that I just gave, that that's a reasonable estimate forAon's 2003 numbers .

Vinay Sugi (Morgan Stanley analyst) : Just following up on Jay's question,appreciate the $200 million number . If you could give us a sense of what themargins on this business are like relative to your regular business or relative to thecommission that you receive or the fees you receive otherwise .

Patrick Ryan: We really can't break that out. We obviously believe that weincur a lot of expenses on behalf of the underwriter, but we wouldn 't beak themargin out. But there are expenses attached to it .

141 . During the May 4, 2004 conference call, defendant Bolger also responded to a n

analyst's question about accounting "surprises" :

As I said, first of all, we're going to do the right thing in terms of how weaccount and report our numbers . If that means that there's some noise in thenumbers, we're sorry for that, but we're going to provide as much transparency tolet you guys do your jobs as we can .

142 . On May 7, 2004, defendants filed Aon's quarterly report with the SEC on Form 10-Q .

The Company's Form 10-Q was signed by defendant Bolger and contained Aon's previously

announced 1 Q04 consolidated financial statements . In the Management' s Discussion and Analysi s

of Financial Condition and Results of Operations section of the Form I0-Q, defendants attribute d

Aon's increased revenues and earnings, in part, to :

• an increase in brokerage commissions and fees primarily reflecting thegrowth in new business

• good results from International and Americas risk management insurancebrokerage

• improvement in Americas brokerage due to new business developmen t

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U .S. revenue increased slightly in the first quarter as retail brokerage postedpositive growth driven primarily by new business development,improvements in new recurring business and favorable pricing over last year.

143 . The Form 10-Q also repeated the general information about the NYAG subpoena that

was contained in Aon's April 22, 2004 press release .


Aon's management, including the Chief Executive Officer [defendant Ryan]and Chief Financial Officer [defendant Bolger], performed an evaluation (the"Evaluation") of the effectiveness of Aon's disclosure controls and procedures as ofMarch 31, 2004, and have determined that such controls and procedures are designedin such a way to ensure that all material information required to be filed in this Form10-Q has been made known to them in a timely fashion . There were no changes inAon's internal controls over financial reporting that were identified during theEvaluation that occurred during Aon's last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, Aon's internal controls overfinancial reporting .

145. Filed together with Aon's 1 Q04 Form 10-Q were certifications from defendants Ryan

and Bolger in compliance with §§302 and 906 of the Sarbanes-Oxley Act of 2002 . Included in the


1 Q04 Form 10-Q and that the public report "does not contain any untrue statement of a material fac t


under which such statements were made, not misleading" as of May 7, 2004 .

146. Aon's May 3, 2004 press release , May 4, 2004 conference call and 1 Q04 Form 10- Q

filing were false and misleading when made and failed to disclose material information concernin g

Aon's financial results, business and business practices . Defendants knew or recklessly disregarded ,

but failed to disclose, the following :

(a) As detailed in 1¶54-104, for 1 Q04 defendants were able to report income an d

revenue growth and $0.53 EPS, meeting analyst expectations, directly as a result of bookin g

approximately $35 million in 100% margin, improper contingent commission revenue in 1Q04 . But

- 53 -

for the improper contingent commission kickbacks, defendants would have been forced to disclos e

i Q04 EPS of only $0 .46, 16% less than reported and missing expectations by $0 .07 per share ;

(b) As detailed in I¶189-224, Aon's financial statements for 1Q04 were


(c) Aon 's Risk Se rvices revenue and income were also artificially inflated by the


(d) The nature and magnitude of Aon's contingent commission scheme , despite

the fact that the commission kickbacks were a mate rial source of revenue and earnings and the


(e) The contingent commission kickbacks were not based on "valuable services, "

"a wide range of services" or for "services [Aon] provides to underwriters in connection with our

brokerage or commercial and industrial clients," but related solely to steering business to insuranc e

carriers paying these fees ;

(f) Because the contingent commission kickbacks were related solely to steerin g

business to specific insurance carriers, there were no material expenses related to the revenue

derived from these agreements ;

(g) The improper steering of clients in order to maximize contingent

commissions , which caused many of the Company' s clients to pay more in insurance premiums



(h) As detailed in J216-219, Aon' s earnings were overstated because defendants



-54-

(i) The material risk that, as a result of relying on improper business practices t o





147 . Defendants' statements in May 2004, together with the earlier false and misleading

statements identified herein, caused Aon's stock to continue to trade at artificially inflated prices .

148 . On August 4, 2004, defendants issued a Company press release entitled "Aon Reports

Second Quarter and Six Months 2004 Results ." The press release included Aon's 2Q04 financia l

results, including EPS/net income per share of $0.52, net income of $180 million, consolidated

revenues of $2 .545 billion and Risk Services revenue of $1 .433 billion . For the first six months of

2004, the press release reported EPS/net income per share of $1 .13, net income of $371 million ,

consolidated revenues of $5 .110 billion and Risk Services revenue of $2 .898 billion.

149. The following day, August 5, 2004, defendants hosted a conference call with analyst s

and investors to discuss Aon's business operations, prospects and 2Q04 results . The call repeate d

and addressed the information previously made public in Aon's August 4, 2004 press release .


analysts' and investors' questions and concerns .

150. Thereafter, on August 6, 2004, defendants filed Aon's quarterly report with the SE C

on Form 10-Q. The Company's Form 10-Q was signed by defendant Bolger and contained Aon' s

previously announced 2Q04 consolidated financial statements . In the Management's Discussion and

Analysis of Financial Condition and Results of Operations section of the Form 10-Q, defendant s

attributed Aon's increased revenues and earnings, in part, to :

-55-

• an increase in brokerage commissions and fees reflecting improvement inunderwriting commissions and fee s

151 . The Form 10-Q also repeated the general information about the NYAG subpoena that

was contained in Aon's April 22, 2004 press release .


Aon's management, including the Chief Executive Officer [defendant Ryan]and Chief Financial Officer [defendant Bolger], performed an evaluation (the"Evaluation") of the effectiveness of Aon's disclosure controls and procedures as ofJune 30, 2003, and have determined that such controls and procedures are designedin such a way to ensure that all material information required to be filed in this Form10-Q has been made known to them in a timely fashion . There were no changes inAon's internal controls over financial reporting that were identified during theEvaluation that occurred during Aon's last fiscal quarter that have materiallyaffected, or are reasonably likely to materially affect, Aon's internal controls overfinancial reporting .

153 . Filed together with Aon's 2Q04 Form 10-Q were certifications from defendants Rya n

and Bolger in compliance with §§302 and 906 of the Sarbanes-Oxley Act of 2002 . Included in th e


2Q04 Form I 0-Q and that the public report "does not contain any untrue statement of a mate rial fact


under which such statements were made, not misleading" as of August 6, 2004 .

154. Aon' s August 4 , 2004 press release , August 5 , 2004 conference call and 2Q04 Form

10-Q filing were false and misleading when made and failed to disclose material informatio n

concerning Aon's financial results, business and business practices . Defendants knew or recklessly

disregarded, but failed to disclose, the following :

(a) As detailed in ¶¶54-104, for 2Q04 and the first six months of 2004 defendant s

were able to report income and revenue growth and $0 .52 and $1 .13 EPS, respectively, meeting

analyst expectations directly as a result of booking $41 million in 100% margin , improper contingent

commission revenue in 2Q04 and $78 million in the first half of 2004 . But for the improper

-56-

contingent commission kickbacks, defendants would have been forced to disclose 2Q04 EPS of only

$0.45, 19% less than reported and missing expectations by $0 .07 per share ;

(b) As detailed in ¶J189-224, Aon's financial statements for 2Q04 were


(c) Aon's Risk Services revenue and income were also artificially inflated by th e


(d) The nature and magnitude of Aon's contingent commission scheme, despit e



(e) The improper steering of clients in order to maximize contingen t

commissions, which caused many of the Company' s clients to pay more in insurance premium s



(f) As detailed in ~¶216-219, Aon's earnings were overstated because defendant s





Aon's income , were contingent on continued nondisclosure and obfuscation and that disclosure o f

these practices would likely have an adverse, negative impact on the Company's client relationships


155 . Defendants' statements in August 4, 2004, together with the earlier false and


inflated prices .

-57-

THE TRUTH ABOUT DEFENDANTS' CONTINGENT COMMISSIONKICKBACKS, STEERING AND CLAWBACK SCHEMES IS REVEALE D

156. On the morning of October 14, 2004, defendants' scheme was revealed when, after a

lengthy investigation, the NYAG filed a civil complaint against insurance broker Marsh exposing the

rampant insurer -broker contingent commission kickbacks and steering schemes . Together with the

complaint, the NYAG issued a press release titled "Investigation Reveals Widespread Corruption in

Insurance Industry" and NYAG Eliot Spitzer implicated Aon, which was already under

investigation , among others , in the corruption . The NYAG press release quoted Spitzer : "If the

practices identified in our suit are as widespread as they appear to be, then the industry' s

fundamental business model needs major corrective action and reform ." Spitzer continued : "There

is simply no responsible argument for a system that rigs bids, stifles competition and cheat s

customers ."

157 . In response to the NYAG complaint and concurrent announcement of "widesprea d

corruption in [the] insurance industry," defendants quickly issued a press release on October 14 ,

2004 admitting that Aon participated in contingent commission agreements but, once again,

misleadingly claimed that these commissions were earned for "services provided to insurers," were a

"longstanding and well-known practice in the insurance industry" and were disclosed by Aon to it s

clients .

158. Defendants' efforts at damage control fell woefully short, however, as investor' s

reaction to the revelation of the nature and scope of the brokerage commission arrangements an d

steering schemes was both swift and severe . Aon's stock fell $4.42 per share on October 14, 2004

alone , a 16% drop on record volume of 14 . 1 million shares , and continued to spiral downward on

-58-

massive volume as the market reacted to the true facts, which had been long known, but concealed

by defendants.

159. On October 18, 2004, the Wall Street Journal published a front page story title d

"Risky Business : Insurers Reel From Spitzer ' s Strike." The article quoted NYAG Eliot Spitzer

remarking "[i]t's the same kind of cartel-like behavior carried out by organized crime" and reported

that Aon was "[n]ext on the hot seat" due to defendants contingency commission, steering an d

clawback schemes :

Investigators are examining whether the Chicago-based firm improperly steered itscustomers based on fees from insurers and whether it engaged in bid-rigging .Mr. Spitizer is also probing whether Aon directed business to insurers willing to useits services when buying "reinsurance," or insurance coverage for insurancecompanies, according to people familiar with the matter . This practice, known as"tying" or "leveraging," might result in policyholders getting an inferior deal .

160. The next day, on October 19, 2004, the Wall Street Journal reported in its Street

Sleuth column:

Mr . Spitzer's office is investigating whether Chicago-based Aon Corp .steered business to insurance companies in return for lucrative business for itself,people familiar with the matter say . The business Aon wanted for itself, Mr . Spitzersuspects, involved arranging the insurers' so-called reinsurance - insurance policiesfor insurance companies . Such back-scratching could have disadvantaged Aon'scorporate clients, which paid the firm to find them the best deals without regard to itsown business needs .

161 . On these revelations, Aon's share price continued to fall on incredibly high volume ,

closing on October 19, 2004 at $18 .94 . In only four trading days, from October 14 to October 19 ,

2004, Aon's share price had fallen more than 30% , a total of $8.35 per share .

162 . Then, on October 22, 2004, defendants announced that Aon was terminating its

contingent commission agreements with underwriters . In the press release, defendants finally

admitted, in direct contradiction of earlier statements, that "[c]ontingent commissions are non-

service-specific, volume- or profit-based compensation arrangements ." Defendant Ryan

acknowledged that Aon would " establish a new business model that ensures appropriate linkage of

-59-

compensation to specific measurable services in a way that is transparent, accepted and understoo d

by our clients . "

163 . The following week, on October 28, 2004, Aon issued a press release entitled "Aon

Reports Third Quarter and Nine Months 2004 Results ; Provides Detail on Contingent

Commissions ." In the October 28, 2004 press release, defendants, for the first time, quantified th e

material impact of the contingency commission kickbacks and acknowledged that Aon recorded

$117 million in contingent commissions for the first three quarters of 2004 . The following day,

October 29, 2004, defendants Ryan, O'Halleran and Bolger pa rticipated in a conference call with

analysts and investors during which defendants further revealed that they not only could quantify th e

revenue and income from contingent commissions, but that Aon had taken in at least $169 million in

contingent commission kickbacks in 2003, including $52 million in 4Q03, and that, prior to th e

disclosure of their scheme, defendants expected to receive $50 million in contingent commissions in

4Q04. Defendant Ryan reiterated the material impact of the improper and previously undisclose d

contingency commission revenues warning, "the impact of recent industry developments (including

our decision to terminate contingent commission arrangements), leads us to withdraw our prior

guidance relating to the $2 .20 earnings per share objective ." Defendants also admitted, and later

confirmed in Aon's FY2004 conference call with analysts and investors, that the contingent

commission revenue was, in fact, a "pure profit item" with 100% margins and that eliminating the

contingency kickbacks was a "dollar to dollar hit to the pre-tax income line ."

164 . In the following months Aon reported disappointing financial results directly tied t o

the missing contingent commission revenue . On February 8, 2005, defendants issued a press releas e

titled "Aon Reports Fourth Quarter and Twelve Months 2004 Results" reporting that :

Net income per share for the fourth quarter was $0.56 compared to $0 .65 in2003 . Net income from continuing operations was $192 million or $0 .57 per sharecompared to $216 million or $0 .65 per share a year ago .

-60-

Risk and Insurance Brokerage Services reported revenue was $1 .5 billionfor both the current and prior year quarters, with organic revenue declining 1% .Contingent commission revenue was $11 million in fourth quarter 2004 compared to$46 million in fourth quarter 2003, reflecting the termination of these arrangements .

165. The February 8, 2005 press release quoted defendant Ryan admitting that the absence

of revenue growth was attributable, in part, to the missing contingent commission payments :

"It remains a difficult environment in which to achieve meaningful revenue growthgiven industry pricing trends and our decision to terminate contingent commissionagreements . "

166. Analysts agreed noting : "We have little confidence that Aon's Insurance Brokerag e

segment (73% of earnings) will show a quick recovery in 2005 due to lost contingent commissions . "

167. Less than one month later, on March 3, 2005, Spitzer filed a detailed complaint ,

described herein, against Aon outlining its pervasive use of contingent commission, steering an d

clawback arrangements . See Exhibit 1 . On March 4, 2005, defendants announced that Aon had

settled the regulatory investigations into its use of contingent commission arrangements , bid-rigging

schemes and clawbacks, initiated by the states of New York, Illinois and Connecticut, for $190

million . Id. In addition to the $190 million monetary payment, set aside to be paid to Aon' s

damaged customers, the settlement prohibited Aon from accepting any contingent commission o r

participating in any stee ring or leveraging schemes in the future . Id. According to Illinois Attorney

General Lisa Madigan, "Aon's acceptance of these secret payments was a direct conflict of interest

that harmed Aon's clients ." Madigan continued, "Aon's acceptance of kickbacks was not only

unethical but illegal . "

168 . Included in the settlement was a "Statement of Patrick G . Ryan" in which defendant

Ryan acknowledged :

As these investigations have revealed , Aon and other insurance brokers andconsultants entered into contingent commission agreements and other agreementsthat created conflicts of interest. I deeply regret that we took advantage of those

-61-

conflicts . This conduct violated the longstanding principle embedded in our Code ofConduct and Aon's Values Statement that our clients must always come first . Suchconduct was improper and I apologize for it .

Aon believes that these investigations have done the industry a great service .Aon looks forward to working with regulators, insureds, insurance companies, andother stakeholders to put in place new business practices for the entire industry thateliminate the improper practices exposed by these investigations .

See Exhibit 2 .

DEFENDANTS' KNOWLEDGE AND ADDITIONAL INDICIA OF SCIENTE R

Defendants' Involvement in the Scheme andRepresentations of Actual Knowledg e

169. As detailed in ¶¶54-104, "Defendants' Role in the Contingent Commissio n

Kickbacks, Steering and Clawback Schemes," the defendants were all intimately involved in and ha d

personal knowledge of the nefarious schemes to inflate and maintain Aon's stock price . In addition ,

throughout the Class Period, each of the individual defendants specifically represented to and

assured investors and the market that they were knowledgeable of material aspects of Aon's business

and had taken steps to ensure that all material information was conveyed to them .

170 . At all times during the Class Period, the Individual Defendants held themselves out to

investors and the market as the persons most knowledgeable at Aon about the Company's business ,

business operations , performance and financial results . As described more fully in ¶140-42, 44-45,

47-49, each of the Individual Defendants held one of the top three executive positions at Aon wit h

responsibility for directing and managing the Company's business, review and approving financia l

reporting and making corporate decisions . In addition to holding the positions of Chief Executiv e

Officer and President and Chief Operating Officer, defendants Ryan, who had run Aon for nearly 40

years, and O'Halleran were management directors on Aon's Board of Directors . As such, these

defendants not only interacted with each other on a routine basis, but were responsible for providin g

the Company's outside directors with information about Aon's business, performance and finances .

-62-

171 . Defendants Ryan, O'Halleran and Bolger all routinely communicated with analyst s

and investors during the Class Period and represented that they were informed of and knowledgeabl e

about Aon 's business , including Aon's compensation arrangements and costs associated with the

operation of Aon's businesses . As described in ¶¶106, 113, 121, 128,140,149, all three Individua l

Defendants directly participated in each of the Company's Class Period conference calls wit h

analysts and investors . In the course of these calls, defendants presented information regardin g

Aon's business, revenues, income, purported basis for increasing revenue and income and costs

associated with the operation of Aon's business . In addition, defendants represented that they had

intimate knowledge of these areas and responded to questions regarding these areas and others ,

including questions concerning contingent commission revenue and agreements . At no time did any

of the Individual Defendants respond that they were uninformed about any material aspect of Aon' s

business. Indeed, defendant Ryan, during Aon's November 4, 2003 conference call, specificall y

declared that "the buck stops with me" and "I've orchestrated the global growth ofAon , and I plan

to direct ffuture) actions ." During Aon's May 4, 2004 conference call, defendant Bolger also

proclaimed his knowledge of Aon' s financial reporting : "As I said, first of all, we're going to do

the right thing in terms of how we account and report our numbers . . . we're going to provide as

much transparency to let you guys do your jobs as we can ."

172. Concurrent with their representations on conference calls, the Individual Defendant s

signed and/or certified, based on their knowledge and positions as executive officers, Aon's SE C

filings during the Class Period . Specifically, all three Individual Defendants signed the Company' s

FY2003 Form IO-K and defendant Bolger signed each of Aon's Form 10-Q filings as described i n

¶¶107, 114, 122, 129, 142, 150 . Defendants Ryan and Bolger , moreover, provided certifications

with each of Aon's financial reports filed with the SEC, attesting to their own knowledge of th e

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factual basis for the reported information and purported accuracy of that information, as described i n

¶11109, 117, 124, 132, 145, 153 .

173 . Aon's SEC filings further confirmed that the defendants had personally taken steps to

ensure that they received all material informa tion regarding Aon's business and finances . The 2003

Form 10-K provided :

[Aon] has established disclosure controls and procedures to ensure thatmaterial information relating to the Registrant, including its consolidatedsubsidiaries, is made known to the officers who certify the Registrant's financialreports and to other members of senior management and the Board of Directors .

In addition , each of Aon's Form 10-Q ' s filed during the Class Period provided :

Aon's management, including the Chief Executive Officer [defendant Ryan]and Chief Financial Officer [defendant Bolger], performed an evaluation (the"Evaluation") of the effectiveness of Aon's disclosure controls and procedures as of[the date of the Form 10-Q], and have determined that such controls and proceduresare designed in such a way to ensure that all material information required to be filedin this Form 10-Q has been made known to them in a timely fashion . There were nochanges in Aon's internal controls over financial reporting that were identifiedduring the Evaluation that occurred during Aon's last fiscal quarter that havematerially affected, or are reasonably likely to materially affect, Aon's internalcontrols over financial reporting .

174. Aon's "Code of Ethics for Senior Financial Officers" and "Aon Code of Busines s

Conduct," referenced in the 2003 Form 10-K filing, further evidence defendants' knowledge o r

reckless disregard of the material information about Aon's financial results and business practices .

The Code of Ethics, signed by each of the defendants , required : "I providefull, fair, accurate,

timely and understandable disclosure on SEC reports and other public communications ." In a

letter accompanying the Aon Code of Business Conduct, defendant Ryan asserted "Aon's reputatio n

rests on the unwavering commitment of each and every one of us to act with the highest ethical

standards . . . . We act with the highest level of integrity at all times ." The Code of Business

Conduct further provided: "At Aon we are committed to making full, fair, accurate, timely and

understandablefinancial disclosures to governmental agencies and the public . "

-64-

Defendants ' Personal Compensation Was Tied to the Scheme

175. The Individual Defendants' personal wealth was also directly tied to Aon ' s publicly

reported financial performance and business success . A large portion of each of the Individual

Defendants' compensation packages was dependant upon Aon posting favorable financial results .

Pursuant to the Company's April 12, 2004 Proxy Statement, the Compensation Committee of Aon' s

Board of Directors established certain objectives relating to executive compensation including t o

"retain, motivate, and reward management to : Achieve and exceed short-term and long-term

business goals ." Additionally, the Individual Defendants were eligible to receive annual incentiv e

compensation or bonuses, which, according to the April 12, 2004 Proxy, were "payable only if Aon

achieves a predetermined threshold level of financial performance, as measured by earnings per

share [income per share] subject to certain adjustments at the discretion of the [Compensation ]

Committee" and achieving "85% of planned earnings per share [EPS] . "

176. Based on the reported performance of Aon, including inflated EPS/income per share

as a result of the improper contingent commission kickbacks, the Individual Defendants eac h

received sizeable incentive compensation for 2003 as follows :

Defendant Bonus AwardPercentage ofBase Salary

Ryan $1,250,000 111 %

O'Halleran $900,000 90%

Bolger $750,000 100%

177 . The Individual Defendants also received long-term incentives , such as rest ricted stock

and stock options, "based upon unit performance and individual performance measures," including

reported financial results .

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S

178 . The Individual Defendants were rewarded with the following long-term incentives i n

the form of stock options for 2003 based upon the Company's purported achievement o f

performance goals :

DefendantOption sAward

Value on Dateof Proxy

Ryan 500,000 $11,970,000

O'Halleran 200,000 $4,788,00 0

Bolger 100,000 $2,394,00 0

179. Additionally, during 2003, according to the Company's April 12, 2004 Proxy ,

defendants Ryan and O'Halleran received the following additional compensation :

(a) [F]or Mr. Ryan, the value of company-provided automobile transportation in theamount of $56,926 and aircraft in the amount of $75,882 and an automobile parkingallowance of $2,100 ; (b) for Mr . O'Halleran, the value of company-providedautomobile transportation in the amount of $45,643 and aircraft in the amount of$16,748, an automobile parking allowance of $2,100 and professional services feesof $4,795 .

180. Collectively and individually, the Individual Defendants earned millions of dollars in

incentive compensation made possible by their fraudulent activities . The personal wealth of each of

the Individual Defendants was dramatically enhanced by the reported financial and busines s

performance of Aon, as well as the resulting stock price and market capitalization of Aon, all of

which were inflated by defendants' misleading statements and material omissions .

Defendants ' Fraudulent Statements and Omissions Were Necessary toMaintain Aon's Credit and Debt Ratings

181 . Defendants were further motivated to keep Aon's stock trading at artificially hig h

levels to achieve and maintain investment grade credit and debt ratings . By achieving and

maintaining high credit and debt ratings , Aon and the defendants were eligible to gain access to

commercial paper, have financial flexibility and avoid paying and disclosing higher borrowing cost s

on the Company's debt.

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182. To maintain high credit and debt ratings , however, Aon needed to present itself as

financially sound - and that meant not revealing the truth about the Company's financial results an d

the contingent commission kickbacks, steering and clawback schemes . This was particularly

important given that in 4Q02 rating agencies had sharply lowered Aon's credit ratings .

183 . Further ratings downgrades, a certainty if defendants disclosed the truth about Aon' s

financial results and business operations, promised dire consequences for Aon's financial stability

and access to the capital markets . As defendants acknowledged in Aon ' s 2003 Form 10-K: "A

further downgrade in the credit ratings of [Aon's] senior debt and commercial paper would increase

our borrowing costs and reduce our financial flexibility ." Furthermore, according to the 2003 Form

10-K :

Any such further downgrade may trigger a further obligation of our companyto fund an aggregate of up to $75 million with respect to [Aon's] premium financesecuritizations . Moreover, some of our debt instruments, such as our 6 .20% notesdue January 2007 ($250 million of which are outstanding), expressly provide forinterest rate increases in the case of certain ratings downgrades. Similarly, any suchdowngrade would increase our commercial paper interest rates or may result in ourinability to access the commercial paper market altogether . If we cannot access thecommercial paper market, although we have committed backup lines in excess of ourcurrently outstanding commercial paper borrowings, we cannot assure you that itwould not adversely affect our financial position . A downgrade in the credit ratingsof our senior debt may also adversely affect the claims-paying ability or financialstrength ratings of our insurance company subsidiaries .

184 . As of December 31, 2003, while Aon's stock price and status were artificially booste d

by defendants' fraud, the Company' s senior long -term debt ratings from Standard & Poor's ,

Moody's and Fitch were A-, Baal and A-, and Aon' s commercial paper ratings were A-2, P-2 and

F-2, respectively . After the truth about defendants' fraud began to be revealed, however, Aon' s

senior long-term debt ratings were downgraded by Standard & Poor's and Fitch to BBB+. In

October 2004 Standard & Poor's placed all of Aon 's ratings on credit watch with negative

implications . Likewise at the same time, Moody's and Fitch placed Aon's ratings on negativ e

outlook and credit watch with negative implications, respectively .

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LA

185 . Defendants have subsequently been forced to admit , in Aon's April 14, 2005 Proxy

Statement, that: "The change in [Aon's] ratings reflect the rating agencies' concern for Aon's futur e

earnings and cash flow given the announcement eliminating contingent commissio n

arrangements . . . . "

The Magnitude and Pervasiveness of Defendants ' GAAP ViolationsEvidences Scienter

186 . As detailed in ¶¶189-224 , defendants' blatant violations of GAAP and SEC report ing

requirements in their public statements and Aon's SEC filings, which were reviewed, signed an d

certified by the Individual Defendants, are further indices of scienter. The accounting and reporting

violations were both pervasive - occurring in each of the six financial quarters during the Clas s

Period - and of such a magnitude - the improper contingent commission revenue alone represented ,

on average, more than 20% of reported income - as to evidence defendants' knowledge or reckles s

disregard of their fraudulent activities .

Post-Class Period Admissions and the Quick Settlement of the NYAG Case

187. The Individual Defendants' post-Class Period admissions that the contingen t

commissions were "non-service-specific, volume- or profit-based compensation," 100% margin with

no measurable costs and had been "developed over several decades" not only contradicted their ow n

earlier statements, but further evidence the Individual Defendants' knowledge of the nefariou s

practices and material impact of their schemes on Aon's reported financial results . Acknowledging

that the contingency commission kickbacks (fueled by the steering and clawback schemes) were

fundamental to Aon's business , defendant Ryan, who less than a year earlier proclaimed "I'v e

orchestrated the global growth of Aon," stated on October 22, 2004 "[wle will work closely wit h

insurance carriers, regulators and other constituencies to establish a new business model . "

188. Further evidencing defendants' scienter, on March 4, 2005, defendants settled a civil

action brought by the NYAG and New York, Connecticut and Illinois regulatory authorities on the

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V

very day the complaint in the action was filed . Faced with substantial evidence of the contingen t

commission kickbacks, steering and clawback schemes, Aon agreed to pay $190 million t o

regulators and prohibit any future contingent commission, steering or clawback practices . Not only

did defendants not deny their knowledge of the contingent commission scheme, with the settlemen t

defendant Ryan provided a statement of apology which included the admission : "I deeply regret that

we took advantage of those conflicts . . . . Such conduct was improper and I apologizefor it . "

DEFENDANTS' FALSE FINANCIAL REPORTING ANDGAAP VIOLATIONS DURING THE CLASS PERIOD

189. As detailed herein , in order to improperly inflate Aon's net income , earnings and

revenue, defendants caused the Company to falsely report its financial results included in pres s

releases and analyst conference calls during the Class Period, and in Aon's Forms 10-Q and 10-K for

the quarters ended March 31, 2003, June 30, 2003, September 30, 2003, December 31, 2003, Marc h

31, 2004 and June 30, 2004 and the year ended December 31, 2003 by : (a) failing to disclose Aon' s

contingent commissions in its financial statements despite the fact that the commissions were a

material source of income ; (b) failing to explain the true nature of Aon' s contingent commissions

and steering and clawback schemes ; (c) overstating net income and earnings by failing to account fo r

contingent losses arising from the placement of clients with insurance companies that did no t

provide coverage at the best price, exposing its clients to insurance risks as a result of steering it s

clients to insurance companies that did not provide adequate coverage of risk for those clients, and

fines, penalties, claims for restitution and damages as a result of its improper steering practices ; and

(d) failing to disclose the uncertainty surrounding Aon's ability to continue to recognize revenue s

from contingent commissions and derived from the steering and elawback schemes in the event tha t

the true nature of these revenues was were publicly disclosed . These failures each represente d

material violations of GAAP .

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fi

Accounting and Reporting Rules Violated by Defendants

190. GAAP are those principles recognized by the accounting profession as th e

conventions, rules and procedures necessary to define accepted accounting practices at a particula r

time. Those principles are the official standards accepted by the SEC and promulgated in part by the

American Institute of Certified Public Accountants ("AICPA"), a private professional association ,

through three successor groups it established : the Committee on Accounting Procedure ; the

Accounting Principles Board (the `Board") ; and the Financial Accounting Standards Board (th e

"FASB") with the permission of the SEC (Accounting Series Release No . 150) .

191 . The SEC requires that public companies prepare their financial statements i n

accordance with GAAP . As set fo rth in SEC Rule 4-01(a) of SEC Regulation S-X, "[f]inancia l

statements filed with the [SEC] which are not prepared in accordance with [GAAP] will be

presumedto be misleading or inaccurate ." 17 C .F.R. §210 .4-01(a)(1) . Management is responsible

for preparing financial statements that conform with GAAP. As noted by AICPA auditing standards

("AU"), § 110 .02 :

The Financial statements are management's responsibility . . . . Managementis responsible for adopting sound accounting policies and for establishing andmaintaining internal controls that will, among other things, record, process,summarize, and report transactions (as well as events and conditions) consistent withmanagement's assertions embodied in the financial statements . The entity'stransactions and the related assets, liabilities, and equity are within the directknowledge and control of management . . . . Thus, the fair presentation of financialstatements in conformity with Generally Accepted Accounting Principles is animplicit and integral part of management's responsibility .

192. Aon 's financial statements filed with the SEC during the Class Period violated the

following provisions of GAAP, among others discussed below :

(a) The principle that financial reporting should provide information that is usefu l

to present and potential investors and creditors and other users in making rational investment, credi t

and similar decisions . (FASB Statement of Financial Accounting Concepts - "SFAC" No . 1) ;

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(b) The principle that financial reporting should provide information about the

economic resources of an enterprise, the claims to those resources and the effects of transactions ,

events and circumstances that change resources and claims to those resources . (SFAC No . 1) ;

(c) The principle that financial reporting should provide information about how

management of an enterprise has discharged its stewardship responsibility to owners (stockholders)

for the use of enterprise resources entrusted to it. To the extent that management offers securities of

the enterprise to the public, it voluntarily accepts wider responsibilities for accountability t o

prospective investors and to the public in general . (SFAC No . 1) ;

(d) The principle that financial reporting should provide information about an

enterprise's financial performance during a certain time period . Investors and creditors often us e

information about the past to help in assessing the prospects of an enterprise . Thus, although

investment and credit decisions reflect investors' expectations about future enterprise performance ,

those expectations are commonly based at least partly on evaluations of past enterprise performance .

(SFAC No. 1) ;

(e) The principle that the quality of reliability and, in pa rticular, of

representational faithfulness leaves no room for accounting representations that subordinate

substance to form . (SFAC No . 2) ;

(f) The principle that financial reporting should be reliable in that it represent s

what it purports to represent. That information should be reliable as well as relevant is a notion tha t

is central to accounting . (SFAC No . 2) ;

(g) The principle of completeness , which means that nothing is left out of the

information that may be necessary to insure that it validly represents underlying events an d

conditions . (SFAC No . 2) ;

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(h) The principle that conse rvatism be used as a prudent reaction to uncertainty t o

try to ensure that uncertainties and risks inherent in business situations are adequately considered .

The best way to avoid injury to investors is to try to ensure that what is reported represents what i t

purports to represent . (SFAC No . 2) ;

(i) The principle that losses be accrued for when a loss contingency exists .

(Statement of Financial Accounting Standards - "FASB Statement" - No . 5) ;

(j) The principle that if no accrual is made for a loss contingency, then disclosure

of the contingency shall be made when there is at least a reasonable possibility that a loss or an

additional loss may have been incurred . (FASB Statement No . 5) ;

(k) The principle that contingencies and other uncertainties that affect the fairness

of presentation of financial data at an interim date shall be disclosed in interim reports in the sam e

manner required for annual reports . (Accounting Principles Board - "APB" Opinion No . 28) ;

(1) The principle that disclosures of contingencies shall be repeated in interim an d

annual reports until the contingencies have been removed, resolved, or have become immaterial .

(APB Opinion No . 28) ;

(m) The principle that management should provide commentary relating to th e

effects of significant events upon the interim financial results . (APB Opinion No . 28); and

(n) The principle that disclosure of accounting policies should identify an d

describe the accounting principles followed by the reporting entity and the methods of applyin g

those principles that materially affect the financial statements . (APB Opinion No . 22) .

193 . The SEC regulates statements by companies "that can reasonably be expected t o

reach investors and the trading markets, whoever the intended primary audience ." Securities Ac t

Release No . 33-6504,1984 SEC LEXIS 2559 (Jan. 1984) . Under SEC regulations, the management

of a public company has a duty promptly "to make full and prompt announcements of material fact s

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regarding the company's financial condition ." Securities Exchange Act Release No . 8995, 1970

SEC LEXIS 648 (Oct. 15, 1970) . The SEC has emphasized that "[ i]nvestors have legitimate

expectations that public companies are making, and will continue to make, prompt disclosure of

significant corporate developments ." Securities Exchange Act Release No. 18271, 1981 SEC

LEXIS 292 (Nov. 19 , 1981) .

194. In Securities Act Release No . 6349,1981 SEC LEXIS 659 (Sept . 28,198 1), the SEC

stated that :

It is the responsibility of management to identify and address those key variables andother qualitative and quantitative factors which are peculiar to and necessary for anunderstanding and evaluation of the individual company .

195. In Accounting Series Release No . 173, 1975 SEC LEXIS 2516 (July 2, 1975), the

SEC reiterated the duty of management to present a true representation of a company's operations :

[I]t is important that the overall impression created by the financial statements beconsistent with the business realities of the company's financial position andoperations .

196. Item 7 of Form 10-K and Item 2 of Form 10-Q, Management's Discussion an d

Analysis of Financial Condition and Results of Operations ("MD&A"), require the issuer to furn ish

information required by Item 303 of Regulation S-K (17 C .F.R. §229.303) .

197. On May 18, 1989, the SEC issued an interpretive release (Securities Act Releas e

No. 33-6835, 1989 SEC LEXIS 1011 (May 18, 1989)), which stated, in relevant part :

The MD&A requirements are intended to provide, in one section of a filing,material historical and prospective textual disclosure enabling investors and otherusers to assess the financial condition and results of operations of the registrant, withparticular emphasis on the registrant's prospects for the future . As the ConceptRelease states :

The Commission has long recognized the need for a narrativeexplanation of the financial statements, because a numericalpresentation and brief accompanying footnotes alone may beinsufficient for an investor to judge the quality of earnings and thelikelihood that past performance is indicative of future performance .MD&A is intended to give the investor an opportunity to look at the

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company through the eyes of management by providing both a shortand long term analysis of the business of the company . The Item asksmanagement to discuss the dynamics of the business and to analyzethe financials . (Footnotes omitted . )

198 . The SEC has thus stated , "[ i]t is the responsibility of management to identify an d

address those key variables and other qualitative and quantitative factors which are peculiar to and

necessary for an understanding and evaluation of the individual company ." Securities Act Releas e

No. 33-6835 .

199. SEC Staff Accounting Bulletin No . 101, 1999 SEC LEXIS 2580 (Dec. 3, 1999)

("SAB 101"), Revenue Recognition in Financial Statements , drawing from Item 303 of Regulatio n

S-K, and Financial Reporting Release No . 36, also reiterated the importance of the MD&A in

financial statements :

Management's Discussion & Analysis (MD&A) requires a discussion ofliquidity, capital resources, results of operations and other information necessary toan understanding of a registrant's financial condition, changes in fmancial conditionand results of operations . This includes unusual or infrequent transactions, knowntrends or uncertainties that have had, or might reasonably be expected to have, afavorable or unfavorable material effect on revenue, operating income or net incomeand the relationship between revenue and the costs of the revenue . Changes inrevenue should not be evaluated solely in terms of volume and price changes, butshould also include an analysis of the reasons and factors contributing to the increaseor decrease . The Commission stated in Financial Reporting Release (FRR) 36 thatMD&A should "give investors an opportunity to look at the registrant through theeyes of management by providing a historical and prospective analysis of theregistrant 's financial condition and results of operations, with a particularemphasis on the registrant 's prospects for the future ." (Footnotes omitted . )

200 . In discussing results of operations, Item 303 of Regulation S-K requires the registran t

to "[d]escribe any known trends or uncertainties that have had or that the registrant reasonabl y

expects will have a material favorable or unfavorable impact on net sales or revenues or incom e

from continuing operations ." The Instructions to Item 303(a) further state, "[t]he discussion an d

analysis shall focus specifically on material events and unce rtainties known to management that

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would cause reported financial information not to be necessarily indicative of future operating

results ." 17 C.F .R. §229.303(a)(1)-(3) and Instruction 3 .

201 . In addition, the SEC, in its May 18, 1989 interpretive release (Securities Exchange

Act Release No . 34-26831, 1989 SEC 1011 (May 18, 1989)), has indicated that registrants should

employ the following two-step analysis in determining when a known trend or uncertainty i s

required to be included in the MD&A disclosure pursuant to Item 303 of Regulation S-K : (a) "[a ]

disclosure duty exists where a trend, demand, commitment, event or uncertainty is both presentl y

known to management" ; and (b) is "reasonably likely to have material effects on the registrant' s

financial condition or results of operation."

202. As more fully set forth below, however, the MD&A section of Aon's filings with the

SEC during the Class Period failed to comply with the foregoing SEC regulations because : (a) Aon

failed to fully and clearly disclose its contingent commissions in its financial statements despite the

fact that they were a material source of income and revenues ; (b) Aon failed to explain the true

nature of its contingent commissions , steering or clawback schemes ; (c) Aon overstated its net

income and earnings by failing to account for contingent losses arising from the placement of clients

with insurance companies that did not provide coverage at the best price ; (d) exposing its clients to

insurance risks as a result of steering its clients to insurance companies that did not provide adequat e

coverage of risk for those client, and fines, penalties, claims for restitution and damages as a result o f

its improper steering and bid manipulation practices ; and (e) Aon failed to disclose the uncertainty

surrounding its ability to continue to recognize revenues derived as a result of the contingen t

commissions, steering and clawback schemes in the event that the nature of these revenues wa s

publicly disclosed.

203 . During the Class Period, Aon falsely represented that the Company's financia l

statements were in compliance with GAAP. At all times during the Class Period, Aon issued

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certifications signed by its Chief Executive Officer and Chief Financial Officer, defendants Rya n

and Bolger, respectively, pursuant to the requirements of the Sarbanes -Oxley Act of 2002, whic h

stated that the Company's SEC filings did not contain any untrue statement of material fact or omi t

to state a material fact necessary to make the statements made, in light of the circumstances unde r

which such statements were made, not misleading and that the financial statements and othe r

financial information included in the SEC filings fairly presented in all material respects the

financial condition, results of operations and cash flows of the Company .

Defendants Violated GAAP and SEC Regulations by Failing to Disclosethe Magnitude of the Contingent Commissions Which Were a MaterialSource of Aon's Reported Income and Profits

204. As illustrated in the table below, in 2003 Aon recorded $169 million from improper ,

undisclosed contingent commissions . This inflated Aon's actual net income by approximately 20 %

to arrive at its reported $628 million in net income for 2003 . Similarly, for the first half of 2004 ,

Aon recorded $76 million from improper, undisclosed contingent commissions resulting in a n

inflation of actual net income of approximately 17% for the six months ended June 30, 2004 .

20113 Net inenme and FPS Overstatement (in millions excent EPS datal

Q1 Q2 Q3 Q4 Total 200 3Reported Net Income $152 $146 $115 $215 $628

4Contingent Commissions $39 $39 $39 $52 $169

Actual Net Income withoutContingent Commissions (taxeffected) $127 $121 $90 $182 $520Net Income Overstatement $25 $25 $25 $33 $108

% Overstatement 20% 20 % 27% 18% 20%

EPS as Reported $0 .48 $0 .46 $0.36 $0.67 $1 .97Actual EPS (tax effected) $0 .40 $0.38 $0 .28 $0 .57 $1 .63% EPS Overstatement 20% 20% 27% 18% 20%

° From Aon 2004 Form 10-K . Contingent Commission amounts for 1Q03-3Q03 based on average oftotal disclosed contingent commissions for those quarters .

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2004 Net Income and EPS Overstatement ( in millions except EPS data)

Q1 Q2

6 monthsended

6/30/04Reported Net Income $170 $173 $343Contingent Commissions $35 $41 $76Actual Net Income without contingentcommissions (tax effected) $147 $146 $293Net Income overstatement $23 $27 $50% Overstatement 16% 19% 17%

EPS as Reported $0.53 $0.54 $1 .07Actual EPS $0.46 $0 .45 $0.9 1% EPS Overstatement 16% 19% 17%

For the six quarters of the Class Period in aggregate, more than 20% of Aon's reported net income ,

$245 million of $971 million, was attributable to the improper, undisclosed contingent commissions .

205. Defendants' recording of $245 million in improper contingent commission revenu e

also had the effect of materially overstating Aon's EPS/net income per share. As illustrated in the

table above, Aon's EPS/net income per share were overstated in each of the six reported quarter s

during the Class Period by as much as 27% .

206 . While Aon's contingent commissions were clearly material in the context of a

percentage of net income and profits analysis, they were also material, and thus required disclosure ,

because of their importance to Aon's overall business plan. The SEC states in SAB No. 99 that

materiality also concerns the significance of an item to readers of a company's financial statements .

In Aon' s case, contingent commissions were material and thus required disclosure because the y

materially affected :

• Aon's earnings trends ;

• whether Aon met analysts ' consensus expectations;

From Aon 2004 Form 10-K .

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• the profitability of Aon' s Risk Services and Consulting segments ;

• Aon's compliance with loan covenants ;

• management's compensation;

• the volatility of Aon's stock price as a result of the market's sensitivity to theserevenues; and

• Aon's credit and debt ratings and ability to access additional financing from the debtmarkets should the practice be discovered .

207. Clearly, contingent commissions were material to understanding Aon's financial

position and operating results and, by withholding meaningful disclosure about contingent

commissions , Aon violated GAAP and SEC rules as particularized below .

Aon Violated SEC Disclosure Rules by Concealing theNature of Its Contingent Commission Revenues andSteering and Clawback Schemes

208. The SEC requires an issuer to furnish information required by Item 303 of Regulation

S-K (17 C .F .R. §229.303) in the section of its Form 10-K (Item 7) and Form 10-Q (Item 2) title d

MD&A. Item 303 of Regulation S-K requires that a basic and overriding requirement of the MD&A

is to "provide such other information that the registrant believes to be necessary to an understandin g

of its financial condition , changes in financial condition and results of operations ." 17 C .F.R.

229.303(a) .

209. The MD&A requirements are intended to provide , in one section of a filing , mate rial

historical and prospective textual disclosure enabling investors and other users to assess the financial

condition and results of operations of the registrant, with particular emphasis on the registrant' s

prospects for the future . Aon violated the MD&A requirements by omitting or materially misstatin g

the nature and magnitude of the contingent commission kickbacks, and failing to disclose th e

involvement in and proceeds from the improper steering and clawback schemes .

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210. Despite the SEC mandate that the MD&A discuss "unusual" transactions "that have

had, or might reasonably be expected to have, a favorable or unfavorable material effect o n

revenue," defendants failed to disclose the true nature of its income and revenues in Aon' s Class

Period public filings .

211 . Defendants' concealment of the magnitude of its contingent commission revenue s

and the illicit revenues derived from improper steering and clawback practices was particularly

significant for the investing public because it deprived them of the knowledge that revenues wer e

improper, contingent on defendants' ability to obfuscate their true nature and the ability to assess the

consequences of these facts, including whether the Company would be compelled to cease its

improper activities in the future . It is for precisely this reason that the SEC in SAB 101, citing

Financial Reporting Release No . 36 (promulgated by the SEC), explained that the MD&A shoul d

"give investors an opportunity to look at the registrant through the eyes of management by providing

a historical and prospective analysis of the registrant's financial condition and results of operations ,

with a particular emphasis on the registrant's prospects for the future . "

212 . Similarly, under Item 303 of Regulation S-K, MD&A, the SEC states that disclosur e

should focus specifically on material events and uncertainties known to management that woul d

cause reported financial information not to be necessarily indicative of future operating results or o f

future financial condition . With respect to results of operations, the SEC states that management

should :

Describe any unusual or infrequent events or transactions or any significanteconomic changes that materially affected the amount of reported income fromcontinuing operations and, in each case, indicate the extent to which income was soaffected. In addition, describe any other significant components of revenues orexpenses that, in management's judgment, should be described in order to understandthe results of operations .

(ii) Describe any known trends or uncertainties that have had or that the registrantreasonably expects will have a material favorable or unfavorable impact on net salesor revenues or income from continuing operations .

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17 C.F .R. 229.303(a)(3) .

213. According to the SEC, these requirements are intended to provide in one section of a

filing, material historical and prospective textual disclosure enabling investors and other users t o

assess the financial condition and results of operations of the company, with particular emphasis on a

company's prospects for the future . Disclosure is mandatory where a known trend or uncertainty i s

reasonably likely to have a material effect on a company's financial condition or results o f

operations .

214 . Rather than complying with the spirit and intent of disclosure requirements set fort h

in the above regulations, Aon's SEC filings reveal a deliberate omission of important disclosure s

relating to its contingent commission, steering and clawback schemes, and a concerted effort t o

mislead and deceive investors by omitting information as to the actual sources and improper conduc t

required to generate Aon's revenue and income . In the MD&A section of its 2003 Form 10-K ,

defendants disclosed that Aon generated "compensation from insurance companies . . . with who m

we place business." Defendants stated this revenue as "compensation from insurance an d

reinsurance companies with whom we place business for services provided to them" ; and that

"[c]ommission rates and fees vary, depending upon several factors which may include the amount o f

premium, the type of insurance or reinsurance coverage provided, the particular services provided."

Aon's quarterly financial statements on Form 10-Q released during the Class Period provided eve n

less disclosure of compensation from insurance companies, disclosing only that part of its revenue s

were generated through "commissions and fees paid by insurance and reinsurance companies . "

215. These incomplete, evasive and misleading disclosures that Aon's compensation fro m

insurers varied depending on "several factors" failed to disclose the crucial and most relevant facto r

determining Aon's "compensation" from insurers - that is, with regard to contingent commissions ,

that the Company was not being paid for "services provided" to insurance companies as disclosed ,

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but instead was doing nothing more than receiving kickbacks for steering business to certain insurer s

and that such steering of business was not in the interests of Aon' s clients .

Aon's Earnings Were Overstated Because DefendantsFailed to Reserve Properly for Contingent LossesAssociated with Aon's Improper Activities

216 . As a result of defendants improper steering and clawback schemes, Aon not only

caused its clients to, among other harms, overpay for insurance coverage, it also failed to provide it s

clients with optimal insurance coverage because it was steering its clients to insurers with which Aon

had the highest contingent fee arrangement . Put another way, Aon's clients were overpaying fo r

their insurance products placed through Aon because the Company placed clients with insurers

irrespective of the premium charged in order to maximize contingent commissions, and the insured' s

premium was inflated by the contingent commission kickbacks that Aon extracted from the insurers .

As a result, defendants caused Aon's clients to overpay for the coverage they received, while

exposing them to potential losses that could have been mitigated with additional or more appropriate

insurance coverage or through lower levels of risk retention.

217. By cheating Aon's clients out of appropriate insurance coverage through imprope r

steering practices , defendants knowingly exposed Aon' s clients to insurance risks that could hav e

been transferred to insurance carriers by selecting less expensive coverage or a more appropriate

carrier. In so doing, Aon exposed itself to liability for any losses incurred by its clients in thos e

instances where Aon's steering resulted in its clients assuming greater insurance risks that coul d

have been transferred to more suitable insurance carriers . Aon's improper practices also exposed

Aon to liability in the form of fines, penalties, claims for restitution and damages . Indeed, in the first

of what will undoubtedly be a long line of legal restitution and damage settlements , in a se tt lement

agreement with the NYAG and New York, Connecticut and Illinois regulatory autho rities , Aon has

agreed to pay $190 million in order to reimburse clients in connection with its improper activitie s

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surrounding the contingent commissions, steering and clawback schemes . This settlement associated

with Aon' s improper activities was clearly material to Aon' s 2004 financial statements , as Aon's

2004 net income would have been 23% higher had it not incurred the settlement costs to reimburs e

clients as a result of the undisclosed, improper conduct .

218. Under GAAP, specifically FASB Statement No. 5, Accounting for Contingencies, a

contingency is defined as an existing condition, situation or set of circumstances involving

uncertainty as to possible gain or loss to a company that will ultimately be resolved when one o r

more future events occur or fail to occur . An estimated loss for a loss contingency shall be accrue d

by a charge to income if both of the following conditions are met : (a) information available prior to

issuance of the financial statements indicates that it is probable that an asset has been impaired or a

liability has been incurred at the date of the financial statements ; and (b) the amount of loss can be

reasonably estimated . If no accrual is made for a loss contingency because one or both of th e

conditions are not met, the disclosure of the contingency shall be made when there is at least a

reasonable possibility that a loss may have been incurred .

219. Applying this standard, at all relevant times, there was a reasonable likelihood of th e

loss because it was probable at the time that Aon collected contingent commissions from its

improper steering, clawback and kickback practices that this scheme would be disclosed and Ao n

would be liable for damages . Accordingly, in the absence of accrual, disclosure was required . Aon,

however, failed to either accrue an appropriate reserve or disclose the contingent liability and, i n

doing so, defendant materially inflated Aon's reported net income throughout the Class Period .

Indeed, Aon has already agreed to pay $190 million to fund reimbursements to clients in connectio n

with the contingent commissions which materially and adversely lowered its net income by at leas t

19% for the year ended December 31, 2004 and approximately the same in each quarter of 2004 .

With respect to client losses resulting from inappropriate or overpriced insurance coverage to whic h

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these clients were steered, this potential liability remains undisclosed and could easily dwarf th e

amount that Aon has set aside to pay its clients for premium overcharges . As a result of Aon' s

failure to reserve for these contingent liabilities as the improper contingent commissions wer e

collected before and during the Class Period, Aon's earnings as reported during the Class Perio d

were materially overstated in each quarter .

Defendants Knew that Aon's Reported FinancialInformation Was Not Indicative of Future Operation s

220. Under Item 303 of Regulation S-K, MD&A, the SEC states that disclosure shoul d

focus specifically on material events and uncertainties known to management that would caus e

reported financial information not to be necessarily indicative of future operating results or of futur e

financial conditions . With respect to results of operations, the SEC guides management to ,

Describe any unusual or infrequent events or transactions or any significanteconomic changes that materially affected the amount of reported income fromcontinuing operations and, in each case, indicate the extent to which income wasso affected. In addition, describe any other significant components of revenuesor expenses that, in the registrant's judgment, should be described in order tounderstand the results of operations .

(ii) Describe any known trends or uncertainties that have had or that theregistrant reasonably expects will have a material favorable or unfavorableimpact on net sales or revenues or income from continuing operations .

17 C.F .R. §229.303(a)(3) .

221 . The SEC has stated that these requirements are intended to provide in one section of a

filing, material historical and prospective textual disclosure enabling investors and other users t o

assess the financial condition and results of operations of the company, with particular emphasis on

the company's prospects for the future. The SEC has also stated that disclosure is mandatory wher e

there is a known trend or uncertainty that is reasonably likely to have a material effect on th e

company's financial condition or results of operations . Accordingly, the development of disclosure

for this SEC regulation should begin with management's identification and evaluation of wha t

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information, including the potential effects of known trends, commitments, events and uncertainties ,

is important to providing investors and the market with an accurate understanding of the company' s

current and prospective financial position and operating results .

222. In addition, Statement of Position 94-6, Disclosure of Certain Significant Risks and

Uncertainties ("SOP 94-6") issued in December 1994, requires that a company disclose in its

financial statements any vulnerabilities arising due to the fact that the business is exposed to certai n

risks that might have a "severe impact" on its future operations . SOP 94-6, defines a "severe

impact" as a "significant financially disruptive effect on the normal functioning of the entity ." SOP

94-6 requires, among other things, disclosure of information that is adequate to inform users o f

financial statements of the nature of the company's operations and "the general nature of the ris k

associated with concentration" in the :

(a) [V]olume of business transacted with a particular customer, supplier, lender,grantor, or contributor . . . .

(b) [R]evenue from particular products [or) services . . . .

(c) [A]vailable sources of supply of materials, labor, or services . . . .

223 . In this case, defendants cannot contest that the concentration of income and revenu e

derived from contingent commissions and as a result of the steering and clawback schemes wa s

material to Aon and that the reported financial results were not indicative of future operations .

Defendants have, in fact, belatedly admitted just this fact in the MD&A section of Aon's 3Q04 Form

10-Q filed with the SEC after the Class Period . The 3Q04 Form 10-Q disclosed that the loss o f

contingent commission revenue would have a material adverse effect on Aon's 4Q04 and full yea r

2005 results from operations :

For the nine months ended September 30, 2004, we recorded approximately$117 million of revenue from contingent commissions, of which approximately $100million was included in our risk and insurance brokerage services segment andapproximately $17 million of which was included in our consulting segment . Weestimate that, had we continued receiving contingent commissions in the fourt h

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quarter 2004, we would have recorded approximately $50 million of additionalrevenue. The loss ofrevenuesfrom these agreements will likely have a materialadverse effect on our results of operations for fourth quarter 2004 and full year2005. As of September 30, 2004, we have $46 million of receivables recordedrelated to contingent commissions, which we believe we are entitled to collect .

Despite the fact that the concentration of income and revenue Aon derived from the imprope r

contingent commission kickbacks was, admittedly, material, during the Class Period defendants

violated GAAP and SEC rules and did not disclose this fact in Aon' s public financial filings .

224 . In addition, Aon's financial statements failed to comply with the disclosur e

provisions of SOP 94- 6 because defendants failed to disclose :

(a) the true nature of the Company's wrongful activities and contingent commissio n

arrangements, although they were required to include "a description of the major products o r

services the reporting entity sells or provides" ;

(b) the general nature of the risk to business, liability, earnings and revenue associate d

with the bid-rigging , contingent commission and clawback schemes ; and

(c) the general nature of the risk associated with the disclosure of the Company' s

contingency commission kickbacks, bid-rigging and clawback schemes and the cessation of th e

revenue flow associated therefrom .

LOSS CAUSATION/ECONOMIC LOS S

225. During the Class Period, as detailed herein, defendants engaged in a scheme to

deceive investors and the market and a course of conduct that artificially inflated and maintained

Aon's stock price and operated as a fraud or deceit on Class Period purchasers of Aon's publicly

traded securities by misrepresenting the Company's financial results, business success and busines s

prospects . As detailed herein, defendants achieved this facade of financial success b y

misrepresenting Aon's financial results and misrepresenting and omitting material information abou t

Aon's reliance on contingent commission kickbacks, steering and clawback schemes . Later ,

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however, when defendants' prior misrepresentations, omissions and fraudulent conduct wer e

disclosed and became apparent to the market, Aon's stock price fell precipitously as the prio r

artificial inflation came out of the price . As a result of their purchases of Aon stock during the Clas s

Period, Lead Plaintiffs and other members of the Class suffered economic loss, i .e ., damages, under

the federal securities laws .

226 . Defendants' false and misleading statements and omissions, identified herein at

¶9[105-155, had the intended effect and caused Aon stock to trade at artificially inflated levels up to

$29.44 per share throughout the Class Period . See stock chart below :

AON Corp.D4Ny Share Pdcing: May 3, 2003 to October 19, 2004

$30

$28

$2 8

It $24

$22

$20

$18

10114!.2044: WAS flee.chars agaa1 Marsh s#sgingcentngant ca nn*atsion andDi"ggitBs0ornes A92Niaausa prose raiaaaeadm*ng t at coningentcommmrawwars U90 n9':.-ge tar "garv~casprmded n inswe~c'

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broker aga ucnesatamaarslhiluasd :4gMior 6,9W tsnaur a

ir

Class rind: 3. 290

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670

needs.

qberl 3. 2W

afsndants Issued bd*e and nd.l. ng statenwAs thrthe Class Rsrisd rsperting rowing favenves, iv n$ and big\ analyrt W$ pejectlons and du 4n ripolts of cardnint

co911111 on kickbacks and mbmKkwg acsvN s.

1El!l9 .40Q4: Wa75nastJoarn1articl e, on AONs steerin gadni SvAlich reported th atthese pragioes "itwid heredisadvantaged AOhrs corporateclients . width paid [POiNI to findthe hs9t deals w train re~srd toits aen Irumewss needs.

05103/2004 05/2712004 06124/2004 0712112004 08/16/2004 09/10/2004 10106/200405114/2004 06/10!2004 07/08/2004 08/03/2004 08127/2004 09123/2004 10118(200 4

227. Beginning October 14, 2004, Aon's involvement in and reliance on the imprope r

contingent commission, steering and clawback schemes was publicly disclosed. Within four tradin g

days, by October 19, 2004, defendants were forced to admit to the use of "non-service-specific ,

volume- or profit-based compensation arrangements" and the Wall Street Journal and other national

publications had reported that Aon was at the center of an investigation by state regulator y

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authorities into defendants use of steering and clawback schemes to boost contingent commissio n

revenues. See ' T156-157, 159-160. These public revelations indicated that there had been prio r

material misrepresentations and omissions regarding Aon's financial results , business operations and

prospects . As investors and the market became aware that Aon' s prior financial results and busines s

operations had been misrepresented by the improper contingent commission kickbacks, steering an d

clawback schemes, all of which had long been obfuscated by defendants, the prior artificial inflatio n

came out of Aon' s stock price , damaging investors .

228 . As a direct result of the public revelations and defendants' forced admissions abou t

the contingent commissions, steering and clawback schemes, Aon's stock price plummeted mor e

than 30%, on unusually high volume , falling from $27.29 on October 13, 2004 to $18 . 94 per share

on October 19, 2004 . These drops removed the inflation from Aon's stock price, causing real

economic loss to investors who had purchased the stock during the Class Period . In sum, as the truth

about defendants' prior misstatements, omissions and fraudulent conduct was revealed, th e

Company's stock price plummeted, the artificial inflation came out of the stock and Lead Plaintiff s

and other members of the Class were damaged, suffering economic losses of up to $9 .79 per share .

229. The 30% decline in Aon ' s stock price at the end of the Class Pe riod was a direc t

result of the nature and extent of defendants' prior misstatements, omissions and fraudulent conduct

finally being revealed to investors and the market . The timing and magnitude of Aon's stock pric e

declines negate any inference that the loss suffered by Lead Plaintiffs and other Class members wa s

caused by changed market conditions, macroeconomic or industry factors or Company-specific fact s

unrelated to the defendants' fraudulent conduct . Indeed, during the same period in which Aon' s

stock price fell 30% as a result of defendants' fraud being revealed, the Standard & Poor's 500

securities index fell a mere 4% . The economic loss, i .e ., damages, suffered by Lead Plaintiffs and

other members of the Class, was a direct result of defendants' fraudulent scheme to artificiall y

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A

inflate Aon's stock price and maintain the price at artificially inflated levels and the subsequen t

significant decline in the value of Aon's stock when defendants' prior misrepresentations, omission s

and fraudulent conduct was revealed .

APPLICABILITY OF PRESUMPTION OF RELIANCE :FRAUD-ON-THE-MARKET DOCTRIN E

230. At all relevant times, the market for Aon's publicly traded securities was an efficien t

market for the following reasons, among others :

(a) Aon' s common stock met the requirements for listing , and was listed and

actively traded on the NYSE, which is a highly efficient and automated market ;

(b) As a regulated issuer, Aon filed periodic public reports with the SEC and th e

NYSE ;

(c) Aon regularly communicated with public investors via established marke t

communication mechanisms, including through regular disseminations of press releases on th e

national circuits of major news wire services and through other wide-ranging public disclosures ,

such as communications with the financial press and other similar reporting services ; and

(d) Aon was followed by numerous securities analysts employed by majo r

brokerage firms who wrote reports which were distributed to the sales force and certain customers o f

their respective brokerage firms . Each of these reports was publicly available and entered the publi c

marketplace .

231 . As a result of the foregoing, the market for Aon's publicly traded securities promptl y

digested current information regarding Aon from all publicly available sources and reflected such

information in the prices of Aon's publicly traded securities . Without knowledge of th e

misrepresented and omitted material facts alleged herein, Lead Plaintiffs and other members of th e

Class purchased Aon securities between the time defendants misrepresented or failed to disclos e

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material facts and the time the true facts were revealed and suffered similar injury. Thus, a

presumption of reliance applies .

LEAD PLAINTIFFS' CLASS ACTION ALLEGATION S

232 . Lead Plaintiffs bring this action as a class action pursuant to Fed . R. Civ. P . 23(a) and

(b)(3) on behalf of a class consisting of purchasers and/or acquirers of Aon 's publicly traded

securities during the Class Period who were damaged thereby (the "Class") . Excluded from the

Class are defendants, the officers and directors of the Company, members of their immediat e

families and their legal representatives, heirs, successors or assigns and any entity in whic h

defendants have or had a controlling interest .

233 . The members of the Class are so numerous that joinder of all members is

impracticable . Throughout the Class Period, Aon's common stock was actively traded on the NYSE .

While the exact number of Class members is unknown to Lead Plaintiffs at this time and can only b e

ascertained through appropriate discovery, Lead Plaintiffs believe that there are thousands o f

members in the proposed Class . Record owners and other members of the Class may be identifie d

from records maintained by Aon or its transfer agent and may be notified of the pendency of thi s

action by mail, using the form ofnotice similar to that customarily used in securities class actions .

234. Lead Plaintiffs' claims are typical of the claims of the members of the Class as al l

members of the Class were similarly affected by defendants' wrongful conduct in violation of

federal law that is complained of herein .

235 . Lead Plaintiffs will fairly and adequately protect the interests of the members of the

Class and have retained counsel competent and expe rienced in class and securities litigation.

236 . Common questions of law and fact exist as to all members of the Class an d

predominate over any questions solely affecting individual members of the Class . Among the

questions of law and fact common to the Class are :

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(a) Whether the federal securities laws were violated by defendants' acts an d

omissions as alleged herein;

(b) Whether statements made by defendants to the investing public during the

Class Period misrepresented and omitted material facts about the business, operations and financial

results of Aon ; and

(c) To what extent the members of the Class have sustained damages and th e

proper measure of damages .

237. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable . Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden of

individual litigation make it impossible for members of the Class to individually redress the wrongs

done to them . There will be no difficulty in the management of this action as a class action.

COUNT I

Violation of Section 10(b) of the 1934 Act and Rule 10b-5Promulgated Thereunder Against All Defendant s

238. Lead Plaintiffs repeat and reallege each and every allegation contained above as i f

fully set forth herein .

239. During the Class Period, Aon and the Individual Defendants carried out a plan ,

scheme and course of conduct which was intended to and, throughout the Class Period, did :

(a) deceive the investing public, including Lead Plaintiffs and other members of the Class, regarding

Aon's business, operations, financial results and the intrinsic value of Aon's publicly trade d

securities ; (b) artificially inflate and maintain the market price of Aon 's securities ; and (c) cause lead

plaintiffs and other members of the Class to purchase Aon's securities at artificially inflated price s

and, as a result, suffer economic losses when the truth about defendants' fraud was revealed . In

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a

furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, too k

the actions set forth herein.

240. Defendants : (a) employed devices, schemes and artifices to defraud ; (b) made untrue

statements of material fact and/or omitted to state material facts necessary to make the statements

made not misleading ; and (c) engaged in acts, practices and a course of business which operated as a

fraud and deceit upon the purchasers of the Company's publicly traded securities in an effort to

maintain artificially high market prices for Aon's publicly traded securities in violation of § 10(b) of

the 1934 Act and Rule I Ob-5. All defendants are sued either as primary participants in the wrongful

and illegal conduct charged herein or as controlling persons as alleged below .

241 . Defendants, individually and in concert, directly and indirectly, by the use, means o r

instrumentalities of interstate commerce and/or of the mails, engaged and participated in a

continuous course of conduct to conceal adverse material information about the business, operation s

and financial results of Aon as speci fied herein .

242. These defendants employed devices , schemes and artifices to de fraud , while in

possession of material, adverse, non-public information and engaged in acts, practices and a cours e

of conduct as alleged herein in an effort to assure investors of Aon's value and performance and

continued growth, which included the making of, or the participation in the making of, untrue

statements of material fact and omitting to state material facts necessary in order to make th e

statements made about Aon and its business operations, financial results and prospects, in the light of

the circumstances under which they were made, not misleading, as set forth more particularly herein ,

and engaged in transactions, practices and a course of business which operated as a fraud and decei t

upon the purchasers of Aon's publicly traded securities during the Class Period.

243 . Each of the Individual Defendants' primary liability, and controlling person liability ,

arises from the following facts : (a) the Individual Defendants were high-level executives an d

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directors at the Company during the Class Period and members of the Company's senio r

management team; (b) each of these defendants, by virtue of his responsibilities and activities as a

senior officer and director of the Company was privy to and participated in the creation,

development and repo rting of the Company' s business operations and financial results ; (c) each of

these defendants enjoyed significant personal contact and familiarity with the other defendants an d

was advised of and had access to other members of the Company's management team, interna l

reports and other data and information about the Company's finances, and business operations, at al l

relevant times ; and (d) each of these defendants was aware of the Company's dissemination of

information to the investing public which they knew or recklessly disregarded was materially fals e

and misleading and omitted material information .

244 . In addition to the duties of full disclosure imposed on defendants as a result of their

making of affirmative statements and reports, or participation in the making of affirmative

statements and reports to the investing public, defendants had a duty to promptly disseminate truthfu l

information that would be material to investors in compliance with the integrated disclosur e

provisions of the SEC as embodied in SEC Regulation S-X, 17 C.F .R. §§210.01, et. seq., and

Regulation S-K, 17 C .F .R. §§229. 10, et. seq ., and other SEC regulations, including accurate and

truthful information with respect to the Company's operations, financial condition, revenue an d

earnings so that the market price of the Company's securities would be based on truthful, complete

and accurate information .

245 . The defendants had actual knowledge of the misrepresentations and omissions o f

material facts set forth herein, or acted with reckless disregard for the truth in that they failed to

ascertain and to disclose such facts, even though such facts were available to them . Such

defendants' material misrepresentations and/or omissions were made knowingly or with a reckles s

disregard for the truth and for the purpose and effect of inflating Aon's operating results, concealin g

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y w

Aon's business operations, involvement in the commission kickbacks, steering and clawback

schemes and business prospects from the investing public and supporting the artificially inflate d

prices of the Company's publicly traded securities .

246. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of Aon's publicly traded

securities were artificially inflated during the Class Period . In ignorance of the fact that the market

price of Aon's publicly traded securities were artificially inflated, and relying directly or indirectly

on the false and misleading statements made by defendants, or upon the integrity of the markets in

which the securities trade and/or on the absence of material adverse information that was known t o

or recklessly disregarded by defendants but not disclosed in public statements by defendants during

the Class Period, Lead Plaintiffs and the other members of the Class acquired Aon publicly trade d

securities during the Class Period at artificially high prices and were damaged when the artificial

inflation came out of the securities .

247. At the time of said misrepresentations and omissions , Lead Plaintiffs and other

members of the Class were ignorant of their falsity, and believed them to be true . Had Lead

Plaintiffs, the other members of the Class and the marketplace known the truth regarding Aon's

business operations and financial results which were not disclosed by defendants, Lead Plaintiffs and

other members of the Class would not have purchased or otherwise acquired their Aon publicly

traded securities, or, if they had acquired such securities during the Class Period, they would not

have done so at the artificially inflated prices which they paid .

248. By virtue of the foregoing, defendants have violated § 10(b) of the 1934 Act, and Rule

I Ob-5 promulgated thereunder .

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249, As a direct and proximate result of defendants' wrongful conduct , Lead Plaintiffs an d

the other members of the Class suffered damages in connection with their respective purchases and

sales of the Company's publicly traded securities during the Class Period .

COUNT II

Violation of Section 20(a) of the1934 Act Against All Defendants

250. Lead Plaintiffs repeat and reallege each and every allegation contained above as i f

fully set forth herein .

251 . The Individual Defendants acted as controlling persons of Aon within the meaning o f

§20(a) of the 1934 Act as alleged herein . Aon controlled all of its employees and each of the

Individual Defendants . By virtue of their high- level positions , and their ownership and contractua l

rights, participation in and awareness of the Company's operations and intimate knowledge of th e

false financial statements filed by the Company with the SEC and disseminated to the investing

public, the Individual Defendants had the power to influence and control and did influence and

control, directly or indirectly, the decision making of the Company, including the content an d

dissemination of the various statements which Lead Plaintiffs contend are false and misleading . The

Individual Defendants participated in conference calls with investors and were provided with or ha d

unlimited access to copies of the Company's reports, press releases , public filings and othe r

statements, alleged by Lead Plaintiffs to be misleading, prior to and/or shortly after these statement s

were issued and had the ability to prevent the issuance of the statements or cause the statements to be

corrected .

252 . In particular, each of these defendants had direct and supervisory involvement in th e

day-to-day operations of the Company and, therefore, is presumed to have had the power to contro l

or influence the particular transactions giving rise to the securities violations as alleged herein, an d

exercised the same .

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253 . As set forth above, Aon and the Individual Defendants each violated § 10(b) and Rul e

IOb-5 by their acts and omissions as alleged in this complaint . By virtue of their positions as

controlling persons, defendants are liable pursuant to §20(a) of the 1934 Act . As a direct and

proximate result of defendants' wrongful conduct, Lead Plaintiffs and other members of the Clas s

suffered damages in connection with their purchases of the Company's publicly traded securitie s

during the Class Period .

PRAYER FOR RELIEF

WHEREFORE, Lead Plaintiffs respectfully pray for relief and judgment, as follows :

A. Determining that this action is a proper class action, and certifying Lead Plaintiffs as

class representatives under Fed . R. Civ . P. 23 ;

B. Awarding compensatory damages in favor of Lead Plaintiffs and the other members

of the Class against all defendants, jointly and severally, for all damages sustained as a result o f

defendants' wrongdoing, in an amount to be proven at trial, including interest thereon;

C. Awarding Lead Plaintiffs and the Class their reasonable costs and expenses incurre d

in this action, including counsel fees and expert fees ; and

D. Such equitable, injunctive or other and further relief as the Court may deem just an d

proper .

JURY DEMAND

Lead Plaintiffs demand a trial by jury .

DATED: May-4,2005

9 5

LASKY & RIFKIND, LTD .NORMAN RIFKINDLEIGH LASKYAMELIA S . NEWTON

351 W. Hubbard, Suite 406Chicago, IL 60610Telephone: 312/634-0057312/634-0059 (fax )

Liaison Counsel

LERACH COUGHLIN STOIA GELLERRUDMAN & ROBBINS LLP

WILLIAM S . LERACHTOR GRONBORGDEBRA J. WYMANUDOKA NWANNA401 B Street , Suite 1600San Diego , CA 92101Telephone : 619/231-1058619/231-7423 (fax )

Lead Counsel for Plaintiffs

S :ICascsSD\AON 04\CPT00020539- cons.doc

-96-

Exhibit 1

SUPREME COURT OF THE STATE OF NEW YORKCOUNTY OF NEW YOR K------------------------------------------------------------------- X

THE PEOPLE OF THE STATE OF NEW YORKby ELIOT SPITZER, Attorney General o f

the State of New York,

Plaintiff, : COMPLAINT

-against- Index No .

AON CORPORATION,

Defendant .

1 . Plaintiff, the People of the State of New York, by Eliot Spitzer , Attorney

General of the State of New York ("Attorney General"), complaining of the above-named

defendant, alleges upon information and belief, that'

PARTIE S

2 . This action is brought by the Attorney General on behalf of the People o f

the State of New York based upon his authority under § 63(12) of the Executive Law, Article 23-

A of the General Business Law (the Martin Act), and the common law of the State of New York .

3 . Defendant Aon Corporation is a Delaware corporation with its main place

of business in Chicago, Illinois and subsidiaries and affiliates around the world (collectivel y

"Aon") .

PRELIMINARY ,STATEMEN T

4. Aon is the world's second largest insurance broker and the world' s larges t

reinsurance broker . Aon is also a leading provider of risk management , human capital and

management consulting, and specialty insurance underwriting . Businesses and individuals who

need insurance retain Aon to help them design an insurance plan and negotiate with insurers to

get the best mix of coverage, service, financial security and price .

5 . Aon told a client on October 22, 2004, that "it is our mission to represen t

you and your interests and not those of an insurance company." (AON-68-002385)` Separately,

Aon affirmed : "We're objective . Our clients control the compensation for our services -- whether

it is commission -based or fee-for-service ." (AON-F-016395) Aon's code of business conduct ,

posted on its website, states Aon will "describe [its] products and services truthfully an d

accurately" and "never mislead clients through deceptive acts or practices . . . or [engage in ]

other unfair methods of competition ." http:lhvw\v.aon .com/about/pdf/aonbusinessconduc t

guidelines .pdf ( last visited Sept . 2, 2004)

Contrary to the foregoing claims, Aon has engaged in business practices i n

which its clients' interests have often been placed well behind those of Aon or insurers . Aon ha s

entered into numerous agreements to obtain compensation from insurers in exchange fo r

increasing the volume or profitability of insurance policies it places with these insurers . Aon ha s

misled clients about the nature and amount of this compensation, concealing the obviou s

conflicts of interest it creates .

Aon has ignored its clients' interests when steering customers to preferre d

insurers to achieve maximum payoff for Aon and its insurers . As Carol Spurlock, Aon's then

Managing Director of Commercial Risk, explained to an insurance company executive on Apri l

14, 2003 :

Let me further confirm our ability to effect [sic] placement

'Bracketed citations refer to documents attached as exhibits hereto .

2

behaviors . Our syndicators are evaluated on the percentage of their

books that are with our "premiere" markets . Each Regional

Syndication Director is held accountable as well . This is a

measurable, compensated item that each syndicator is financially

motivated to drive . (AON-6-018789 )

8. These practices have not been limited to one business unit or line o f

insurance products . Undisclosed conflicts of interest and steering to the detriment of its clients '

interests have been found in numerous parts of Aon, including : (1) Aon Risk Services, whic h

handles commercial retail insurance brokerage ; (2) Aon Personal Risk Management, whic h

focuses on personal lines insurance ; (3) Aon Re, which performs reinsurance brokerage services ;

and (4) Aon Consulting, which handles health care, life insurance and other employee benefits .

Aon has pursued a number of other complex and creative schemes t o

obtain improper compensation from insurers including :

suggesting that an insurer raise its quote for a client's business in order to

settle a debt to the insurer and increase its contingent commission payout,boasting that : "This is an example of AON letting Zurich have more rate

and premium when we could have held them to a cheaper price" ;

promising increased retail business to insurers in return for their

commitments to use Aon's reinsurance services, so that one insurer

explained "that Aon handling [reinsurance] is critically important to Aon

and Chubb having positive relations and that if Chubb give[s] its

[reinsurance] to Aon, [Pat] Ryan [Ann's Chairman and CEO was] willingto put his personal credibility and friendship with Dean [O'Hare, Chubb's

Chairman and CEO] on the line to make sure Chubb received preferentialtreatment from Aon" ;

entering into "producer funding agreements" whereby insurers directlyfunded the hiring of Aon brokers who held themselves out as Aonemployees without disclosing that their positions were funded by thepaying insurer ;

• entering into secret "pay-to-play" arrangements with insurers whereby Aon

required compensation from insurers that wished to bid on a client'sbusiness ;

• agreeing with preferred insurers to "freeze out" a competing insurer from

Aon placements when that insurer did not provide comparable impropercompensation to Aon ;

• withholding a lower quote and placing a client with a higher bidding

insurer with which Aon had a contingent commission agreement ; and

• providing preferred insurers with first looks, last looks and exclusive lookson preferred business in exchange for improper compensation .

10. Each of these improper compensation schemes had the same objective : to

increase income to Aon in return for preferential treatment to the insurer , at the potential expens e

of Aon's clients .

11 . Aon's highest officers have part icipated in certain of these schemes .

Patrick G . Ryan, Aon's Chairman and CEO, personally agreed to assist The Chubb Corporatio n

("Chubb") in increasing retail placements in exchange for Chubb's use of Aon Re for reinsuranc e

brokering . Michael O'IHalleran, Ryan's second-in-command, personally negotiated "clawback "

arrangements in which Aon Re would provide discounts or incentives to insurers on it s

reinsurance on the condition that Aon could recover or "claw back" the discounts by increasin g

retail placements, which gave Aon incentives to steer to the same insurers . O'Halleran also

oversaw Aon's efforts to steer business to favored insurance companies . Robert Needle ,

Managing Principal of Retail Syndication, directly reported to O'Halleran, and participated i n

steering activities .

12 . In fact, since at least 2001, the effort to obtain compensation from thes e

improper schemes has been central to Aon's business model . For example, just one form of such

4

compensation, contingent commissions, accounted for approximately $170 million of Aon' s

revenue in 2003 . Because little or no services were performed in exchange for any of Aon' s

contingent commissions , this amount accounted for nearly one-fourth of Aon' s net income of

$663 million .

13 . The losers in this have been Aon's clients and the marketplace fo r

insurance. The clients have been harmed in at least two ways . First, insurers often passed th e

cost of contingent commissions on to the clients in the form of higher premiums . As one insurer

noted about the contingent commissions it would have to pay Aon : "It appears that [contingent

commissions] could hit 2 .5% this year. Let's load an additional 2 .5% in their premiums . "

(Internal Endurance Specialty Insurance Ltd . ("Endurance") e-mail , dated May 20, 2003 )

Second, the clients have not received what they paid for -- Aon's undivided loyalty and objectiv e

advice on their complex insurance placements .

JURISDICTION

14. The State of New York has an interest in the economic health and well-

being of those who reside or transact business within its borders . The State also has an interest in

ensuring the presence of an honest marketplace in which economic activity is conducted in a

competitive manner, without fraud, deception or collusion , for the benefit of marketplac e

participants . In addition, the State has an interest in ensuring that the marketplace for the trading

of securities functions fairly with respect to all who participate or consider pa rt icipating in it .

Tic Scab al-so has an interest in-uphoiding the rule of law generally : `Defendant's conduct has

injured these interests .

15 . Thus, the State of New York brings this complaint in its sovereign and

quasi -sovereign capacities, as parens patriae, and pursuant to Executive Law § 63( 12), General

Business Law §§ 340 et seq . and General Business Law §§ 352 et seq . (the Martin Act) . The

State seeks disgorgement, restitution, damages, costs, and equitable relief with respect t o

defendant's fraudulent, anti-competitive and otherwise unlawful conduct .

FACTUAL ALLEGATIONS

16. Aon, which employs over 50,000 professionals, provides numerou s

insurance placement and advisory services to its clients . Across the many practice areas of Aon's

business in recent years, a pattern emerges . Aon has: (a) provided misleading or inadequat e

disclosure of compensation received from insurers ; (b) acted as a fiduciary or trusted advisor t o

its clients ; (c) accepted improper compensation from insurers ; and (d ) engaged in schemes t o

maximize that compensation to the detriment of its clients . Set out below are the facts relating t o

Aon's misleading disclosure and how Aon has followed the above pattern of client deception i n

each of its major product lines -- commercial insurance, personal lines, reinsurance, and healt h

care consulting .

A. AON'S MISLEADING DISCLOSUR E

17 . Aon has never adequately disclosed its contingent commissions . As late

as September 2004, Aon's website stated that it "believes a foundation of trust between broker

and client must be supported by disclosure and transparency. Disclosure of agreements and

relationships with insurers is an important part of this relationship . "

Http ://www.zon .coniI..abont/csu/csu fag .jsp (last visited October26, 2004), Howevnr,Akon

consistently misled its clients about the true nature of its compensation agreements and in many

cases provided no disclosure whatsoever to its clients about the role incentives played in it s

6

placement decisions .

18 . On its website in 2004, Aon described the justification for its contingen t

commission payments to its clients and the public as follows :

Aon performs activities and provides services of value to insurers,including providing access to its substantial distribution networks,

pre- and post -placement technical services, sharing of Aon' s

knowledge and expertise as an industry leader, policy design and

review, research and development , risk analysis , claimsmanagement, administration and other underwriting -related

activities . Providing these services ultimately bene fits our clients,

the insurance markets and Aon .

(Http :/lwww . aon .com /about/csu/csu faq .isp ( last visited Sept . 2,

2004)

These so-called "services" were largely illusory and provided no real value to insurers . The

"distribution" Aon cited is not a "service," but rather a necessary concomitant of Aon going t o

market on behalf of its clients, something Aon was duty bound to do as its client's agent an d

fiduciary -- and for which Aon was already compensated by legitimate fees and commission s

from its clients . Nor did the other vague "services" mentioned (such as "sharing of Aon' s

knowledge") justify any of the payments that Aon received in contingent commissions .

19. Aon' s disclosure to investors was no better . Aon never revealed to the

investing public the true nature of its undisclosed compensation arrangements or the role the y

played in Aon's earnings .

B. AON RISK SERVICES HAS ENGAGED IN STEERING FO RUNDISCLOSED COMPENSATION AND HAS DIRECTED AN INSURERTO RAISE ITS BIDS FOR CLIENTS' BUSINESS

20. Aon Risk Services ("ARS") is the brokerage and risk management

serv ices arm of Aon. Brokers like ARS are hired by clients to advise them as to needed coverag e

7

and to find insurers offering that coverage. ARS purports to represent the client, obtaining pric e

quotes, presenting the quotes to the client, and making recommendations to the client based o n

many factors such as price, differences in coverage, an insurance company's financial security, o r

an insurer's reputation for service or claims payment .

21 . In this structure, the client makes two types of payments : (1) it pays its

broker an advisory fee or a commission for locating the best insurer, and (2) it pays the chose n

insurance company premiums for the coverage itself. Aon and other brokers also have receive d

"contingent commissions" from insurers pursuant to arrangements generally known as contingen t

commission agreements . The precise terms of these arrangements have varied, but the y

commonly have required the insurer to pay the broker based on one or more of the following : (1 )

how much business the broker's clients placed with the insurance company; (2) how many of the

broker's clients renewed policies with the insurance company; and (3) the profitability of the

business placed by the broker . Aon structured its business in an effort to maximize contingent

commissions .

1 . Steering

22. Beginning in or about 2001, Aon reconfigured its ARS brokerage busines s

in an effort to consolidate control over contingent commissions in the hands of a small group of

executives, known as the Syndication Group, which oversaw multiple product lines . The leading

executives were Robert Needle, Managing Principal of Retail Syndication (the largest division o f

the Syndication Gznun), Carol Spurlock, Mapaging_Direcl .or .of Commercial Risk, znd,Ronal d

Moyer, Managing Director of Financial Services .

23 . The Syndication Group named certain insurers "premiere" or "partner"

insurers based not on the price or service those insurers could provide to ARS's clients, but on

the amount of money those insurers paid in contingent commissions .

24 . The Syndication Group organized each product line into national units tha t

oversaw placements and the negotiations of new contingent commission agreements intended to

replace smaller local and regional contingent agreements with large national ones . These

national agreements, originally called Placement Service Agreements or Override Agreements,

were misleadingiy Lana=i "Compensation for Services to Underwriters" or "CSUs" in Marc h

2004 . (AON-12-012682 )

25 . As ARS put national contingent commission agreements in place wit h

various insurers, it put out the word internally to deliver on promises that were made to stee r

business to the insurers . For example, in March 2003, Carol Spurlock, who at the time was th e

head of Middle Markets, wrote to a colleague who had inquired whether business should b e

directed to Zurich North American Insurance Company ("Zurich"), as it had not paid contingent

commissions to the Middle Markets department during the prior year : "Going forward, we are

going to push Zurich . I just today negotiated our incentive so that we will get paid next year . "

(AON-13-000228) A month later , she described the Zurich relationship to another colleague :

We have always had an extremely nice contingency with the excessfolks at Zurich . We received a huge check from them on umbrellabusiness last year . We did not have a middle market contingencylast year, we do this year. So yes place lotz [sic ] of business with[Zurich] . . . . (AON-13-000446)

This tone<was set at the top. RRobert Needle, the .Managir g PXineipal of Retail Syndication, tol d

his subordinates at a Syndication Operations meeting that "[w]e should continue to grow ou r

book with Chubb and also Ha rtford and Wausau based on our favorable contingenc y

9

agreements ." (AON-i-000224 )

26 . ARS also used its ability to steer as a means of pressuring and in som e

cases punishing insurers with decreased business if they displeased Aon . In December of 2003 ,

The Hartford Financial Services Group ("Hartford") decided to no longer use Aon as its broker

for placing its own directors and officers ("D&O") insurance . In a discussion between Needle

and top Hartford executives, however, Hartford offered to "make it up to [Aon]" by using Aon

as its broker on Hartford's own property insurance which had been previously placed without a

broker . Michael O'I-Ialleran was not satisfied with this offer . In a December 1, 2003 e-mail t o

Needle he stated "[i]s this a good trade off . Let's also take some business from them ." (AON-6-

004314) In response, Needle examined Aon's contingent commission agreements with

Hartford, and suggested to O'Halleran that Aon keep its clients with Hartford only in insuranc e

lines where Hartford paid Aon favorable contingent commissions . Further, Needle suggested

that Aon could punish Hartford for the D&O decision by steering business away from it in th e

insurance lines where Hartford's contingent commissions were less favorable :

In terms of taking business from [ Hartford ] our commercial[contingent commission] is favorable and I don 't want tonegatively impact . However, the D&O [Director and Officer] dealis not that attractive and Eric [Andersen , co-head of the FinancialServices Group] and I have discussed trying to drive more end ofyear premium to our major partners in that line -- AIG, XL andChubb . (AON-6 -004314)

ARS also used its ability to steer business as a way of pressuring insurance companies to sign

contingent commission agreements . As one ARS executive informed an insurer that had not ye t

signed a contingent commission agreement :

We have been operating on the good faith that this [contingen t

10

commission agreement] would be mutually agreed quickly afterour meeting here in NY .

Based on the fact that we are almost halfway through the year, I

will be advising our people in the field that we in fact don't Have a

[contingent commission agreement] with [Industrial Risk] ."

(AON-6-003018 )

27 . ARS also provided financial incentives to employees who steere d

placements to insurers that paid ARS the most . Needle told one insurer that, "Insurer incentive s

are a key factor in the property bonus pool ." (Internal Endurance e-mail, dated November 22 ,

2002) This message was reiterated by Needle's subordinates and the executives from the othe r

ARS product groups . As Spurlock explained to an insurance company executive whom she was

attempting to persuade to enter into a contingent commission agreement :

Let me further confirm our ability to effect [sic] placement

behaviors. Our syndicators are evaluated on the percentage of their

books that are with our "premiere" markets . Each RegionalSyndication Director is held accountable as well . This is a

measurable, compensated item that each syndicator is financially

motivated to drive . (AON-6-018789 )

Eric Andersen, co-head of Aon's Financial Services Group, stated :

To provide commentary on the [contingent commissions] . The

revenue that arrives from the [contingent commissions] are [sic]

integral to our budget and profit derived from FSG [Financial

Services Group] . When we are being evaluated, they look at the

full picture of earnings . Our bonus pool is set as a percentage of

revenue . . . . If our [contingent commissions] fall, our ability to use

the percents that we use to pay individual brokers would need to be

changed . In short, it is a critical factor in our business and has adirect impact on how much we can pay people in FSG . (AON-1-

000106)

In a later e-mail, the Managing Director of the Financial Services Group, Ronald Moyer ,

chastised an employee for questioning how contingent commissions are helpful to the group :

11

it is safe to say that, over the past couple of years, [contingent

commission] money has funded our entire bonus pool as well asour investment hires and still contributed significantly to the

bottom line of the company . Anyone who does not see that as

advantageous for them personally is looking through the wrong end

of their telescope . (AON-1-000110)

28 . ARS's disclosure of these business practices was woefully incomplete :

It is agreed by Client and ARS that any revenue ARS may beentitled to from third parties due to contingencies, overrides, bonus

commissions, and/or administrative expense reimbursements isstrictly for the benefit of ARS . ARS will provide Client with

further information upon request . (Aon fee compensation

agreement template, Dec . 30, 2003, p .1 )

2. Bid Inflatio n

29. In at least two instances , ARS's willingness to place its own interest s

ahead of its clients has led it to cause insurers to submit higher bids than the insurer otherwis e

would .

a. Fieldstone/P earlstin e

30. In September 2003, ARS instructed Zurich that its bid of 5246,922 for th e

workers compensation business of Fieldstone Investment Corp . was too low and suggested tha t

Zurich raise its bid before the bids were shown to the client . In this way, ARS sought to hel p

Zurich recoup funds Zurich had expended on an unrelated client's account, Pearlstin e

Distributors, Inc .

31 . Three months earlier , Aon had sought insurance coverage for Pearlstine .

After the contract was bound, Zurich became concerned that it had provided coverage for a poo r

risk and to protect itself against that risk, paid $18,000 for an excess insurance policy. Zurich

was upset about this additional cost and ARS offered to make up the $18,000 through futur e

12

transactions with Zurich, a strategic partner . Thus, in an e-mail, Spurlock promised Zurich tha t

ARS would "re-imbursc [sic] you folks for the Additional Reinsurance costs associated wit h

umbrella coverage on Pearlstine through 9-1 . . . ." (AON-PL-000041) In a subsequent

conference call, Aon's middle market employees were told of ARS's undertaking on th e

Pearlstinc account and were told to look for "opportunities" for Zurich, presumably as a means o f

"reimbursement ."

32. An opportunity presented itself when Fieldstone Investment Corp . retaine d

ARS to obtain a variety of coverages, including workers' compensation insurance . On

September 18, 2003, Zurich provided a formal quote to ARS that was broken down by coverag e

area. Zurich bid $246,922 for the workers' compensation insurance portion .

33 . Shortly after the initial bid was submitted, ARS contacted Zurich and

suggested that Zurich could raise its quote without losing the bid . On September 26, 2003 ,

Zurich provided a revised quote of $290,005 for the workers' compensation portion . Later, that

bid was raised again to account for an increase in the number of Fieldstone employees covered .

Nonetheless, Zurich's adjusted bid remained artificially inflated because it incorporated th e

revised inflated quote .

34 . On November 13, 2003, after the account was bound with Zurich, the AR S

employee assigned to the Fieldstone account wrote to Spurlock to explain what had occurred :

We wanted to let you know that when we first started negotiatingthis deal with [the Zurich underwriter], his initial WC premiumcame in at $246,922 . The expiring premium with the same payrollwas $283,532 . He quoted $36,610 less than expiring . We cameback to hint and allowed him to increase his initial WC quote toapprox. same as expiring, $283,532 . We allowed Zurich to getmore money on this . . . . This is an example ofAON letting Zuric h

13

have more rate and premium when we could have held them at acheaper-price. (AON-FM-000208) (emphasis added )

35 . The next day Spurlock wrote to the Zurich executive who had negotiate d

the agreement on the Pearlstine account . She attached the November 13`" e-mail and stated :

[t]his one deal gave you twice the amount compromised on thePearlstine account . Are we in agreement that we have now metthat obligation [?] (AON-FM-000208 )

On January 5, 2004, Spurlock again wrote to Zurich and attached both the November 13`h an d

14"' e-mails :

I never heard from you or [the Zurich executive] on this subjectand we assumed that you are in agreement with the statements

made below [the November 13 " and 14" e-mails] . To refresh the

circumstances surrounding this topic, remember that we agreed at a

senior management level to forgive the additional premiumgenerated by building the primary limit to $2M to Pearlstine with

the promise that we would make it up to you in other business .

This was done twice over on [Fieldstone] . (AON-FM-000207)

36 . A later Aon internal e-mail noted that the inflated bid not only settled th e

Pcarlstine debt to Zurich but helped Aon get closer to achieving payout on its contingen t

commission goal :

Congrats again on Fieldstone. Not only was that a nice new hit, itcertainly helped us on two fronts . It obviously helps to get us

closer to our premium goal with Zurich and also to make up the

$18K in premium that they helped us out on [Pearlstine], go away .

As I recall you were able to get them $36K more in premium than

they originally quoted to more than make up for what we owedthem. That is the way a National operation should work. (AON-

FM-000205) -

b. Pitcairn

37 . In another instance Aon also encouraged Zurich to raise the bid it wa s

14

willing to submit, even though Zurich ultimately did not get the coverage .

38 . On July 9, 2004 , a syndicator in the ARS environmental unit sent ou t

requests for submissions to insurers for coverage of pollution liability on a condominium projec t

in New York City being developed by Pitcairn Properties , Inc . (AON-F-015854) Zurich' s

underwriter, who had worked in the industry for approximately fifteen years, determined that a

reasonable quote for the coverage would be in the mid-sixty thousand dollar range .

39 . In a telephone call with the Aon syndicator, he communicated this bid . In

response, the Aon syndicator told the underwriter that the quote was too low and that he wante d

Zurich to quote in the upper ninety thousand dollar range . The Zurich underwriter agreed t o

provide the higher quote . The conversation was followed by an e-mail from the Aon syndicato r

to the Zurich underwriter : "[i]t was good talking with you just now, and it was refreshing to hea r

some willingness to take this opportunity on . . . . [t]he target is in the upper 90s ." (AON-F-

015854)

40. Four days after the conversation, Zurich provided a formal quote to ARS

of $92,497 . In its bid, however , Zurich failed to provide coverage for three scheduled non-

owned disposal sites, something the syndicator had indicated that Pitcairn required . In a follow-

up conversation, the Aon syndicator again told the underwriter that it was essential for Zurich t o

provide coverage for the disposal sites to win the bid . The Zurich underwriter orally agreed to

cover the disposal sites without increasing its premium.

41 . Although Zurich had the lowest quote , ARS advised Pitcairn to rejec t

Zurich and take a higher AIG quote of $99,519 . ARS justified the recommendation by tellin g

Pitcairn that Zurich had refused to cover the disposal sites .

15

C. AON'S PERSONAL LINES INSURANCE UNIT ENGAGE DIN STEERING AND OTHER DECEPTIVE PRACTICES IN RETURNFOR UNDISCLOSED COMPENSATIO N

42 . Through its Aon Private Risk Management ("APRM") unit, Aon sell s

personal lines insurance products to individual clients, including homeowners, automobile ,

personal liability, and umbrella coverage. APRM targets the high end of this market, consistin g

of affluent individuals who can generate at least $1,000 in commission revenue to APRM per

year. (AON-32-013509) Similar to its other business units, APRM' s business model relies upo n

establishing lucrative contingent commissions and other agreements with selected insurers an d

directing premium to these "strategic partners" to achieve, in APRM's words, "maximum

payout ." (AON-34-000587 )

43 . APRM' s clients place a great deal of trust and confidence in their brokers ,

due to both the complexity of insurance products and , as Bruce Macbeth , APRM's director of

syndication, explained : "insurance kind of scares them ." Once placed with a particular insurer ,

clients tend to renew with that carrier and not to re-shop the policy or seek competitive pric e

bids . APRM has exploited these circumstances to steer clients to preferred insurers or t o

maintain their clients' programs with favored incumbents . APRM's clients were not informe d

that Aon maintains close ties with certain insurers, resists doing business with other insurers, an d

that the salaries and benefits of certain Aon employees may be paid for by insurers .

1 . Insurer Funding of Aon's Personal Lines Employee s

44. 'in or around'! 999, Aon' eiitei d into "producer funding agreements" with

select insurers providing for the insurers to fund directly the hiring of Aon personal lines brokers .

These individuals held themselves out as Aon employees in every respect without disclosing that

16

insurers were funding their salaries as part of an Aon commitment to steer business to those

insurers . In 1999, 2000 and 2001, Chubb funded 50% of salary and benefits for certain Ao n

personal lines brokers for the purpose of selling Chubb insurance . (2Chubb-001795-97, 002219 ,

002232, AON-F-020172) In some documents these Aon employees were referred to a s

"dedicated Chubb Personal Lines Producer[s] ." (2Chubb-002273)

45 . As part of its investment, Chubb played an active role in the recruitmen t

and oversight of Aon producers, often hand-picking new Aon employees based on their previou s

demonstrated commitment to Chubb. For instance, in 1999, Chubb was charged $18,800 in fees

by a recruiting firm to find "just the right person" to staff a personal lines position in Aon' s

Chicago office . (2Chubb-002797-98) Chubb also recommended a producer for Aon's Ne w

York office, who was subsequently hired by Aon and funded by Chubb .

46. The producer funding agreements themselves contained plain incentive fo r

Aon "producers" to recommend Chubb insurance . A 2000 employment letter from Aon to a

Chubb-funded producer in Aon's Cleveland office provided that in addition to a base salary o f

$65,000 : "You are eligible for an annual bonus once you have reached your annual sales goal o f

$300,000 in new Chubb Personal Lines Premiums ." (AON-F-020I 68) In the first year of hi s

employment, the same Cleveland producer was instructed by his supervisors that when makin g

sales calls to prospective clients, he should only offer Chubb insurance . Other insurance coul d

be sold but only if Chubb insurance was not available .

47 . Similar Chubb funding arrangements were in place in Aon 's New York ,

Illinois, Oregon and Florida offices . (2Chubb 002215, 002265 ; AON-F-020172, 2Chub b

002797) Aon also accepted producer funding from Fireman's Fund Insurance Co . in 1999 an d

17

2001 to fund 50% of compensation for up to 15 Aon producers . (AON 108435-37) Accordin g

to a 2001 e-mail from Carter 13rydon, APRM's former managing director, AIG wanted to engag e

in producer funding, but Aon "rebuffed AIG in their desire to join the party ." (Chubb-029343)

48. These producer funding programs were an overlay to regional and national

agreements calling for substantial steering to Chubb and Fireman's Fund . In Aon's Illinoi s

office, to further motivate the Chubb/Aon producer, Chubb promised escalating contingent

payments to Aon for writing automobile policies and bonuses of $ 1,000 or $2,000 to th e

Chubb/Aon producer, the Chubb!Aon producer's supervisor and other Aon staff if personal line s

growth exceeded 8% . (2Cknibb-002275-76) A letter m emorializing a national Chubb/Aon

producer funding agreement dated December 22, 1999 provided for Chubb to fund producers i n

certain Aon offices and stated : "Aon agrees to give Chubb & Son first right of refusal to persona l

lines business written through the Aon Private Client Group at the assigned offices . " (2Chubb-

002232) A similar proposal in 2000 contained the same language . (2Chubb-002278) And i n

2001, Chubb loaned $500 ,000 to Aon " to assist in building your personal lines operation . "

(2Chubb-002655) The agreement further provided for forgiveness of the loan if Aon produced

13% premium growth to Chubb in 2001 and further that Chubb would pay Aon an additiona l

$250,000 contribution if Aon achieved 15% growth . (2Chubb-002655 ) Aon never disclosed an y

of the above producer funding agreements to its clients .

2. The AIG "Freeze Out "

49. ° Asa result of these and oiher-arrangemcnts, Aon-act°iveiy worked to

protect the market share of Chubb and Fireman's Fund in the personal lines area . When AIG

entered the high-end personal lines market in 2000, Chubb communicated to Aon that it s

i8

1W

A

"relationship" with Aon would be damaged if Aon established a significant partnership with

AIG . (2Chubb 001063, 000951, 001887) In an inte rnal memorandum dated August 30, 2000,

Chubb wrote that Aon "agreed whole heartedly that Aon should be very wary of AIG' s

involvement in the high-end Personal Lines business and they would work hard to make sure tha t

the local offices would not entertain AIG approaches ." (2Chubb-001063 )

50. In 2001, Aon reorganized its personal lines business under the APRM

name, and named Macbeth APRM 's director of syndication . One of Macbeth 's first tasks was t o

dra,,v up a "Syndication Master Plan ," calling for AI'RM to consolidate its high net worth client s

with the two insurers that paid APRM the highest contingent commissions : Chubb an d

Fireman's Fund . (AON-32-013509) APRM sought to enter into a contingent commission

agreement with AIG, but AIG declined, and in response APRM's syndication plan stated : "we do

need to develop a relationship with AIG's Private Client Group, but within ve ry limited

guidelines ." (AON-32-013509) The plan elaborated that : "as I would consider them a mino r

strategic partner, [AIG] would only have the ability to consolidate these clients after Chubb an d

Fireman's Fund had their opportunity ." (AON-32-013512 )

51 . APRM's contingent commission agreements with Chubb had a clear effect

on APRM's placement effo rts on behalf of its clients . On November 13, 2001 , Brydon exhorte d

his staff in an e-mail : "we need to get $3,000,000 in written premium with Chubb by years end --

a daunting task no doubt -- but it means $ 500,000 to APRM if we do ." (AON-32-015016) H e

further instructed: "jw]lhen we get a good AIG quote, we should share it with Chubb and

[Fireman's] Fund as a last look . They are paying us to be in this position, we need to force them

to act." (AON-32-015015 (emphasis added)) Brydon added : by doing business with AIG, "we

19

may be leaving a substantial sum of money on the table ." (AON-32 -015015 )

52. In the following weeks, Macbeth reiterated the need to meet the Chub b

contingent commission goals . He discouraged the practice of requesting bids from AIG as i t

would slow down the placement process by creating competition among insurers that woul d

invariably favor AIG's lower prices :

in the sho rt term, we need to steer all submissions to Chubb . I am

finding that most submissions are submitted to all three carriersand we all now [sic] what AIG will do to buy market share . We

need to emphasize that AIG should only be used if there is an

underwriting issue with Chubb, which we can address . If we

approach AIG on all submissions , the reason for carrier chosen willalways be rate and it will slow submission process . (AON-32-

015171 )

A few days later, Macbeth prepared the speaking points for a joint conference call amon g

APRM's executives and its originators and relationship managers , who handle persona l

insurance placements on the front line :

lFith our override agreements with Chubb and Fire Fund, we 11eed

to direct all new business exclusively to them for- the next month

and beyond. Chubb should be the first choice for any risk with

Fireman's Fund a second thought . (AON-32-015217 (emphasis

added))

After reviewing the speaking points, B rydon added a qualifying comment :

let's don't go on record with putting Chubb 1 st and Fund 2nd .

They should be equal . We should just push Chubb a little harder

behind the scenes to get them the business . (AON-32-015217)

With regard to AIG, Macbeth' s speaking points directed APRM's brokerage staff:

We must use IA1Gj only for the complex accounts, which generateover $35,000 in premium . If we submit all risks to them, the [sic]they will write a majority of them because of their rate flexibility .In addition, we do not have any overrides for growth, nor will w e

20

H

tq

get any in the forseeable [ sic] future , just standard brokeragecommissions . (AON-32-015217)

53 . In 2003, AIG entered into a contingent commission agreement wit h

APRM and APRM re fined its approach, generally quoting all new business to Chubb, AIG, and

Fireman's Fund . APRM, however, continued to show a preference to Chubb . In a 2003 e-mai l

concerning AIG, Macbeth wrote to Brydon : "I would like to discuss with you how to

diplomatically put into action a strategy of playing with them, but at arm's length ." (AON-34-

000191)

54. After 2003, APRM continued to use a number of devices to control the

placement process and ensure that premium was placed with its preferred insurers, includin g

limiting remarketing of accounts once a client was placed with a preferred incumbent , limiting

marketing of new clients to preferred insurers, providing preferred insurers with first looks, las t

looks, or exclusive looks at client business, and constantly reminding, and in some cases

reprimanding APRM brokers who exercised independent judgment in the placement process .

Aon's clients were not informed that it provided these market favors to insurers in return fo r

contingent commissions .

55 . For instance, in a May 2, 2003 e-mail, Brydon complained that an Ao n

broker was prepared to move a high profile account from Chubb to AIG "without giving Chubb a

chance to get a last look . This is unacceptable." (AON-34-000606) He added : " it is time for

consequences . No commission for the sale . . . regardless of what happens . He needs to be

written up ." (AON-34-000606) Similarly, another broker was cited by Macbeth in a June 24 ,

2003 e-mail for "let[ting] the cat out of the bag" with regard to "substantial rate increases" b y

21

u

14

Chubb in Illinois and the existence of more competitive rates by AIG. (AON-34-013449)

Macbeth stated : "I understand the issues with IL rate increases, but should we just throw up ou r

hands and remarket all our IL accounts to AIG? We can certainly find a better solution, but no t

once we have whispered in a client's car ." (AON-34-013441) On October 27, 2003 , the then

acting head of APRM, wrote concerning an APRM broker who touted AIG to a prospectiv e

client : "why wouldn't lie have mentioned Chubb . Sounds like he needs an education . . . . "

(AON-34-004756)

56. Like ARS, APRM took care to conceal the manner in which its contingen t

commission and producer funding agreements with insurers compromised APRM's loyalty to it s

clients . Even after the New York Attorney General 's Office had sued another broker for similar

activities, APRM continued to misrepresent the effect of undisclosed compensation agreement s

to its clients . On October 19, 2004, an APRM relationship manager wrote to a client who ha d

inquired about Aon's contingent commission policies :

Aon is structured in a fashion that does not lend itself to the abusesthat are aledged [sic] of the industry. We market individual client

insurance programs on a case by case basis , and the local office isnot aware of contingent income agreements , and is therefore notinfluenced by them in any way . (AON-68-002386)

D. AON HAS EXPLOITED ITS RETAIL PLACEMENTSTO OBTAIN REINSURANCE BROKERAGE BUSINESSAND HAS ENGAGED IN STEERIN G

57. Aon Re Global ("Aon Re") is the largest reinsurance broker in the world .

Reinsurance is insurance purchased by insurers to cover or balance the risks associated with thei r

own insurance portfolios . Whereas the customer in the retail insurance market is an individual o r

business corporation, the customer in the reinsurance market is the insurer itself, seeking to cove r

22

7

risk created by its retail insurance policies . Aon Re and other reinsurance brokers represen t

insurers and advise them in selecting reinsurance packages .

58 . Beginning in the 1990s, Aon Re devised numerous ways of obtaining

improper compensation in return for steering . Aon leveraged its retail insurance services over

insurers by demanding that the insurers use Aon Re's reinsurance services in exchange for Aon's

agreeing to increase retail placements with the carrier . Such promised leveraging provided

streams of undisclosed compensation to Aon in the form of insurance carrier commitments to us e

Aon Re for reinsurance . Aon Re also received contingent commissions from reinsurers i n

exchange for increased reinsurance placements .

59. Thus, through its multifaceted business lines, Aon devised imprope r

methods to obtain multiple bites at the compensation apple . One insurer, reviewing an Ao n

compensation scheme, commented "I can think of 5 ways eve potentially pay aon [sic] on the

same account." (LM 006157) These included : (1) the standard commission, which would b e

disclosed to the client ; (2) a national contingent commission agreement ; (3) a local contingen t

commission ; (4) reinsurance brokerage arising from the insurer's undisclosed commitment to us e

Aon Re's reinsurance services for facultative (policy-specific) reinsurance ; and (5) a similar

commitment to use Aon for the insurer's treaty (multiple policy) reinsurance . In addition ,

although not mentioned in the e-mail, when Aon Re placed the insurer's reinsurance busines s

with one of Aon's partner reinsurers, Aon might also receive a reinsurance contingen t

commission .

1. Retail Steering in Exchange for Reinsurance Brokerag e

60. Aon's effort to leverage its retail brokerage arrangements to obtai n

23

reinsurance involved its top executives . Around 2000, Aon Re representatives often claimed that

by doing business with Aon Re, the insurer would gain access to, and sometimes preference

from, the entire Aon organization, including Aon's retail brokerage units . Aon marketers and top

executives used the slogans "Interdependency" and "One Aon" to describe this practice .

61 . Documents indicate that, as early as 1994, Aon's Chairman and CEO ,

Patrick G . Ryan, "allegedly demanded" reinsurance business from CNA Insurance Companies

("CNA"), another insurance carrier, in exchange for a promise to deliver two lines of retail

business to CNA . (Carvill America Letter dated January 7, 1994 ; CNA Letter dated January 11,

1994; Memorandum to File relating meeting of January 7, 1994) Later, in 2000, Ryan personally

negotiated an arrangement with Chubb whereby Chubb would give certain reinsurance business

to Aon Re in return for preferential treatment from Aon's retail brokers .

a . The Chubb Corporation

62. in the summer of 2000, Chubb Executive Risk, a newly acquired Chubb

subsidiary focusing on the insurance needs of business executives , conducted an extensive

review of its insurance lines to determine how to structure its reinsurance purchases . Prior to

being acquired by Chubb in 1999, Executive Risk had used Carvill America , Inc . as a reinsurance

broker for its D&O reinsurance program .

63. On June 19, 2000 , Aon's chief reinsurance officer from its Philadelphia

office wrote a memorandum to Michael O'Halleran , Aon's President and Chief Operating

Officer at the time, describing his conversations with top Chubb executives about Aon Re's

desire to handle Chubb Executive Risk ' s reinsurance . Chubb Executive Risk's president reacted

negatively to the "One Aon" message, explaining : "Aon Re originally received the Chub b

24

1

4

casualty reinsurance program some three years ago because of commitments made b y

O'Halleran/Ryan to Dean O'Hare regarding increased retail growth ." Chubb believed that "thi s

did not happen and therefore, [Chubb's] attitude was so much for the leverage card ." (AON-F-

020487)

64. Two months later, the same Aon executive wrote a second memorandu m

to O'Halleran describing his meeting with three top Chubb executives about reinsurance . Once

again, the Aon executive said that "any conversations we would have would be in the context of

the overall Aon/Chubb corporate trading relationship ." (AON-F-020379) This time, Chubb's

chief underwriting officer "became extremely angry and animated," and "strongly advised me no t

to go there ." (AON-F-020379) The Chubb executive explained : "[ i]n Chubb's mind, Aon di d

not deliver on original promises made when [Chubb] awarded Aon Re the casualty reinsuranc e

some three years ago ." The Chubb executive raised a number of other areas of contention

between Aon and Chubb, including that the "Aon/Chubb relationship is deteriorating," notin g

that "[o]verall premium volume between Aon/Chubb down some S90,000,000 ." (AON-F-

020379)

65 . Chubb had voiced similar complaints that year . (2Chubb 000951, 000962-

63) In another correspondence, an executive from Chubb Executive Risk complained : "Pat Rya n

is well-known for leveraging the scope of Aon's brokerage relationships . Can you ask him why

they just moved $15,000,000 in non-profit D&O . . . business from me in Washington, DC . . .

when at the same time you were soliciting ' ['Chubb Executive Risk's reinsurance ] business here i n

Simsbu ry?" (AON-F -020514)

66 . On September 13, 2000, Ryan and Chubb's Chairman and CEO, Dea n

25

O'Hare, met for dinner at the Four Seasons Hotel in Chicago . (2Chubb 000984) At some point

prior to the meeting, Ryan had called O'Hare by telephone to inquire about Aon Re's bid to

obtain Chubb Executive Risk's D&O reinsurance . O'Hare said he would look into the matter,

but stressed to Ryan that Chubb was not happy with the current Aon relationship, as Aon was not

giving enough retail business to Chubb .

67 . In preparation for the Four Seasons dinner, a Chubb executive spoke wit h

O'Hallcran and then briefed O'Hare on the issues to be discussed . Chubb's first priority was to

stop the "bleeding" in new retail business by highlighting its contingent commission with Aon :

"We need to tell them we are open for business (e .g_, their new business production) and ar e

pa yin them extra for it ." (2Chubb 000978) (emphasis in original) The Chubb executive also

told O'Hare that Aon Re would like to "quote" Chubb Executive Risk's reinsurance program .

(2Chubb 000979 )

68. At the Four Seasons, Ryan stressed that Aon Re could do a better job for

Chubb on its reinsurance business . O'Hare complained that Aon was not giving Chubb enough

retail placements . With regard to personal lines, O'Hare told Ryan that he was concerned that

AIG, a new entrant to the high-end segment of the market, was "trying to burn into the market"

by offering lower prices than Chubb . After the meeting, O'Hare told his executives to look at the

reinsurance business to "see what Aon can do for us . "

69 . Despite these conversations, on October 11, 2000 Chubb Executive Risk

recommc'nded continuing with Carvill as-the -brokerfor the placement of a layeruf the D&O

reinsurance . (2Chubb 000906-911) Chubb's management in Warren, New Jersey agreed with

Chubb Executive Risk's recommendation to keep the business with Carvill .

26

-1

70, On or about October 17, 2000, Ryan tracked down O'Hare, who wa s

traveling in Brazil at the time, to discuss Chubb Executive Risk' s reinsurance . After the cal l

O'Hare -- without consultation with other Chubb staff -- told his secretary to notify his senio r

executives , who were still recommending Carvill, that Aon Re would receive the Chub b

Executive Risk D&O reinsurance business . One Chubb executive recalls later joking wit h

O'Hare about his decision to overrule his staff: "you [sure] complicated my life as to timing" a s

Chubb Executive Risk had already recommended Carvill, and the January 1, 2001 renewal dat e

for the D&O reinsurance program was fast approaching .

71 . Notes taken by a participant in a conference call between Chubb and

Carvill on the next day, October 18, 2000, purport to describe the conversation between Rya n

and O'Hare :

Dean O'l-Iare has promised Pat Ryan Aon will get the lion share of

[Chubb Executive Risk's] reinsurances . Promise made some timeago and Ryan called Dean [O'Hare] in S .A. earlier this week to

make sure promise being upheld . Told Dean that Aon handling

[reinsurance] is critically important to Aon and Chubb having

positive relations and if Chubb give [reinsurance] to Aon Ryanwilling to put his personal credibility and friendship w/ Dean on the

line to make sure Chubb receive preferential treatment from Aon .

[Four Chubb executives] all opposed to the decision but believe thisis a done deal and do not believe they can convince Dean to changehis mind

72 . A second set of notes relates a conversation between a Chubb executiv e

and an Aon executive on October 23, 2000 and were taken by the Aon employee upon being

notified that Aon Re would get the D&O reinsurance. The notes state that a Chubb executive

intended to talk to O'Hare about why he believed O'Hare had made the wrong decision . (AON-

27

F-0205 10) The notes add : "Dean made decisions w/out talking to anybody." (AON-F-0205 10 )

73 . On October 30, 2000, O'Halleran wrote to Chubb to extend his gratitud e

for Chubb' s D&O reinsurance business , and noted : "As promised , I am arranging a conferenc e

call with our financial services people, you and Executive Risk and also checking on personal

lines issues ." (Chubb 035506)

74 . O'Halleran continued to monitor the Aon/Chubb relationship . On May 6 ,

2003, Robert Needle wrote to O'I-Ialleran : "there is quite a bit of attention being paid to th e

Chubb relationship . We have 3 areas of focus and 3 corresponding PSA agreements," notably in

the commercial insurance, D&O and personal lines areas . (AON-I 9-006333) Other top Ao n

executives also monitored the Chubb/Aon relationship . On October 6, 2003, Eric Anderse n

reported to Chubb:

I can tell you unequivocally that we have maintained a ve ryaggressive pro-Chubb position as you have repositioned your bookof business based on your allocation position . The growth in themiddle market area, for example , has been very strong (much to theangst of your competitors who call weekly, pay a largercommission percentage and demand a greater share of that businessbased on their more active role on the primary placements for thelarge accounts ) . (AON-1-000537 )

b. AIG

75 . Another example of Aon promising to steer retail business in return for

insurer commitments to use Aon Re's reinsurance se rvices concerned AIG. In the fall of 2000 ,

AIG indicated that it was considering handling in-house a particular reinsurance program calle d

CCA . In a November 27, 2000 e-mail to top Aon executives , including Ryan and O ' Halleran, o n

both the retail and the reinsurance sides of the business, an Aon executive explained :

28

In return for a commitment of $10,000,000 in new gross premiumfrom ARS US, AIG has agreed to appoint Aon Re for an additional2.5% placement of the CCA program, which [AIG] has indicated isworth $750,000 in commission for Aon Re. (AON-18-003857 )

C . Liberty Mutua l

76 . Similarly, Aon Re expressly conditioned providing increased retai l

production in return for reinsurance business in the case of Liberty Mutual Group ("Liberty

Mutual") . In the first and second quarters of 2000, Liberty Mutual undertook a review of its

property reinsurance program following its 1998 affiliation agreement with Employers Insurance

of Wausau .

77 . During the week of February 14, 2000, Scott Clark, the head of Aon Re' s

Property Practice Group, attended a Liberty Mutual meeting , and demanded that Liberty Mutua l

use Aon Re "on Aon produced business ." (AON-44-0000007, AON-F- 008723 ) Clark then

demanded Liberty Mutual ' s treaty reinsurance :

I told them we are the best qualified to handle their corporate

reinsurance program. Reinsurance is extremely important to Aonand without it we just won't grow as well as with it . I told them ifwe don't get their reinsurance there is no point in these "love ins" .Needless to say I got their attention, some say I was too strong but

we have got to stop screwing around with the interdependence

message, especially to those that can give us their reinsurance,

depend on Aon for production and have mediocre brokers . . . .(AON-44-0000007 )

Following the 2000 review, Aon Re obtained Liberty Mutual 's reinsurance business .

2. "Clawbacks"

78 . Aon's practice of leveraging its retail brokerage arrangements to obtai n

reinsurance business became so routine that it memorialized these arrangements in a variety o f

29

contracts known informally as "clawbacks . "

79. Many of these "clawback" arrangements shared a similar pattern . Initially,

the insurer would express displeasure at Aon Re's brokerage commissions and would threaten to

shop around for competitive rates . In order to retain the reinsurance account, Aon Re woul d

offer the insurer an incentive by heavily discounting its reinsurance brokerage commissions .

Lastly, in order to recover the compensation lost by the discount, Aon Re would negotiate a

"clawback," allowing it to reduce or eliminate the reinsurance brokerage discounts by steerin g

retail insurance business to the insurer .

80 . These "clawback" arrangements were governed by confidentiality clauses ,

(AON-0014304), and, therefore , Aon's retail clients were not informed that Aon steered, or ha d

incentives to steer, business to selected insurers in return for the insurers ' commitment to us e

Aon's reinsurance services . In addition, through steering or promises of steering retail business ,

Aon Re gained a competitive advantage over competing reinsurance brokers that did not operat e

retail insurance brokerage units .

81 . Michael O'Halleran, Aon's President and Chief Operating Officer unti l

2004, was in a unique position to make sure Aon capitalized on the relationship between Aon R e

and ARS because both business units reported to him ; he negotiated many of the "clawbacks . "

a. Liberty Mutual

82. Liberty Mutual, which as noted above was subjected to leveragin g

pressure from Aon Re, also entered into "clawback"agreements with Aon in 2002 and 2003 .

83 . In 2002, Liberty Mutual expressed concern that Aon Re' s brokerage fee s

in property reinsurance were too high and began exploring using a co-broker or moving it s

30

property reinsurance business to another broker . To retain the business, Aon's O'Halloran an d

Clark negotiated an agreement whereby Aon promised increased retail premium placement to

Liberty Mutual in return for Liberty Mutual's continued use of Aon Re for its propert y

reinsurance . (AON 00143 .04-09) As an added incentive, Aon Re provided Liberty Mutual with a

reduction on its reinsurance brokerage fees . (AON 0014307-09) Aon then had the opportunit y

to recapture or "claw back" its lost reinsurance brokerage revenue, based on the volume o r

profitability of retail property business placed with Liberty Mutual . (AON-0014304-05) Th e

terms of the agreement were secret, so purchasers of Liberty Mutual property insurance through

Aon did not learn of Aon's incentives to funnel more business to Liberty Mutual in return fo r

reinsurance brokerage commissions . (AON-0014306)

84. Prior to entering into or renewing its "clawback" agreements with Libert y

Mutual, Aon executives, on both the retail and reinsurance sides, including O'Halleran, discussed

Aon's ability to steer significant business to Liberty Mutual. (AON-19-003790,

AON-F-008723) . In one e-mail, Scott Clark wrote "I'll speak with [head of Aon property retai l

department] about the reality of putting significant business into [Liberty Mutual] in order to

trigger the partnership dividend ." (AON-19-003790 )

b. RLI Insurance Company

85. In 2001, Aon entered into a similar clawback agreement with RL I

Insurance company ("RLI") that combined incentives for Aon to steer retail placements to RL I

with incentives for RLI to use Aon Re for its re ;'nswanee needs . The agreements again negotiated

by O'Halleran, called for Aon Re to pay RLI a 20% rebate on all brokerage it paid to Aon Re for

placing its reinsurance agreements . As an added incentive, Aon Re promised to pay RLI a n

31

additional 5% rebate on its reinsurance brokerage commissions if Aon did not produce 20%

growth in annual retail premium to RLI . (RLI 000993, 001000-001001, 001291-001292) Thus,

the arrangement permitted Aon to "claw back" the 5% reinsurance rebate by producing 20%

growth in retail business to-RLL (RLI 001291-001292) As RLI's president and chief operating

officer explained in a July 27, 2001 letter to O'Flalleran, linking the reinsurance rebate to retail

growth provided "a very strong incentive for us to utilize Aon Re as our primary reinsuranc e

intermediary ." (RLI001000)

86 . In 2003, Aon Re further linked the relationship between its retail an d

reinsurance brokerages . On March 25, 2003, RLI's president and COO spoke with Aon Re' s

vice chairman, David Kelley, concerning the reinsurance business for RLI's executive protectio n

group . Kelley "committed to Aon ' s delivering more [ retail ] business to RLI" in exchange fo r

which, Aon would retain RLl's reinsurance business . (RLI 001149, 001151) Ina follow-u p

c-mail, RLI also confirmed Aon's promise "to produce $25 million in retail premium productio n

for the product line ." (RL1 001 15 1) Neither Aon' s retail incentives under its reinsuranc e

agreements with RLI nor its commitment to produce $25 million in retail business to RLI wa s

disclosed to Aon' s retail customers .

c. Travelers Insurance Company

87 . Aon entered into yet another "clawback" agreement with Travelers

Insurance Company . In 2001, Travelers Bond communicated to Aon that it was considering

moving its reinsurance brokerage business to Guy Carpenter,- Am Re's competitor . Aon Re

offered a strategic partnership under which it would increase its placement of retail business t o

Travelers Bond if Aon Re maintained the reinsurance brokerage business .

32

88. In a series of meetings with Travelers Bond executives , Aon's O'Halleran

stated that if Travelers Bond continued to use Aon Re, Aon would commit to increasing its retai l

placements with Travelers . These meetings were followed by an formal offer sent from

O'Halleran to the CEO and CFO of Travelers Bond, (STP 00002-05), providing that if Traveler s

maintained the reinsurance relationship, Aon would pay Travelers Bond $1 .5 million and that

Aon could eliminate or "claw back" Aon's payment if it increased its retail business to Travelers

Bond, Ultimately, Aon and Travelers Bond entered into a clawback agreement on slightly

different terms. Aon never informed its retail clients of any clawback agreement or its incentive s

to steer retail business to Travelers Bond .

3. Reinsurance Steering in Exchange for Contingent Commission s

89 . As in the retail markets, Aon Re has entered into contingent commissions

agreements with preferred reinsurers and has directed reinsurance to these reinsurers withou t

sufficient disclosure to Aon Re's insurance carrier customers . Since 1997, Aon Re has entere d

into contingent commission agreements with at least 12 reinsurers. (AON 0014181-82 )

The benefits of entering into reinsurance contingent commission agreements with Aon Re were

outlined in a June 19, 2003 letter from an Aon Re senior vice president to Endurance Re Corp . of

America :

You asked me to [sic] other day why would Endurance want tobecome a strategic partner with Aon's investment in Endurance andthe potential that your costs could increase slightly . We think thereare a number of good reasons but a couple of the major reasons areas follows . First you would enjoy favored treatment overnon-strategic partners . As mentioned previously you would havethe opportunity to personally review the entire listing of all currenttreaty abstracts . This gives you a unique opportunity to pre-selectprograms you are interested in participation [sic] as a reinsurer .

33

Second on new programs you would have the first opportunity to

quote and participate on the programs . On renewal business we

would attempt to make room on a program you are interested in and

or if an existing reinsurer declined to participate you would have thefirst crack at replace [sic] the expiring reinsurer .

(AON-F-009696)(emphasis added )

Endurance ultimately entered into such an agreement with Aon Re for the 2004-2005 period .

(AON-0014363)

90. Aon Re also provided direct financial incentives for its brokers to engag e

in steering . After entering into a lucrative contingent commission agreement with Kemper

Reinsurance Company ("Kemper") in 1998, Aon Re paid an additional bonus to its brokers "a s

an incentive for having placed business with the Kemper last year ." (AON-F-009475-76 )

Kemper paid Aon Re reinsurance contingent commissions of $557,934 .50 in 1997, $570,000 i n

1998 and S2 .5 million in 1999. (AON-F-0014181 )

91 . Aon's disclosure of reinsurance contingent commissions was misleading

and inadequate . In 2003, in appointing Aon Re as broker of record for its Executive Product s

Group reinsurance, RLI Insurance Company entered into an understanding that Aon Re woul d

provide "[f]ull disclosure of brokerage charge" in all reinsurance placements for RLI . (RLI

001151) However, Aon Re did not disclose to RLI that it had placed RLI reinsurance with two

reinsurers with which Aon Re maintained contingent commission agreements . Later, in early

2004 when RLI asked directly for information on all reinsurance contingent commissions, Ao n

Re responded in part:

Aon Re occasionally enters into [contingent commissionagreements] with reinsurers . In general, Aon Re performsvarious services under the [contingent commission agreements] ,and it receives payments based on certain business volume o r

34

production targets with respect to business placed with the

reinsurer in question . [Contingent commission agreements] are a

long-standing practice in the reinsurance industry, and

reinsurance customers can benefit from the relationship

established between Aon Re and the reinsurer through the

[contingent commission agreement] . (RLI 001119 )

Unsatisfied, RLI wrote back demanding "a clear answer to our inquiry as to whom the parties ar e

that AON has or has had [contingent commission agreements] with and the nature of th e

[contingent commissions ] ." (RLI 001130)

92 . Aon Re ultimately provided a second letter dated September 23, 2004 ,

identifying the names of two reinsurers from which RLI had purchased reinsurance through Ao n

Re and disclosing RLI's "proportionate share" of contingent commissions paid to Aon Re b y

these reinsurers . (RLI 0001 137) Despite RLI's repeated requests for information about the

agreements, the letter still did not disclose the gross contingent compensation paid to Aon Re b y

the reinsurers or that one of the contingent commission agreements provided for Aon Re to us e

"its best efforts to secure preferential signings on placements ." (AON 0014348 )

E. AON CONSULTING HAS ENGAGED IN UNDISCLOSEDSTEMING, "PAY-TO-I'LAY" ARRANGEMENTS AND BIDINFLATION

93 . Aon U.S . Consulting, Inc . ("Aon Consulting") provides clients wit h

consulting on employee benefits insurance . In 2003 alone, Aon Consulting generated

approximately S 1 .2 billion in gross revenues . Its recommendations affect the price and quality of

the health, dental, life, and disability benefits received by millions of employees at numerous

large private and governmental employers, including General Motors, AT&T, the United States

Department of Homeland Security, and the Federal Bureau of Investigation, as well as man y

35

small businesses, municipalities and non profit corporations .

94. Aon Consulting pledges to clients that it will become their "strategi c

business partner ," (AON-12-004883), "make recommendations . . . regarding the most effective

plan management ," (AON-LIV- 000010) and "obtain the greatest level of benefits available,

consistent with current dollars expended and investigate options to reduce costs ." (AON-LIV-

000040 ) It claims that it is "there to help [its clients ] every step of the process , for all types o f

health and welfare services," so that its clients can achieve their "optimal performance . "

According to one Aon Consulting executive in January of this year . "Our mantra is the clien t

comes first ."

95. In fact, as with ARS and APRM, Aon Consulting has entered int o

undisclosed national and local contingent commission or "override" agreements that have create d

incentives to steer business to maximize its revenue . In 2003 alone, Aon Consulting earned in

excess of $20 million from such contingent commission payments .

96. Aon Consulting deceived its clients by telling them that contingen t

commission payments had no impact on their rates . (AON-12-12972-87) In fact, Aon knew tha t

some insurers factor contingent payments directly into their premiums . As a result of thes e

practices, employees often received more expensive and less optimal health, life and disabilit y

coverage .

1. Steering

97. Like ARS and APRM, Aon Consulting has steered business to insurer s

who paid undisclosed contingent commissions . Internally, Aon Consulting has acknowledge d

that the contingent commission agreements have affected Aon Consulting's recommendations .

36

For example, one Aon Consulting executive suggested that contingent commission agreement s

rewarding new business caused Aon Consulting "to move cases to other carriers just to generat e

[contingent commissions] ." (AON-14-000253) Another Aon Consulting executive declared tha t

the intent of its contingent commission agreement with the Guardian Life Insurance Compan y

"was and still is to incent our people to place business with the Guardian . . . ." (AON-14-001024)

98 . Contingent commission agreements could function as a stick as well as a

carrot for the insurers . Aoti Consulting threatened insurers with fewer business opportunitie s

when they sought to reduce contingent commissions . For example, in an August 2002 e-mail, an

Aon Consulting executive warned UNUM Provident Insurance Company ("Unum") tha t

"decreasing your renewal compensation levels may have an adverse effect on how often ou r

producers show your product . . . ." (AON-14-000477) The following year, when Unum agai n

sought to lower Aon Consulting's contingent commission compensation, Aon Consultin g

replied :

If we were to accept the proposed reduction, our compensation

from Unum would be about 80% of the compensation we receivefrom Met and Mass Mutual . It's almost like you are telling us thatwe should place our new business with a carrier other than Unum

so that we can make [more] money? (AON- 1 4-00 1 1 1 7 )

And, in December 2002, an Aon Consulting executive in its Chicago office expressed hi s

"concerns" to Mutual of Omaha, a provider of life insurance, that this insurer was offering

incentives that were lower than those provided by other insurers at this time:

This does not make sense to us . . . . Why does Mutual want todiscourage us from doing business with you? You need toreconsider this decision . (AON-0000 1403)

99. Aon Consulting failed sufficiently to disclose the impact of the contingen t

37

commission agreements , stating :

Aon Consulting, Inc. may receive override commissions based on

the aggregate volume of business placed with the insurer . Theamount of overrides, if any, will not be known until the end of the

plan year. (AON-12-004715 )

100 . Aon Consulting's own internal audits in 2004 show that some of it s

primary offices, including New York City, failed to make even this minimal disclosure. (AON-

12-016408 ; AON-12-016416) Moreover, Aon Consulting provided no information to its client s

about whether any contingent commissions were received on a particular account and what Aon

Consulting did in exchange for these payments .

2. Aon Consulting's Liverpool Office Engaged in Other DeceptivePractices Including a "Pay-To-Play" Arrangement and Bid Inflation

101 . Aon Consulting' s culture of client deception is well illustrated by th e

actions of i€s Liverpool, New York office, which repeatedly lied to its clients and engaged i n

"pay to play" and bid inflation ,

102. Among the clients represented by the Liverpool office was Herkime r

County, New York ("Herkimer"), which has approximately 1,000 employees, including the

faculty and staff of Herkimer County Community College . Herkimer self-insures its employees'

basic healthcare program and secures "stop-loss" insurance for occasions when an employee's

health care claims exceed S 100,000 .

103 . Beginning in 1996, Aon Consulting agreed to act as an independen t

insurance evaluator . Aon supposedly "[m]onitor[ed] the marketplace to ensure that Herkime r

County . . . receiv[ed] all services on a cost effective basis ." (AON-TS-00 1159-60) Aon

Consulting told Herkimer that it would obtain bids for the "stop- loss" program and provide

38

fi

advice on which bid best met its coverage and price needs in exchange for an annual fee fro m

Herkimer . (Agreement between Aon Consulting and Herkimer County, dated Jan . 1, 1998 )

What Aon Consulting did not reveal is that it required insurers to add a 15% commission to Ao n

Consulting in their proposals as a condition of bidding on the Herkimer business . (AON-TS-

000546-47)

104 . Aon Consulting received more than $78,153 in such commissions over th e

five years it placed the "stop-loss" program for Herkimer, the cost of which was passed on to

Herkimer's employees in the form of higher premiums . (AON-TS-000546-47) To conceal the

payments from its client, Aon Consulting intentionally omitted sections of the insurance

contracts referring to these commissions when it faxed the agreements to Herkimer .

105 . In 2001, the lowest bidder for the Herkimer business would have been

Blue Cross Blue Shield ("Blue Cross") But since the coverage offered by Blue Cross would no t

have generated a 15% commission for Aon Consulting, it never gave Blue Cross the chance t o

bid .

106. Herkimer eventually learned from Blue Cross that it had wanted to bid on

the Herkimer business but had not been allowed to do so because of its refusal to pay th e

commission . Thereafter, I lerkimer demanded that Aon Consulting allow Blue Cross to bid for

its future business . When Aon Consulting received a bid from Blue Cross, it altered it by addin g

the 15% commission without disclosing the change to Herkimer . Even with Aon Consulting' s

illicit adjustment, Blue Cross had the'lowest quote, and Herkimer ultimately selected it t o

provide its stop-loss coverage .

107. The City of Rome, New York experienced a similar problem . After

39

entering into a contract providing for a one-time flat fee from Rome for finding Rome stop-los s

insurance for its health care program, Aon Consulting received undisclosed commissions fro m

insurers that received Rome's business .

108 . In another instance, Aon's Liverpool office withheld a low quote from an

upstate New York client and placed the business with two insurers with higher rates . In

November 2002, Aon Consulting client Livingston, Inc . ("Livingston"), a Canadian company

with New York operations, asked for Aon Consulting's assistance and advice in obtaining quote s

for short terns disability insurance ("STD") and long term disability insurance ("LTD") . Aon

Consulting canvassed a small subset of available carriers (including Zurich, Guardian an d

Unum), and made a presentation to the client, indicating that Guardian was the lowest cost carrie r

for STD, and Unum was the lowest carrier for LTD . The Liverpool Office had a local contingen t

commission agreement with Guardian (AON-12-014178) .

109. During a second round of bidding, Zurich came in with the lowest bids fo r

both STD and LTD. Although an Aon Consulting project manager prepared a chart accuratel y

reflecting that Zurich had the lowest bid and provided it to two supervisors, Aon Consultin g

conveyed neither the chart nor Zurich's new offer to Livingston . Livingston, unaware of an y

cheaper alternative, selected Guardian and Unum .

FIRST CAUSE OF ACTIO N(Fraudulent business practice - Executive Law §63(12) )

110. The acts and practices alleged herein constitute conduct proscribed by

§ 63(12) of the Executive Law, in that Aon engaged in repeated fraudulent or illegal acts o r

40

otherwise demonstrated persistent fraud or illegality in the carrying on, conducting on transactio n

or a business .

SECOND CAUSE OF ACTION(Unjust Enrichment )

111 . By engaging in the acts and conduct described above, Aon unjustly

enriched itself and deprived its clients and the investing public of a fair market place .

THIRD CAUSE OF ACTION

(Common Law Fraud )

112 . The acts and practices of Aon alleged herein constitute actual and/or

constructive fraud under the common law of the State of New York .

FOURTH CAUSE OF ACTION(Securities Fraud - Gen . Bus Law §352-c)

113 . The acts and practices of Aon alleged herein violated Article 23-A of the

General Business Law, in that they involved the use or employment of a fraud, deception ,

concealment, suppression, or false pretense, engaged in to induce or promote the issuance ,

distribution, exchange, sale, negotiation or purchase within or from this State of securities .

FIFTH CAUSE OF ACTION

(Securities - Gen . Bus . Law §352-c )

114 . The acts and practices of Aon alleged herein violated Article 23-A of th e

General Business Law, in that Aon engaged in an artifice, agreement , device or scheme to obtai n

money, profit or property by a means prohibited by § 352-c of the General Business Law ,

WHEREFORE, Plaintiff demands judgment against Aon as follows :

A. Enjoining and restraining Aon, its affiliates, assignees , subsidiaries,

successors and transferees, their officers, directors, partners, agents and employees, and all othe r

41

persons acting or claiming to act on their behalf or in concert with them, from engaging in any

conduct, conspiracy, contract, agreement, arrangement or combination, and from adopting or

following any practice, plan, program, scheme, artifice or device similar to, or having a purpose

and effect similar to, the conduct complained of above ;

13 . Directing that Aon, pursuant to § 63(12) of the Executive Law and th e

common law of the State of New York, disgorge all profits obtained , including fees collected ,

and pay all restitution, and damages caused, directly or indirectly by the fraudulent and deceptiv e

acts complained of herein ;

C . Directing that Aon pay plaintiffs costs, including atto rneys' fees a s

provided by law ;

D. Directing such other equitable relief as maybe necessary to redress Aon' s

violations of New York law ; and

E. Granting such other and further relief as may be just and proper .

42

Dated : New York, New York

March 3, 2005

ELIOT SPITZERAttorney General of the State of New YorkAttorney for Plaintiff

120 Broadway, 23rd FloorNew York, New York 10271(212) 416-8198

By :David D . Brown, IVAssistant Attorney Genera l

Of Counsel :

Kermitt J . BrooksDeputy Attorney Genera l

David Axinn

Anita F. Barrett

Michael A . Berlin

Peter D. Bernstein

John F . CarrollMaria Filipakis

Matthew J. Gaul

Melvin L . GoldbergGaurav Vasisht

David A. Weinstein

Assistant Attorneys General

43

Exhibit 2

EXHIBIT I

STATEMENT OF PATRICK G. RYAN

As these investigations have revealed, Aon and other insurance brokers and

consultants entered into contingent commission agreements and other arrangements that created

conflicts of interest . I deeply regret that we took advantage of those conflicts . This conduc t

violated the longstanding principle embodied in our Code of Conduct and Aon's Value s

Statement that our clients must always conic first . Such conduct was improper and I apologiz e

for it .

Aon believes that these investigations have done the industry a great service .

Aon looks forward to working w ith regulators , insureds, insurance companies, and other

stakeholders to put in place new business practices for the entire industry that eliminate th e

improper practices exposed by these investigations .

19

Exhibit 3

$ob Needle To: Michael O'HaileranWASCIUS/AONCACNNA

0510&2003 05:10 PM c~Subject: Chub b

As I mentioned on the phone there is quite a bit of attention being paid to the Chubb relationship . Wehave 3 areas of focus and 3 corresponding PSA agreements :

(1) Commercial- Biggest segment is middle market P&C . Also Included is casualty which includesexcess liability and lower end risk management accounts and major property . There is a separate P&Csegment for financial Institutions and energy- Overall we are up 9 .3% through April 30 . However,this ismade up of 27% increase In mid market and 53% increase in the P&C part of financial Institutions .Detracting from this Is a reduction In property(rate and appetite related),energy(iost business related)and a slight increase in casualty where they are moving up from first to second layers on some excess .

To improve this situation we are doing the following . In casualty I am working wwhoruns risk management . We have a meeting planned In 2 weeks with 5 or 6 key people on both sides, inproperty and I met with their property leader and established regional tiasons In both companies .Problem is their appetite is restrictive in a market that is softening .We are trying to push the cleanaccounts . In commercial risk Carol Spurtock has done a good job working with 41110Wat Chubb onmid market and Kemper consolidation (though they turn down more than they take) .in financialInstitutions P&C 1 I have been pushing In NY where most opportunities reside-its worked .

The PSA on this is not done . wand I had a tentative agreement. They came back and said it needso reflect their budget . I said it doesn ' t reflect the market or their underwriting attitude .'and

are reconsidering . I will not agree their current offer . I expect it to change .

(2) D&O- In spite of their changing underwriting appetite (moving away from tough and largeaccount,rnoving off primary)we are seeing good growth of 42.2% . They are happy and It maximizes ourPSA which we did agree . We are also cutting a separate deal on consolidation of some small and midmarket business. You can see from our AIG or other results that they are being somewhat restrictiveversus other markets.

(3) Personal Lines- We have very modest growth here of 9% . Chubb is not happy at some recentevents where some accounts have been moved, Just learned this today and have a call in to Petersonon this. We have a combination of regional and national growth incentive here.

Bottom line is we are busting to make this work in commercial . While rate of growth increasing monthly,we need them to be more aggressive . if I don't get the commercial agreement done to my satisfaction innext week or so, I may ask for your help . In any event I think it would be good for you and Ito have midyear review with nd t.

Ill send some year to date detail in separate attachmen t

Confidential Treatment Requested AON- 1 9-006333

Exhibit 4

To: DBIAon Consulting@AonNA, tOH IAonsulting@Aon CORP/Aon Consu Ling@AonNA

dwwqll~

031OZ 2004 09 :23 AM cc:Subject: Compensation for Services to Underwriters (CSUs)

The terms 'contingents" and "overrides" are now passe. We will use the term "Compensation for

Services to Underwriters (CSUs)" .

on onsutting, Inc .Aon Cente r55 East 52nd StreetNew York, N.Y. 10055

- telephone~1■wi~- fax

e-mail:rtaoncons.co m- Forwarded by ACTIAon Consulting on 0310212004 09:21 AM ---

To: !CQFtPIAon Consutiing@AONNA,

!= _ 001Y1044 44:03 PM QRPIAon Consuhing@AONNA _LJHU l!ORP1Aon Consuhing @aAONNA ,~ACTIAon

Consuhing@AONNA, ACT/Aon Consulting AONNA,CORPIAon Consulting@AONNA /Aon

nsukingQAonNA,1'ACT/Aon Consuki AonNA,CTIAon ConsuttingOAONNA ,

B/Aon Consulting ®AONNA, I EBOIAonConsuking@AonNA , 4 MOM SIAon Consulting@AONNA,

BOIAon Consulting @ AONNA.ACG~l1KJAON @AONUK , krON@AonNA,

ITIAon Consu lting @AonNA /AonConsuliingAonN A

Cc :Subject : Compensation for Services to Underwriters (CSUs)

Please be aware of this change - We will be renaming some of our general ledger accounts .

011111111111111111 6

--- Forwarded by 1 ACT/Aon Consulting on 03/01/2004 03:54 PM ---

To: GUUKIAONQAONUK, O*

O=Jr2DO412:47 PM UAON@AONEMEAq=rd/US(AON@AONNA, ACTIAon

Consulting©AonNA, IARW/USIAON@AONNAcc: PatdckG Ryen!ASCIUSJAONLbAONNA

i [email protected]@AONEMEA , Michael

O`HelIerentASCf US/AON@AONNA . ftEMEMICORPIAonConsu lting@AonNA Bob NeedleMYLARSIUSIAON@AONNA,~

L'ARW1USJAON@AONNA,~ASGNSIAON(PAONNA, CORP/Aon

Consulting (bAonNA ,111111111111111111 - SIAONCPAONNA,ARW/USIAON@AONN A

Subject : Compensation for Services to Underwriters (CSUs )

We would like to get away from the use of terms like' contingents ,"'overrides,' and "PSAs" throughoutAon .

Confidential Treatment Requested AON-12-012682

Exhibit 5

Ca ro l Spurloc k

I, 04128!2003 01 :58 PM

To. ~II~S'GAIARS!USJAON@AON NAcc:

Subject ; Zurich

We have always had an extremely nice contingency with the excess folks at Zurich. We received ahuge check from them on umbrella business last year. We did not have a middle market contingencylast year, we do this year . So yes place lotz of business with ibis and tell her hello for me .

1 like the way you are thinking .

Confidential Treatment Requested AON-13-OD0446

Exhibit 6

is Andersen To: UAFWS'U.SJAONVAONNAU AON@AMNA

A)0r,,O0411 : 45 AM AONCDAONNAWLUJARM~SIAONDAONNA RonMoyerllUARSIUS/AOMCAONNA

Subject Re : Maximizing our trading reletionstips Virus Checkedl [

o prov a comrnerdary on the PSA's. The revenue that arrives from the PSAS are Irdegral to ourbudget and profit derived from FSG. When we are being evaluated, they look at the full picture ofearnings . Our bonus pool Is set as a percent of revenue - we decide to use the formulas to allocate outthe pool based on business handled, produced, etc. It our PSA%fall, our ability to use the percents thatwe use to pay Individual brokers would need to be changed . In sivit it is a critical factor In ourbusiness and has a direct Impact on how much we can pay people In FSG.

006~

03J0812004 01 :15 P M

I know you wanted a response today .

Subject Re: Maodrnlzing our trading reletion sh ipe Virus Checked]g

To : ilgOINNOWUARSAJSIAONCAONNAc Ron MayerflUARSNSlAONCAONNA, F1iC

AndersenCAlARSIUSJAON GAQNNA ~1tL iARSAJ&AONQAONNAJW IMd

eWNWU RSUSIAUN QAQNN A

I am replying solely for myself . It nd want to formulate a Team Responsethey can work my reply Into a reply for Chl Team (or as you may refer to it as Team 2) .

1 . 1 maintain relationships with all those in tine Top 10 at various levels.2. Yes, of course (for example a* US wrote other stand alone business, etc . )3. G's icy Issuance has been very good over the past 120 days since we discussed Issues

and this effort took place before the two team model was establishedThe ante of pot all carriers Is an area that as we alt know needs Imp rovement I thin k

effort to get excess policies Issued with a prima ry contract and excessme. Hopefully the last couple of hold outs will get on board . In short I have no

R service Issues with any of the top ten . If I had to rank the worst carrier for service I would sayWks pro babty the worst putting Internal Issues/needs before d}entslbrokers.4. Top 10 could provide really aggressive and broad programs to our prospects which would helpus win more deals and help them write more business` They could also provide Increased li mitoptions and uote on lines of cover they do not already write for a dstlng clients .5. and they can their rating ulMI6. pro ems Most -_ basin bmftted My experience has beenthat I atWIPW renewals but often competitive on new deals .7. Given the recent press on PSA's can more detail be shared with brokers as to how May arestructured pe. amount paid by carrier to Aon by overall premium or on a deal by deal bas1s)?Our competition {those with weak or no PSA's) likely look to PSA arrangements as a way to sellagainst Aon (I am guessing even more so fort rlsks ) based on PSA's. Also, I haveunderstood PSAs tocontribute to the bonus pool, how does it trickle down to revenue producingb rokers? My expectation would be that a significant amount of this actually goes back to thecompany while a significant amount ends up In the hands of the resource within the resource (legal,epi etc.) . I often get questioned from carriers If I see any $$ of the PSAj the answer I give them Is YES ,but . . lacking detail It is difficult to say more.

Dnfidential Treatment Requested AON-1-D00106

Exhibit 7

Eric Andersen To IARSNS/A0N@AONNA

0127/' U 04:47 PM /ARSAJ.SfAON@AONNA

Subject Re : Meneging PSA numbers

Can you help her out on this? Might be a good opp to see just how far down we can drill the PSA goalsto the teams. Chicago has historically been tougher to deal with on compliance so 1 thinkAft Is off toa good start . I have copied Into gat his comments on a similar Idea for NY?

- Forwarded by Eric Andersen C„AfARS JSIAON on 01127 2004 04:45 PM --

Ron Moyer TO.01t27/20d4 04:17 PM

Subject

4xJ1UARSAlSIA0N@AONNAEric A%W9 NC '.AJARS1JS/AON@AONNASnINVA VARSfIJSIAON@AONNARe: Managing PSA numbersa

to"should be able to fet you know where these all stand at this time . As far as the''whars in f for me"question, I would like to know the names of the people that actually ask that question . That said, I thinkit Is safe to say that. over the past couple of years, PSA money has funded our entire bonus pool as wellas our Investment hires and still contributed significantly to the bottom line of the company . Anyonewho does not see that as advantageous for them personalty Is looking through the wrong end of theirtelescope .

Ronald D. MoyerManaging DirectorAon Financial Services GroupPhone: (312) 381-064Fax (312) 383-66451

To Ron MoyerAUARSNSIAONQADNN1, EricO1t251'10D4 01 :45 PM Andersen/{.„WARS SIAONQAONNA

t ARSIUSJAONQAONNAASubject Maneging PSA numbers

Ron//rtc, further to our discussion of a week ago, I would like to know who can give me the Information

underwriting appetites.

As previously mentioned, I know the question will come up as to ' what Is In it for them' or'tivhat doesthis money get used for`. 9 two Is do description that Is generally used, that would be helpful .

on fig, carriers with which we have the top 10 PSA~s . 1 know we looked at this back InJuly, but presume that some have been renegotiated, ., Hied to have those facts . Once Ihave that, I wanted to reach out to the teams to explain what our goals a re with respect to these P SA'sand how they can be beneficial to the group. In doing sa,1 am going to reach out to the canters, as well,and so that they get an audience with people fie make sure everyone , a) knows them . and b) knows thei r

The fast piece of Information is getting regular reports on premium placed with these carriers to see howwe are doing . Presume that this is something that OgO can provide?

1 would like to get moving an this effort, so any direction would be appreciated. I have also copiedIn to see what he has done for his region that I might find helpful .


Exhibit 8

Carter Brydon11125/2001 06:08 P M

To: Bruce Macbeth!NYIARS/US/AON@ACNNA@AONCORPcc: UARSJUSJAON@AON NA

Subject : Re: Conf Call on Monday a

See notes below in redBruce Macbeth@AONNA

Bruce Macbeth@AONNA11 12412001 11 :00 AM

To : Caner Brydon!USAlASG/EXECIAONCORP@AONCORPCC' L /ARSJUSIAON, kennedy ji m

Subject : Conf Call on Monday

Here are my speaking points for the conference call on Monday for Syndication :

1 . AIG has become a stgnlflcant factor due to their rate and underwriting flexibility to acquire marketshare. Is this a perma Went situation, probably not, once they acquire a adequate market share, they willreunderwrfte and reprice their book of business, We must use them only for the complex accounts,which generate over $35,000 in premium . if we submit all risks to them, the they will write a majority ofthem because of their rate flexibility . In addition, we do not have any overrides for growth, nor we willget any in the forsecable future, just standard brokerage commissions . Agreed

2. With our overrride agreements with Chubb and Fire Fund, we need to direct all new businessexclusively to them for the next month and beyond . Chubb should be the first choice for any risk withFireman's Fund a second thought While I agree In pricipal, I really do not want to say this . Wecertainly need to get everything we possible ca with Chubb as their carrot will disapear if wedon't hit the numbers - however, with Fund, they are paying us both to hire new personnel andfor growth, and even if we don't hit the numbers, the carrot doesn't disappear . Thus, let's don'tgo on record with putting Chubb 1st and Fund 2nd. They should be equal . We should just pushChubb a little harder behind the scenes to get them the business . To insure we funnel business tothese markets appropriately, we have developed a pipeline report to track and control the submissionprocess to these markets . The purpose of this report Is not only to be sure we are placing risks propertyto the right markets, but to be certain that they are giving us full consideration even on the more difficultrisks, not just "cherry-picking" the simple ones, which anyone can do . In addition, we want to makecertain that all offices within APRMare given the same consideration regardless of size of office,relationship, loss ratio, etc, one Aon.

3. Pipeline Report - the intial report should contain all the outstanding quotes/proposals that have notbeen accepted and new ones currently working on by each relationship manager or originator . It shouldalso contain all reccently submi tted BOR clients(where the BOR has been submitted in the fast month),as well as potential BOR' s for the upcoming month . For any quotes or BOR's , the policy #'s or quote #'sshould be indicated on the report. The first report should be e-mailed to me with copies to Ca rter,and Bill this Thursday by IOAM EST.

4. We will have a conference call this Thursday at t 1AM EST with all RM's to discuss this first pipelinereport. The purpose of this call Is to determine any Issues that have arisen with any submissions to


Exhibit 9

Bruce Mecbeth@AONNA11/20/2001 03 ;02 P M

To- Ca rt er BrydonJUSNASGIEXECIAONCORP@AONCORP

cc: SIFMOWUARSIUSIAO N

Subject : [Virus Checked] [VirusChecked ]

One of the issues we need to address on Monday is in the short term, we need to steer all submissionsto Chubb . I am finding that most submissions aresubmitted to all three carriers and we all now what AIG will do to buy market share. We need to

emphasize that AIG should only be used if there is an underwriting issue with Chubb, which we canaddress . If we approach AIG on all submissions, the reason for carrier chosen will always be rate and it

will slow submission process.

Getting all the information upfront, especially for the more difficult placements is essential- Again, thereseems to be slot of back and forth between underwriters and originators/relationship managers, which

delays the submission/approval process .

24 hour turnaround time for approval of risks outside of our binding authority, after we have submittedthe required information .

My concern is turning prospects into new clients quickly . You had mentioned that we wrote 55 newclients In October for the 9 originators who reported, that works out to 1 .5 new clients per week for eachoriginator, this needs to be improved . One of the impediments is the ability to hand off to RM's . Theywill do it for the simple pass through ones, but anything more difficult they seem to be too Involved .

Gathering of necessary information is the another impediment . Finally, the expanded role someoriginators are assuming in the local office, the old office manager, where their concern includesexisting clients(nat ones they have brought in), as well as their new business function .

We need to keep our eye on the ball(our responsibility within APRM), keep the process simple as wehave set up and we will execute !

These are my initial thoughts on the format of conference call from Room 4213 at Stamford Hospital, Iwill put more thoughts together when the drugs wear offQust kidding) .

Have a good Thanksgiving and thanks for the card , It had a very positive effect for all the folks in NY .

---- - Forwnrdad by Bruce MacberhINYiA3 S/US1AON on 1120/2001 02:11 PM

Carter Brydo n

11119!2001 03 :27 P M

To: Bruce Macbeth/NY/ARS/USIAON@AonNAcc:

Subject : [Virus Checked]

Pipeline Report x[ e

Confidential Treatment Requested AON-32 -015171

Exhibit 10

Carol Spurlock To: 1ARS1US/AON@A0NNA

03118/2003 04:54 PM cc:

Subject: Re: Zurich [

Going forward, we are going to push Zurich . 1 just today negotiated our incentive so that we will getpaid next year . So yes, but they will be considered a regional partner as oppossed to national. Don'tsweat those details, lets just make sure we are getting the tight business to the right carriers . Thanks> I hope you and your family had a great St. Pats Day. Did your girls dance anywhere?

To: Carol SpurloclJGNARS/USIAON@AONNA

03 1 1812003 01 :50 PM cc:Subject : Re : Zurich[

Yes, nd I have discussed getting the group together to discuss accounts on our lists butwe have not set a date yet 1 have followed up with him and left a "reminder' voicemail for him (he hasbeen travelling on business) .

Is Zurich not a key market?Carol Spurlock

Carol Spurlock

03!18/2003 41 :41 P AA

..rr

To: iea-rv%iGAIAFRS11JS/A0N@AQNNAcc:

Subject: Re: Zurich [

Yes, we are moving forward with the initiative to centralize all Zurich Middle Market into Chicago, Isthe underwriter for the SE. I believe we have decided not to move rthis year. Talk to himabout new business opportunities or any renewals that might fit.

Remember our key markets, Chubb, Hartford, Travele nd' `Did ever get intouch with you? Zurich is playing hard ball on the PEF for 2003, and did not pay us anything at all for$24M in business for last year . With that said, we have clients to take care of and they are competitive .

To: Carol Spu0ock1GAIARS/US1A0N@A0NNA

03/181200301 :31 PM cc:Subject Zurich

Carol,

of Zurich will be here on Ap ri l 23 in order to discuss the Zurich consolidation . To close anynose ends, please let me know if our group should discuss any specifics with him.

Thanks ,

VW


Exhibit 11

Bob Needle To: Michael O'HaileranJASC1US1AON)AONNA, Eric

12103/2003 01.44 PM Andersen/CAIARSJUS/AON@AONNA

cc:Subject: Re: The Hartford

1'li have more details sho rtly . I think it is a reasonable trade off. In terms of taking business from themour commercial PSA is favorable and I don't want to negatively Impact . However, the D&O deal is not

that attractive and E ric and I have discussed trying to d rive more end of year premium to our major

pa rtners in that fine- AIG,XL and Chubb----- Forwarded by Bob Need leJNY1ARS/US/AON on 12103/2003 01 :40 PM --

Michael O'Halleran To: Bob Need 1eJNY/ARS1US/AON@AONNA

12/01/2003 06:54 PM cc:Subject : Re : The Hanford

Is this a good trade off. Lets also take some business from them .

Bob Needle

rrom : Bob Needl eSeat : 12/01/2003 09 :50 AM

To : Michael O'Halleran/ASC/U5/AON@AONNA

Cc : Eric Andersen/CA/ARS/U5/AON@AONNA

Subject : Re : The Hartford

I'll see him Wednesday . After discussions with and call fromAIIIIIIIIIIINJ I was told that will "make Itup to us" with the property that now is done direct . They'll be providing details shortly .

Confidential Treatment Requested AON-6.004314

Exhibit 12

To: Bob NeedieiNY/ARSNS/AON@AONNA, 4M

OG116!= Si :13AM IARSJUS/AQNQAONN A

Subject: Re: PSA

F'1(1-- For*arded YIARSNSIAON on 06f16(200311 :12 AM --

mow To: @ c m06/161200311 ;12 AM °C

Subject. Re: PSAB

We have been operatirxg on the good faith that this would be mutually agreed quickly after our metinghere In NY.

Based on the fact that we are almost halt way through the year, I will be advising our people In the fieldthat we in fact don't Have a PSA with the IRI.

I will also be advising co rate that we do not have an agreement . One of the key areas of ourdiscussion with you and was that last years poor agreement came back to bite us . We just cantafford to let that happen again.

05r17r29U3 04 :37 PHA

To: rs.ron como:5ubj.d PSA

Thanks for call last week, I was out of office until today . I have run ourcommission Y TD and I am reviewing now . I will get back with you shortlyonce I review.

Confidential T reatment Requested AON-6-003018

Exhibit 13

Carol Spurlock To : .corn

04114/2003 02:47 PM cc: NYIARSJUSJAON©AONNA BobN eed l eJN Y/AR SN 5/AO N @ AO NNA

Subject : AON Prof essional Enhancement Fund (PEF)

It was good to see you in Chicago last week 1-tells me our 2002 check is on the way . Let meconfirm what was discussed with Bob and myself and what we understood you to say you would checkinto. What we are looking for is a way to help you meet your goals, which you stated were to decreaseyour WC writings at an accelerated pace . We are prepared to help you in that regard as we still have Arated carriers that aggressively write monoline WC business . If we can reach an agreement on thewording, it would go along way in helping you keep the package, auto piece of the account

We are looking for a National Agreement that would incent us to move the WC business . Pay uspercentages on the remainder of the book placed with 1. If you cannot provide a NationalAgreement, we would entertain engaging in regional agreements in the syndication locations of NewYork, Atlanta, Chicago and L.A. We need at a minimum the same consideration as our maincompetitor, particularly since we are in agreement to work with you on your changing business model .

Let me further confirm our ability to effect placement behaviors . Our syndicators are evaluated on thepercentage of their books that are with our "premiere" markets . Each Regional Syndication Director isheld accountable as well. This is a measurable, compensated item that each syndicator is financiall ymotivated to drive. 2

Let me know what you are agreeable to providing .


Exhibit 14

AONAon Re Worldwide

J unc 19, 2003

MrBusiness Development Officer

Endurance Re Corp . of America809 W. Everett Road

Lake Forest, IL 60045

Re: Strategic Alliance Partnership

Dcar

PI L

You expressed an interest t o o come in and review the treaty abstracts of

Aon Re US . As mentioned on the phone the other day we have restricted that privilege

to reinsurers willing to partner with Aon Re as a strategic partner . By design we havelimited the number of strategic partners to only those that are financially strong and

willing to take large lead lines on Aon Re client programs . We certainly agree that

Endurance Re qualifies .

The last qualifier is one based on a mutual relationship . The parties must be able towork together based on trust and a willingness to develop reinsurance programs thatsatisfy the ccdanL With Aori s investment in Endurance both parties have worked hardto develop and foster a strong relationship .

You asked me to other day why would Endurance want to become a strategic partnerwith Aon's investment in Endurance and the potential that your costs could increaseslightly . We think there arc a number of good reasons but a couple of the major reasons

are as follows . First you would enjoy favored treatment over non-strategic partners . Asmentioned previously you would have the opportunity to personally review the entirelisting of all current treaty abstracts . This gives you a unique opportunity to pre-selectprograms you are interested in participation as a reinsurer. Second on new programsyou would have the first opportunity to quote and participate on the programs . On

renewal business we would attempt to make room on a program you are interested inand or if an existing reinsurcr declined to participate you would have the first crack atreplace the expiring reinsurer .

If you are available to meet possibly including and I wouldlike to further discuss the benefits of being a strategic partner .

Confidential Treatment Requested _ AON-F.009696

Exhibit 1 5

~ ~ Carol Spwioclc To: ~u&JS/A N

10/15/2003 08:12 AM °~ ~At AONt fA

SL&j Your call this MornN.

Thanks for your call this morning. I have been communicat g with Ike regarding the meeting. This Is afoGaw up of our meeting in August What we discussed was the need for a review through third quarter ; abok at where we are in the overall relationship, which from my perspecOve has been on a positive climbsince that meeting, Not everyone has me"Wtxd1, so this Is an excellent opportunity to introduce thenew members of the team.

I would Uke to have an off-fine meeting with yourself4bo and I to discuss conversations at Greenbrier an dhcw we are Uor- to year and end fo i ext ear. This would toe a good tin*

to put in place a f m plan to re--imburme you folks for the Additional Reinsurance costs associated withumbrela coverage on Pearlsts e t roixgh 9-1 at which time coverage is replaced .

I am travet1vig today but will endeavor to talk to you five later today- Please let me know if you have anyquestions about the meeting. AON Attendees area myself,1L~,

Forwarded by Carol Sptilo JGAIARS&JS/AON on 1011512003 0957 AM ----

411111"1OJ To: Carol Spur1ock1WARS/USIAON,

10/15/2003 09 :49 AM OMROUNC/AR SNS/A0N@AONN Acc~wJt41GARS1US/AO NAorM

Subject Pea4s*iie O t orz [1M -3673464

Carat

The below e-mail appears to take care of the final concern regarding the Umbrella coverage . U is myUnderstanding that Zurich will direct bill" the below additional premium . We need to bill the Client for

premium, however I need to discuss with the client today before we proceed (may need tofinance the premium). Let me know if anyone has any additional questions .

Aon Risk Services, Inc. of the Carolinas121 West Trade StreetCharlotte, NC 28202

UPPRINNU

--- Forwarded by TIGARS/ US/AON on 10/15/2003 10 ;44 AU-

-.To: 4WqlGo"arr-son.corn

hrna.coru> . Subject: Peartstine Distrlors UMB-36734841(W15f2003 10:30 AAA

Premium to extend policy to 9/1/03 is $3 , 091 . ($3,030 + $61 Terrorise.) .

C 7Confidential Treatment Requested AON-PL- 000D41

Exhibit 16

ry

T X Card SpufiOC UCAIARSJUS!ILON@AONNA

ati,oyx as as za PM ~ O aM"ftrt~ariRSAJkV fxv +ASubject R Rddstone M.1 ®

Thanks Card to roue help .'

Carol Spurlock

Carol Spurlodc Ta- MONNIONEWW.JARSAL"TAONQAONNAAMb

01I05F2004 04:22 PIA AEtSIUSrAC7N@AAKNA

Sub4ec fieldslono "049a9 0

I have been advised that this billing will be reversed and this I io wilt reO=K. Please adiEse of any

For~arded by tarot Spursoc AJAft&1JSIAON on 01105'2004 03: 19 PM -

To @arrichno nP. -~tudchn [email protected] y

e.com!" c Card SQurbdc <Cord SN60d4 amao scam'

01105r1o04 O:;i:.08 PM Subjes= iddstone Morgege

•COMIM talked with Carol and need to reverse $18,000

---------------------- Forwarded bye/2I/USA/2urich on 01/05/200103 :05 [fit ---------------------------

Carol Spurlock@ar9 .aon .com,on 01/05/2004 10 :02334 AM- 't

To: 4ROMMMENEWzurichna .coo, ezurichna .com,

1? zuz i ch n a .cost

cc: Pars.aon.com,~2ara .aoa .cora ,aac_aon .com

Subject : Fieldstone . Mortgag e

010% ~ or I never heard from you or Oft o, this subject and we assumedthat you are in agreement with the statementeade below . To refresh the

circumstances surrounding this topic, remember that we agreed at a seniorManagement level to forgive the additional premium generated by buildingthe primary ,s,iiqit to $2M to eearlstine with the ,Promise that we would makeit up to you in other business . This was done twice over on this newbusiness account generated out of Dallas Tx .

•Confidential Treatment Requested AON-FM-000207

. K

•

Pearlstine has received a bill for just under SIU ,000 that was to be paid

by 12/30/03 . Please delete this bill from you system and coefira back to

us that Pearlstine is in no jeopardy of cancellation . Please respond backto me to confirm by close of business today .

Forwarded by Carol Spurlock/CA/AAS/US/NJN on 01 /05/2004 09:45 AN

11

•

CarolSpurlock To: -@zurlchna .com,

dONNEMENFE"rurichna .com

11/14/200 cc: /ASC/i1S/AONBAONNA

3 01:35 Subject: Fieldstone Mortgage

PH

this one deal gave you twice the amount coepromised on the

Pearlstine account . Are we in agreement that we have now x, et that

obligation? , where are we to date ?

----- Forwarded by Carol Spurloek/GM?'.PS/U5/AON on 11/14/2003 01 :33 PH

To : Carol Spurlock/GX/ARS/U$/ADN@AONNA

cc: / i'?U AA.S / US /AON @ AONNA11/13/2003 subject : Fieldstone Mortgage

05 :12 PH

FYI . We have bound the above new piece of business with Zurich . The account

premium is approx. $660, 000 . (Zurich's premium) . F.F. wrote the excessumbrella for $15,300 .Also, we wanted to let you know that when we first started negotiating thisdeal with , his initial WC premium came in at $246,922 . Theexpiring premium with the same payrolls was $2e3,532 . He quoted $36,610

less than expiring . We came back to hie and allowed him to increase hisinitial we quote to approx . same as expiring, $283,532 . We allowed Zurich

to get isore money on this. Since then, the payrolls have increased so wehave bound slot higher WC premium .I wanted to keep you updated on this. This is an example of AON lettingZurich have more rate and premium when we could have held them at a cheaperprice .

wr+araaarr *r .r~r..•EME ~L rcora :~aarraaararrr c

This E-Hail/teletax message and any documents accompanying thi s

Confidential Treatment Requested AON-FM-000208

Exhibit 17

Carol Spurfodc To AAN@ND 4A

4 17IV3~ 40 24 PM Subjcct Re: Mo.Vyr Repattft4 20[3 Vin -~1g

Can't wa *x his response-UL

TM TKlARSNS1PlDt @NDNNA

12M92003 04 ;47 PMA = Cw W `P"k0MWAFCAISt )Subject Rer Monthly RgxwVNow 200 [Vrrus Chedced)9

F media was. pCevi" Part oaf - It was sold to r mw owners- We dealt with the new owners. It isaortodered newbusine$S- I don't know the aerafls at thea I - act ~rr4 I Est helped CommercidlRisk Sy alkm take c Of a protkn .FL Worth was aware Of the Zurich deal on Flelds$one and

agreed vnth IL I was made aware of the problem in one of our confarome calls.

AON RISK SERVICES, INC .2711 NORTH HASKEkLDAl.E .AS, TEXAS 75204

PAS1lkSJA~N~~I+A~R~4'co17I19f1C1d3 07 :34 AM

Su*ct: Re: Monthly Re pwtft a . 20°3 tVnz ChbdL$

This was partoNEW correct? Mat was theft Lft account story?- Forwarded by 7TX1ARS& SJAON on t2M7i 3 D7:35 AM -

I I

Card Spurlock 7a ARStilSIAOf i~A W

1211~2G03 44:33 PM °G ~~AFZSR.~S(AbN@A~'ti ASub~ R. Monthly PA- v. 2003 Ivy

L

Congrats again on F IddAooe . Not only was that a nice new h1G It certainty helped us on two fronts. Itoby Jdy helps to get us c1oser to our prvmkms goal with Zurich and also to make the S18K in premiumthat they helped its out on on th account, go away . As E recall you were able to get t$3(aC more in premium than they oriylnaIty quoted to more than make up for what we owed dhow . Thatis Ow way a Ibtfanal operation should wo[k . Thanks for an your hard work and Happy Happy Uotldays.

Tiox: SruSra,or AONNA

I zlo 2On3 04 : 25 PM c= Card Spurk)ckPGMARSAJS/ACG@AONNASubject Mon ft R"IN- . 2007 V- Chad-411

Attached Is the monthly report for November 2003 .

Confidential Treatment Requested AON-FM-000205

Exhibit 18

From- CN= /O=Endurance

To: CN I~1 / O=Endurance@Endurance ;CN=#IJPMIW~

ASWOBOMWO=Endurance@Endurance ;CN=/O=Endurance@Endurance

Copy To :

Subject : Aon PSA-------------------------------------------------------------------------------

Have now processed the PSA on the above . They will have to work at it, but it 0

appears their PSA could hit 2 .5% this year . Let's load an additional 2 .5% in u

their premiums .

No need to have concerns about quotations that are currently outstanding . L

----------- --- --- ------------ ----------- ---------- ---_-------------0

Exhibit 19

Aon ConsultingCommission Guidelines

March 2004


N

Table of Contents

tcm z c

Summary of PTE 77-9

Questions and Answers on PTE 77-9 Compliant 6

Model Letter to Insurer requesting "Penalties or Adjustments" Disclosure Material 14

Model Transrnittil Letter to Client 15

PTE 77-9 Disc losure Porrrr-lnstmc.tiens for Aon Consulting Pen onnel 16

PTE 77-9 (text, includinG comments and revisions) 20

Confdential Treatment Requested ADN-t2-012973

Summary of Prohibited Transaction Exemption 77-9

A. PTE 77-9 Disclosure Requirement

PTE 77-9 imposes a disclosure requirement upon a commission -compensated consultant whorecommends the purchase of an insurance product by the plan. The purpose of the disclosure

requirement is to "make the approving fiducia ry aware , generally, of a potential for conflict ofinterest on the part of the person recommending the transaction " Thus, PTE 77 -9 is premisedupon the assumption that no consultant can truly be independent as long as he is compensated bycommissions . However, DOL belicvns that point-of-sale disclosure will encourage consultants torecommend the most suitable insurance contract for the client, rather than the insurance contractwith the highest commission .

PTE 77-9 requi res a consultant to disclose in wri ting .

The initial and renewal sales commission he will receive from the insurer whose producthe has recommended, expressed as a percentage of the product's gross annual premium ;and

If the consultant is an affiliate of the insurer, or if the ability of the consultant torecommend other insurance products is limited by an agreement with the insurer, theconsultant must disclose the nature of such affiliation or limitation . A consultant is an"affiliate- of an iruuucr, if the consultant controls, is controlled by, or is under commoncontrol with the insurer.

"Penalties or adjustments" which may be imposed upon contract termination .

The first part of the disclosure requirement is self-explanatory. The second part of the disclosurerequirement appea rs to be directed at considerations , other than crxnmissions , which may affectthe carxsultant's independent judgment in recommending the product of a particular insurer . Thethud requirement was buried in a proposal to modify PTE 77-9_ The proposal would haverequired the consultant to disclose certain objective information (e .g., cash surrender value, ratesof return, and contract termination penalties ). With this objective information, the plan fiducia rysupposedly would not rely upon the consultant's advice , but would exercise his independentjudgment.

The insurance industry severely criticized the disclosure requirement for cash values and rates ofreturn, but did not criticize the contract termination penalty disclosure requirement . DOLwithdrew its proposal on cash surrender value and rates of return because there exists nogenerally recognized method that fairly, completely and accurately determines rates of return forinsurance contracts. Since no adverse cornnents were received on the contract terminationpenalty disclosure requirement, the proposal was adopted .

3

Conficential Treatment Requested AON-12 -012974

B. Background

1 . ERISA' s Conflict of Int t Prohibited Transaction R .uI . ERISA prohibits a planfiduciary from exercising a fiducia ry function if he has a conflict of interest which may

affect the exerci se of his best judgment on behalf of plan participants . [ERISA Section406(b) and IRC Sections 4975( 1XE) and (F)] Thus, a plan fiducia ry cannot buy aninsurance contract to finance an employee benefit plan if he receives a commission onthe sale. The insurance commission is treated like any other illegal kickback underERISA's prohibited transaction rules .

I t is not clear whether or not ERISA's anti-kickback prohibition applies to co nsultants.In other words, it is not clear whether or not consultants who help place insurance arefiducia ri es .

2. Is a Consultant a Fiducia .Under ERISA, the term "fiducia ry" includes anyone who exercises discretiona ry cont rolover the plan or its assets . While the ordinary functions of consultants may not beconsidered fiduciary functions , the ERISA House Scnatc Conference Commi ttee reportwarns "that there will be situations where consultants and advisors may, because of theirspecial expertise , in effect, be exercising discretionary control over the plan or itsassets ." DOL's regulation (§ 2550 .4081x2) interpreting the service provider exemptioncontains an example of such a situation:

"D, a trustee of the plan P with discretionary control over the management anddisposition of plan assets, relies on the advice of C, a consultant of P as to theinvestment of plan assets, thereby making C a fiduciary of the plan. "

Thus, whenever a plan fiduciary, who would otherwise be independently exercising afiduciary function, informally delegates this function to another person by relying upon arecommendation rather than develop the knowledge necessary to make an independentjudgment, the person making the recommenda tion becomes a fiduciary . This means thatwhether a consultant is a fiduciary cannot be determined solely by the consultant'sconduct, but is also determined in large pats by the conduct of the fiducia ry to whomadvice is given . In other words, the less a plan fiducia ry does to arrive at a decision onbehalf of the plan, the greater the probability that the consultant is a fiducia ry .

As indicated above, there is no clear cut test to determine whether a consultant is afiduciary. Moreover, DOL announced that whether recommendations concerning thepurchase of insurance contracts constitute "investment advice" can only be determinedon a case-by-case basis. (A person who renders "investment advice" is also a fiduciaryunder ERISA.) DOL's announcement was in response to a request for a ruling that thenormal sales presentations and recommendations by insurance agents, brokers, or pensionconsultants would not be considered investment advice .

3 . Reason for PTE 77-9 .ERJSA's conflict of interest prohibited transaction rules threaten the abili ty ofcommission -compensated consultants to recommend insurance products to employeebenefit plans subject to ERISA . DOL recognized that :

"without an exemption, insurance agents and brokers will be precluded from receiving

4


their customary form of compensation for the furnishing of services to plans (i .e ., salesconunissions) and would, therefore, be compelled to curtail the provision of manyservices that they currently provide to plans . . . . €Tlhese developments would severelydisrupt long established business practices and relationships and would create hardshipsfor plans, plan sponsors and plan participants . . . . For essentially the same reasonsoutlined above, the applicants have also requested an exemption to permit an insurancecompany to sell insurance to a plan when such insurance company is a party-in-interest "

In response to this problem, DOL created PIE 77-9 which provides three exemptions inconnection With th e sale of an insurance product to an employee benefit plan through aconsultant who may be a fiduciary. It allows :

• the insurer to sell an insurance product to the plan through the consultant withoutengaging in a party-in-interest prohibited transaction [ERISA prohibits the sale ofany property insurance contract) between a plan and party-in-interest] ;

• the consultant to cause the plan to purchase an insurance product from the insurerwithout engaging in a party- in-interest prohibited transaction; and

the consultant to accept a commission from the insurer without violating the conflictof interest prohibited transaction rules .

4 . Scope of Summary .PTE 77-9 not only covers potential prohibited transaction problems of consultants ; it alsocovers potential problems of insurers , mutual finds, and mutual fund principalunderwriters. This summary of PTE 77-9 covers only those portions of PTE 77-9 that arerelevant to consultants-

C. Transactions Covered

P IC following transactions are exempted from the prohibited transaction rules, if the conditionsdescribed elsewhere in the s urtun ry are satisfied :

The execution by a consultant of the purchase of an in_szrsnce contract with plan assets.

2. The direct or indirect receipt ofcommissions by a consultant from an imurance companyin connection with the purchase of an insurance contract with plan assets.

NOTE : The term "insurance contract " includes an annui ty contract, a bond written by aninsurance or surety company and an administrative services only contract with ininsurance company-

D . Basic Conditions

The following basic ( i .e., nondisclosure) conditions must be met in order for the transactionsdescribed above to be exempted :

I- The execution of the purchase, and the receipt of commi ss ions by the consultant, must bein the ordina ry course of his business-

2. The purchase of the insurance contract by the plan must be on terms at least as favorable

5

Contrdential Treatment Requested AON-12-012976

to the plan as an arm 's-length purchase from an unrelated party .

3. The total of all fees and commissions received by the consultant for administrative andbrokerage services must be "reasonable ." Generally, whether compensation isreasonable depends on the facts and cir ujnstances of each case. (If any compensation isdecreed unreasonable , the amount involved in excess of what is considered "reasonable"is subject to civil penalties and excise taxes.)

E. Disclosure Conditions

The following disclosure conditions must also be met for the t ra nsactions described above to beexempted .

1 Outside Consultant .The consultant, or his af fi liate, cannot be a plan administrator, a plan trustee ; a fiduciarywho is expressly authorized in w riting to manage, acquire , or dispose of plan assets on adiscretiona ry basis ; or an employer any ofattose employees are covered by the plan .

NOTE: A separate class exemption (PTE 79-60) permits a consultant to sell insuranceto its own employee benefit plans .

2_ Ind dent Plan Fiduc 'The consultant must furnish the required disclosures to an independent plan fiducia ry-Therefore, the fiducia ry may not be an affiliate of the consultant or the insurancecompany whose insurance contract is recommended . The fiduciary may not receive anyconsideration (directly or indirectly) from the consultant or the insurance company orhave any other conflict of interest which would affect his judgment on the selection ofthe insurance contract- An employer whose employees are covered by the plan can be anindependent plan fiducia ry .

NOTE: An "affiliate" and examples of its impact on ccstain traruactioru is illustrated inthe Questions and Answers section of the disclosure guidelines .

Required Disclosures.

The consultant must disclose the following information in writing and in such a mannerthat an independent plan fiduciary having no specialized expertise in insurance canunderstand it.

(a) The initial and renewal sales commission he will receive from the insurer whoseinsurance contract be has recommended, expressed as a percentage of theproduct' s gross annual premium .

(b) If the consultant is an a ffiliate of the insurance company, or if the ability of theconsultant to recommend other inswanee contracts is limited by an agreementwith the insurance company, the consultant must disclose the nature of suchaffiliation or limitation .

(c) Any charges, penalties or adjustments which may be imposed under therecommended insurance contract in connection with the exchange or terminationor such contract .

6

Confdentia! Treatment Requested AON-12-012977

4 . Timing of Disclosure .

The consultant must furnish the required disclosures to the independent plan fiduciary

before the purchase of the insurance contract by the independent plan fiduciary .

5 . Acknowlcdemcnt .

The independent plan fiduciary must acknowledge in writing receipt of the requireddisclosures prior to the execution of the purchase

6 . Timing of Acknowlcd nent .

The independent plan Fiduciary must sign the acknowledgment and approve the purchaseon behalf of the plan before the execution of the purchase.

7 . R t ition of Disclosure.

The written disclosures and acknowledgments described must be repeated in co nectionwith additional purchases of insurance contracts, if:

(a) The contract being recommended for purchase is materially different from thecontract which the independent plan fiduciary previously purchased ; or

(b) more than three years have passed since disclosure was last made.

F. Retention of Record s

I . The consultant must retain the copies of the written disclosures and acknowledgmentsdescribed above for at Least six years from the date of purchase of insurance contracts bythe plan The consultant must also retain any additional information or documentspru%idcd to the independent plan fiduciary in connection with the required disclosures .

2 The retained records must be available for examination by DOL, IRS, plan participantsand beneficiaries, any employer whose employees arc covered by the plan, and anyunion whose members are covered by the plan .

3 . A prohibited transaction will not occur if records are lost or destroyed before the end ofthe s ix year period trough no fault of the consultant

7


QUESTIONS AND ANSWER SON

PTE 77-9 COMPLIANCE

The following Q&A's explain how to comply with PTE 77-9 .

Must Aon Consulting disclose commissions and finder's fees from thirdparry service

providers (e .g., TP,4s, lIMOs, PPOs, utilization review organizations , etc) that are not

insurers ?

Yes . Commissions from all third party service providers must be disclosed- Therefore, whenreading the guideline, understand that the terms ` .insurer," " insurance,,, and "insurance contract"also include "third party service provider," "third party services," and "third party servicecontract .-

2. For which brokerage transactions is ion Consulting prohibited from serving as insurancebroker?

Aon Consulting may not serve as insurance broker or agent when a client intends to purchase aninsurance contract to finance an employee welfare of pension benefit plan covered by ERISA'sprohibited transaction rules, regardless of its size , if Aon, or its affiliate, is :

. A plan administrator.

The plan administrator is the person so designated under the plan documents . If there is nosuch designation, the employer or, in the case of a Taft-Ilartley plan, joint board of trusteeswill generally be the "plan administrator. "

A person providing administrative services need not be the ''plan administrator' and shouldnot accept designation as "plan adrninistratoe ' unless it has been delegated authority toterminate the plan, to determine the plan's benefit schedule , to purchase insurance contractsto finarscc the plan, to hire persons providing services relating to the plan, etc .

a A plan trustee .

* An employer, any of whose employees are covered by the plan .

NOTE : DOL has granted a separate prohibited transaction exemption (PTE 79- 60) so thatAon can serve as insurance broker when it purchases insurance contracts to financeits own employee benefit plans-

• A fiduciary expressly authorized in writing to manage, acquire or dispose of plan assets on adiscretionary basis .

a

Conlidentiaf Treatment Requested AON-12-012979

3 . To whom must Aon Consulting give the disclosure form ?

Any client generating commissions for Aon Consulting by purchasing an insurance contract to

fmancc an employee welfare or pension benefit plan covered by ERISA's prohibited transactionrules, regardless of its size .

Aon Consulting's PTE 77-9 disclosure should not be confused with the client's ERISA reporting

and disclosure requirements . ERISA's prohibited transaction rules and ERISA's reporting and

disclosure rules are entirely separate and unrelated . PTE 77-9 disclosure forms are given to Aon

Consulting clients to protect Aon Consulting (i .e ., to eliminate Ann Consulting 's potential

conflict of interest liabili ty under ERISA's prohibited transaction rules ), not to satisfy the

client 's ERISA reporting and disclosure obligations .

For example, although an insured welfare plan with fewer than 100 participants is exempt frommost ERISA reporting and disclosure requirements (but a summary plan description andsummary of material modifications must be fur ished to plan participants), Ann Consulting muststill furnish the client with a PTE 77-9 disclosure form if the plan is covered by ERISA's

prohibited transaction rules .

4 . Which plans are covered by ERIS,4 's proht5ited transaction rules?

All plans are subject to the prohibited transaction rules and, therefore, to Aon Consulting's PTE77-9 disclosure policy except the following :

• Governmental plans ;• Church plans (such as a plan of a church-controlled h(spital);

Plans without employees (e .g ., AD&D plan for alumni association) ;State-mandated workers' compensation plans, unemployment compensation plans ordisability plans ;

• Unfunded deferred compensation plans for select groups of management or highlycompensated employees ;

Excess benefit plans;• UZAs established by individuals;• Keogh plans or welfare plans covering only partners, sole proprietors or their spo .

In addition, voluntary, employee-pay-all group insurance programs which the employer does notendorse are also not covered by ERISA . As a practical matter, this exemption will rarely apply,since the plan sponsor often endorses the program (e .g., by putting the employer' s name on thebooklet generated by the insw r).

5. lfAon Consulting's compensation is fired or based on time and expenses . and the clientagrees to pay the compensation less any commissiorr Aon Consulting may receive from theinsurer, must Aon Consulting furnish the client with a disclosu reform simply becauseAonConsulting will receive a cormnission ?

No, if Aon Consulting and the client reasonably expect that Aon Consulting's compensation willbe greater than the commission.

The purpose of the disclosure form is to make clients aware of Aon Consulting's potentialconflict of interest in recommending the insurance contract paying the highest commissions ,

Confidential Treatment Requested A0t4-12-012980

rather than the most suitable contract for the plan - In the situation described in the question, AonConsulting does not have a conflict of interest because Aon Consulting' s compensation willremain the same regardless of which insurance contract is selected .

The compensation arrangement described in the question should be documented (e.g-, letter toclient outlining Aon Consulting's services and compensation for those services) . In any event,the bill sent to the client must show Aon Consulting's total compensation, the offsettin gcommission, and the amount the client will pay.

6. IfAon Consulting negotiates its commission with the insurer, nnistAnn Consulting furnish theclient with a disclosure form?

Yes.

I/Aon Consulting negotiates with the client the amount of commissions that Aon Consultingwill receive from the insurer, must Aon Consulting furnish the client with a disclosure form ?

Yes .

8. The PPE4J4BLE to the model Aon Consulting disclosure form state that Aon Consulting iscomplying with PTE 77-9 to protect the client, as well as A on Consulting. How does thedisclosure form protect the client?

The client is the plan fiduciary ultimately responsible for the prudent selection of the plan'sfunding instrument- The disclosure form will allow the client to make a more informed andindependent judgment. Information relating to "penalties or adjustments" will help the clientevaluate the insurance contract itself . Information relating to omTertissions and affiliations willhelp the client evaluate Aon Consulting's advice or reco mendations.

11'7rat restrictions are placed upon the client to whom Aon Consulting furnishes a disclosureform?

The client must not be an affiliate of Aon or the insurer whose insurance contract is selected .Moreover, the client may not receive any consideration (directly or indirectly) from Aon or theinsurer . In other words, the client must be an independent plan fiduciary.

10 . May Aon Consultingpersonnelfurnish the client with the insurer 's disclosure form instead of.4on Consulting 's disclosure form ?

No. However, information on the insurer's form may be used to complete Aon Consulting'sdisclosure form .

11- flow many, disclosure forms must be furnished to the client?

A disclosure form need not be prepared for each insurance contract which the client isconsidering. Rather, the form must be prepared only for the contracts ultimately selected by theclient .

Since different contracts may have different commission schedules which must be disclosed, andwill probably have different "penalties and adjustments" to be disclosed, and it is recommendedthat a separate disclosure form be furnished for each contract purchased by the client, eve n

10

Confidential Treatment Requested AON•12-012981

though more than one contract may be use to finance the same plan .

12 . When mustAon Consulting furnish the DISCLOSURE STATLVENT to the client?

After the client selects an insurance contract, but before it is committed to the insurance

contract.

13 . When must the client sign the ACKNOWLEDGMENT ?

Before it makes a commitment to a particular insurance contract . Generally, the client iscotitmitted to an insurance contract on the earlier of the following events :

S. Aon Conu'ting binds the insurer , if Aon Consulting has binding authority,• the application for the insurance contract is executed ; or

• the fast premium deposit is made .

14 . What is an example of a typical sequence of events relating to the furnishing of a disclosure

fo rm?

• Ann Consulting requests proposals from insurers . Each insurer should be asked to identify

the pages or sections of its proposal where the insurance contract's "penalties or

adjustments" are described (see Q&A 23).

• Ann Consulting presents the client with its analysis of the proposals .• The client selects the insurance contract(s) .

• Mn Consulting fu rn ishes the disc l osure form to the client .

• The client executes the ACKNOWLEDGMENT .

• Aon Consulting binds the insurer , or the client executes the application or makes an initialpremium deposit , whichever is applicable .

15 . IfAon Consulting becomes a broker ofrecord on all of a new client 's insurance contracts,when rnust A on Consulting furnish a PTE 77-9 disclosure form on an existing contractfinancing an ER/S.4 plan?

The next tune this ins r+ce contract is renewed, amended or exchanged .

16 . Once the dis closure required by PTE 77-9 has been made, must it be repeater{.?

Yes . For renewals, the disclosure form must be furnished to the client once every three years.For new or replacement insurance contracts, the disclosure form must be furnished to the clientbefore the client makes the purchase .

17. What records retest be maintained byAon Consulting?

Aon Consulting must retain copies of the executed disclosure tbrms and any additionalinformation or documents furnished to the client in connection with its purchase . For example,Aon Consulting must keep copies of the proposal, if any, describing the insurance contractselected by the client

Three copies of the disclosure material are necessary . One copy for the client, one copy for theAon Consulting client file, and one copy for Aon Consulting office PTE 77-9 file . "1The Ann

1 1


Consulting office PTE 77-9 file w ill consolidate all PTE 77-9 disclosure material furnished to

Aon Consulting clients . It will be organized in alphabetical order by client and each client'sdisclosure material will be organized in chronological order.

18 . Will PTE 77-9 be available to an Aon consultant rf'an Aon Risk producer introduced the clientto the consultant and the Aon Risk producer is an outside director, or otherwise an Opiate,

of the client ?

Yes, only if the consultant is not an affiliate of the client and the Aon Risk producer does not acton behalf of the client.

Under PM 77-9, Aon or its affiliates cannot be the plan administrator, plan trustee, employer,etc . (the outside consultant requirement) . In addition, the client cannot be an affiliate of Aon orthe in .curer (the independent plan fiduciary requirement) . The purpose of these requirements is toe sure that Aon Consulting's disclosure form is furnished to a party that is truly independent ofAnn and the insurer so that the disclosure is meaningfu l

Definitions. The affiliates of Ann include :

+ any officer, director or employee ofAnn ; or

• any person directly or indirectly controlling, controlled by, or under common control with Aon (e .g.,Combined Insurance Company of America is an affiliate of Aon).

The affiliates of an Aon employee include :

• a relative of an Ann employee ;

• other employees of Aon ;• any corporation of which the Aon employee is an officer, director, or employee ; or• any partnership in which the Aen employee is a partner .

The affiliates of an insurer includ e-*

any officer, director or employee of the insurer; ors any person directly or indirectly controlling, controlled by, or under common control with the

insurer .

Analysis of Question and Answer.

a . Outside Consultant Requirement .

I . Mg Risk Producer . The client, as a corporation of which the An Risk producer is adirector, is the Aon Risk producer 's affiliate . According ly, PTE 77-9 is not available to theAon Risk producer because his affiliate ( i .e ., the client ) is an employer whose employocs arccovered by the plan .

2 . Aon Consulting - The Aon Risk producer, as an employee of Ann, is Aon's affiliate. Asnoted above , the client is his affiliate . However, affiliates of Aon's affiliates are not Aonaffiliates . Hence, the client is not Aon 's affiliate, and PTE 77-9 is available to AonConsulting , if Aon acts through another employee (i .e ., the Ann Consulting consultant) inconnection with the sale of insurance to the plan.

1 2


b . Independent Flan Fiduciary Requircmcnl . The Aon Risk producer, as an employee of Aon, is

Ann 'a affiliate . Moreover, the Aan Risk producer, as an employee under common control withother Ann employees, is an affiliate of Aon's other employees.

Accordingly, PTE 77-9 is not available to Ann Consulting or any of its employees, if the AonRisk producer acts as the independent plan fiduciary . However, PTE 77-9 is available, ifsomeone else acts as the independent plan fiduciary, and if that person is not an affiliate of Mn,the employees of Ann, or the insurance companies whose insurance contract is recomm i cnded .

19. Can an Aon employee sell an insurance contract to finance an F_P'1S,4 plan ifhe is the relativeof the plan administrator, plan trustee, etc .?

No. However, another Ann employee is not prevented from selling to the plan merely becausethe Aon employee happens to be a relative of the plan administr ator , plan trustee, etc.

Aon or its affiliates cannot be the plan administrator, trustee, etc . Aon's affiliates include AonConsulting employees . An Aon employee's affiliates include his or her relatives . Aon'saffiliates, however, do not include Mn employees' relatives .

Thus, Ann Consulting can serve as an insurance broker or agent when a client intends topurchase an insurance contract to finance an employee benefit plan even though an Aonemployee is the relative of the plan trustee, etc ., so long as that Aon employee is not involved i nthe purchase .

While an Aon employee may be tempted to sell insurance to a relative and then have anotherAon employee execute the docun ts, this method of circumventing the affiliation rulesobviously does not have the approval of the Dcpartrncnt of Labor . On the other hand, if the Aonemployee simply referred his relative to another Aon employee before the sale, DOL might notobject to this limited involvement-

The term "relative" means ancestor (e .g ., mother, grandfather), brother, sister, lineal descendant(e .g., son, granddaughter), spouse, spouse of brother or sister, or spouse of lineal descendant .

20. What is included in the term " insurance contract"?

For PTE 77-9 purposes, the term "insurance contract" includes an armuity contract, a bondingcontract, an insurer's "administrative services only" contract, and fiduciary errors and omissionsinsurance contracts purchased to protect the plan, whether or not such contracts a re purchasedwith plan assets . The term would also include any property or casualty insurance purchased withplan assets. PTE 77-9 disclosure is not required for fiduciary insurance purchased with eitheremployer assets or the plan fiduciary's personal assets for the purpose of protecting the fiduciaryfrom liability to the plan . As explained in Q&A I, the term "insurance contract," "insurer," and"insurance" should be read to include "third party service contract,"third party serviceprovider ." and "third party services. "

Also . based on existing guidance from the DOL, it is not clear whether commissions which arcgenerated from stop-loss insurance would need to be disclosed to the client . If the existence ofthe stop loss coverage i s communicated to employees or the coverage is paid with employeecontributions , a disclosure would be required . Even if this is not the case, it is recommended,but not absolutely required, that we disclose the existence of stop- loss commissions to ourclients.

13

Confidential Treatment Requested ACN-12-012984

21 . For commission -based accounts, must supplemental commissions be disclosed?

Yes. We refer to supplemental commissions as "Compensation for Services to Underwriters

(CSU)." If the CSU is known, disclose it . If the CSU is unknown, the disclosure form willspecify the CSU, if any, will not be known until the end of the plan year (i .e ., wfirn the ScheduleA of the Annual Rchun/Report Form 5500 becomes available) . Offices are given the discretionwhether or not a client is given credit for the CSU .

If a CSU arrangement is in place (or may be in place), you may include the following languageon the disclosure form:

"In addition to our agreed upon commission arrangement, Aon Consulting may be eligible foradditional administrative payments or commissions from jinsurer] through a Compensation for

Services to Underwriters (CSU) arrangement . This arrangement is applicable if a large numberof our clients choose to purchase insurance with [instr r]_ In the event we qualify for CSUpayments, the proportionate amount associated with XYZ Company's annual premiums might beincluded on your Schedule A to the Form 5500 . However, this amount is not included in yourretention/expensc factors, and has no impact on your rates ."

Also, at least one insurer has a program that pays differing amoun ts based on whether the amountof the CSU is shown on the Form 5500 . Under the one arrangement ( e .g_, "Marketing AdvisorProgram") the amount of the CSU is not shown on the Form 5500 . Under the secondarrangement ( e .g_, "Ilrokcr Bonus Program'), the CSU is shown on the Fortn 5500 . If the CSUis agreed to be disclosed on the Form 5500, the amount of the CSU is higher than if the amountwere not disclosed . Given the choice, a consultant should choose the program that shows theCSU on the Form 5500 .

22 . For fee-based accounts . must CSU arrangements be disclosed .?

In contrast to the rules that apply to commission-based clients, the existence of a CSUarrangement needs to be disclosed to a fee-based account only if the CSU is shown on theSchedule A. Offices are given the discretion whether or not a client is given credit for a CSU.

23_ What insurance contract provisions impose "penalties or adjustments " ?

Nobody, including the Department of Labor, knows what the phrase "penalties or adjustments"means . Moreover, the disclosure burden of PTE 77-9 has been placed solely upon insura nceagents and brokers . Tbc insurer whose contract has been purchased is not required to make anydisclosure to the client, except in its capacity as an employer of insurance agents . If thedisclosure material furnished by an insurer to an independent broker is inadequate, it is not clearwhether reliance by the broker on the disclosure material would be a good defense against aprohibited transaction charge by the client.

Nevertheless, Aon Consulting employees should attempt to obtain a written statement from theinsurer identifying those contract provisions which impose "penalties or adjustments ." Asimpleletter soliciting such information is in the disclosure guideline. The letter may be sent separatelyor incorporated into a request for a proposal .

The following illustrative list of "penalties and adjustments" is based on the assumption that"penalties or adjustments" disclosure is aimed at extraordinary administrative expenses or

1 4

Con)denbaf Treatment Requested AQN-12-012985

reserve requircmrnts not incorporated in the insurer's premium rate structure _

WELFARE CONTRACTPENALTIES OR ADJUSTMENT S

• Terminating with less than 30 daysnotice

• Mid-year pooling and retentionadjustments

+ Reserve forfeits for cancel lation onnon-anniversary dat e

• State Premium Taxes under minim umpremium plans

a Interest on de fi cits carried forward

"Penalties or adjustments" may be disclosed to the client in Aon Cons lting's analysis of theproposals or the proposals themselves. If this approach is taken, the disclosure form should notethat the "penalties or adjustments" are disclosed in the analysis or proposals . (As noted in Q&A14, the proposal for the contract selected by the client should then be attached to the AonConsulting file copy of the disclosure form. )

24 . If the insurance contract is purchased with employer assets rather than plan assets held in

trusrfor the benefit of the employees, must a disclosure form be furnished to the client?

Yes . Although an argument can be made that the purchase does not involve a fiduciary decisioninvolving the use of plan assets , it is highly unlikely the argument would prevail in the courts.ERISA imposes personal liabilities on fiduciaries who cause a plan to engage in either direct orindirect prohibited transactions.

25_ As noted in Question #4, unfunded. 'top-hat "pension plans are excluded from thecommission disclosure requirements. Is there a similar exemption for top-hat welfare plans,such as split-dollar arrangements that are welfare plans?

No. Top-hat welfare plans that are paid from the employer 's general assets or providedexclusively through insurance are exempt from ERISA's reporting and disclosure requirements,but not the law's fi duciary requirements governing commission disclosure . However, if we arenot providing investment advice to the client , we would not be a fiducia ry sul jcet to thedisclose requirement- See Surmna ry of PTE 77-9, B . 2., "Is a Consultant a Fiduciary',?"

26 . Can commissions from one plan be used to offset consultrng fees under another plan?

Yes, in certain limited instances. However, the following rules apply-

0 Commissions from a health & welfare plan cannot be used to offset fees under a retirementplan .

+ Commissions from a health & welfare plan cannot be used to offset fees for a compensationproject ,

• Commissions from a voluntary, employee-pay-all plan cannot be used to offset fees under aseparate plan (but see discussion below related to combining multiple health & welfare

15


coverages in the same plan) .

However, as described below, in certain instances commissions from one health & welfare plancan be used to offset plan-related expenses from another plan if both plans are prcdominantlyfinanced with cmploycrcontributians .

Lim.itcd "Pooling" ofComtrussions Allowed

Commissions from one health & welfare plan can be used to pay plan-related expenses underanother if both plans are predominantly paid for by the employer (e .g., employee contributions,both pretax and after-tax, account for 50% or less of the plan's premium cost) . This is referredto as "pooling" commissions.

However, if employee contributions (pretax and after-tax) account fur 51% or more of the plan'scosts, pooling commissions is prohibited - For example , commissions from a separate employee-pay-all plan cannot be pooled with another health & welfare pla n

IIowever, keep in mind that a client can accomplish pooling by including multiple health &welfare coverages, including voluntary employee-pay-all coverages, in the same plan .Typically, this is accomplished by using a wrap-around plan document to incorporate the variousinsured coverages . Of course, the plan document structure must be communicated to employeesand the client would need to file a single Form 5500

1 6


Exhibit 20

To: d§wsrr-sVHW1Aon [email protected]

02114r-002 {}930 AM Cansuling@AonNA

cc:Subject:

no I have a override agreement from IM but i don't think 1 have seen one from anyone else . I sawtly and suggested we get his help to at least review It not coordinate gettsng thes e

gneements . What others do you have? Can you sender a list of the favored stop loss carriers alongwith any override agreements we already have ?

dWQ just so you knowcn , we are supposed to be getting an override agreement from themon national account business only . We were supposed to get it for the last 8 months and this week Iwas told it would be around two weeks away . My suggestion to them was that we preferred an overridethat recognize our ability to keep business with EM rather than one thatwas based on newbusiness. Thal way we get a smoother stream of revenue for cases wtthf and don't have to movecases to other carriers just to generate overrides- I will send you the draft when I get it.


Exhibit 21

_ amTo.CC!

05/19/2003 01 :27 PM Subject Re: National Override Agreement Yirus Chocked]

~ank you so much for your response, and I am pa rticufariy pleased to see our Increasedon . In light of ever increasing premiums on medical and dental I am asking Mat you consider

raising the per case maximum credited premium from $350,000 to 5500,000 . The lower maximum actslike a compressor when in tact we are delivering more premium to Guardiian . The intent of toagreement was and still Is to incent our people to place business with the Guardian . . . ... .. . . . . . . . . . . .. . . . . . . . . .a

low cap like $350,000 Is a disir+cetive !

Thank you In advance for taking the time to consider my request .

@WCOM

05118!2003 Q5:22 PM

An attachmentremoved .

An attachmentremoved .

An attachment

To: eoncOes com

Subject: Re: National Override Agreement [Virus Checked 1

named AON 2003 COMP AGREEMENT MEB 5-07-03 .©OC was

named AON 3 MONTHS 2003 PRODUCTION REPORT .XLS was

named 2002 AON SPC PAYMENTS .XLS was removed .

it was a pleasure to sheet with you for breakfast in NYC recentlyGuardian values it's relationship with AON and appreciates therelationships that many of your consultants have developed with our

Regional Group Sales offices and for the business that your organizationhas entrusted to Guardian . Guardian is 100% committed to the brokerage

distribution system and we want to become more strategic partners with ACNas we move into the future . We were also delighted to payout nearly S600,000 in Special Producer Compensation to 14 of your local AON Sales

Offices based en 2002 results .

we axe agreeable to renewing our national override program with AON in 2003and I have attached a copy of the agreement below . Please sign and returnto me at your earliest convenience . We have kept the basic elements of

last year's program in place and have not increased target requirements vs .2002 . I have also attached a summary of 1Q new business from all of yourAON entities . It appears that we are off to a very good start to increasedproductivity in 2003 .

As we discussed , there are two issues that I would like to discuss withyou and your AON corporate associates that I briefly touched on at ourmeeting .

• communication of the national override arrangement with your local AONSales Offices and with our local Guardian Regional Sales Offices . Unlikeour SeC program which is communicated and managed at a local level , weneed to find specific ways to maximize the value of the dollars spent b y

Cordidential Treatment Requested ACN-14-001024

V

Guardian on the national program . This will take work on both sides and Iwould like to work with you to develop a communication plan .

• We need to gain abetter understanding of AON's commitment to the More

Benefits platform (including positioning and strategy) for the small tomid-sized marketplace . We also need to understand the expectations of

Guardian in terms of electronic interface with this platform. As Iindicated at breakfast, I have been advised that a true electronic

interface will require a six figure technology investment on the part ofGuardian . In order to justify this type of investment, we would need to seea definitive Rol before we could begin to prioritize this among our many ITinitiatives .

I look forward to seeing you and you, AON management team at the Greenbrier

later this month . 3 of my Executive Directors dMMMONow SE Division /NE Division & AINMENNUO Western Division } will be joining

me at this conference .

(See attached file : Aon 2003 Camp Agreement MFB 5-07-03 .doc) (See attachedfile : AON 3 Months 2003 Production Report .xls) (See attached file : 2002 AONsPC payments .xis )

tvxoa~VP Group Sales

hone

Fax

oncons .com on 05/I6/2003 04 :30 :14 PM

To, TheGuardian@TheGuaxdiancc :bcc :

Subject : National Override Agreemen t

, it was great seeing you last week and am pleased with your decisionto take care of your health . You may recall that you agreed to send me aletter confirming that our National Override Agreement would remain inplace for 2003 . To date I have not received such a letter and would askthat you send it ASAP so I can get the word out fo our field offices .

Please remember also , that when you are on the West Coast visiting youroffices , I would hope we would have a chance to get together .

Confidential Treatment Requested AO 4-14 -001025

Exhibit 22

To. @unum.co m..r,

. DaZ 05,34 PM cc: (bcc Bob Burden WfAon ConsuIting)

Subject Unum Agreemen t

I had an opportunity to review the 2002 Marketing Agreement - which I am glad I did since your covetletter did not specify that the agreement also included 2003 and potentially 2004!!! While you have leftthe 2002 rates as #s' the 2003 rates are significantly below the 2002 rates on renewals . In fact therenewals for policies in years 2-5 are about 34% lower than 2002 and for years 6-10 are about46%kywer . This is a, huge decrease - about 5325,000 a year on an In-force block of S5,000, 000.

In com partson, the compensation levels we have today with UnumProvident are right along the samelines as your competitors - MMetUfe, bland MassMutual . Decreasing your renewalcompensation levels may have an adverse affect on haw often our producers show your prroductespecially It your wmpetnor s premium mates are similar . As we both know, while compensation isn'teverything - at 11he end qt the day it can sure make the difference! Furthermore, I would like to receiveconfirmation from you that the agreement you'are proposing to Aon is identical to the agreements youcurrently have or are proposing to our peers etc` .

On a side note, I did want th mention something that came up during the 11111111111111111111111110quoting process thatwas just brought to my attention . This is in follow-up to some of the comments from our field regardingour feeling that we do not get preferred treatment from underwriting . We recently proposed a 1,304 lifevoluntary plan and were provided with a $5,000 GSl offer - the lowest of the 3 quotas requested. Allthree quotes were then provided to the diem. The Unum Provident field representative called to checkon the status of the case and when advised that the otter was low was able to get a 50% increase to57,500 'at the Last minute". This Is exactly what we don't want to see happen - we dons want to play theoffer dame . Give us your best shot and we will give you ours.

Give me a call to discuss the co npensation agreement - as I am uncomfortable signing now.

_ or

GonfKlenbal Treatment Requested AON-144)00477

Exhibit 23

08/2812003 12--55PM u g@A-Uk Acn

Consuhing@AonPL4 COF2P/Aon Consuning0AONUkI3rd/US/AON@AONNA

Subject: RE: Ann Matting 7128 [. ]

We are not comfortable with the proposal to reduce our compensat$on . Why would we consider givingup over 5300,000 a Year in cornpensation? 1f we were to accept the proposed reduction, ourcompensation from Unum would be about 80% of the compensation we receive from Met and MassMutual . ht's aknost like you are you telling us that we should place our new business with a carry otherthan Unurn so that we can make for money? rm sure this is not ttte answer you wanted I, but thechoices you have presented are just not acceptable.

--- Forwasdcd by 6/AGn Consuking on 08/2$1200311 ~ AM ----

~~- To: Wsonoorts.com>. coma.

40

~unumprov*d oncons,camsQ K corn . -WINPINWSent by. ' urwmprovidentoom >. ' ?L~ +'runumprovide -Lcom>, Aowunt M sneger)•- T unumpmvide ~unumpwvident cxm>ntcorn> Subject RE: Ann Mooting 7178 [.] .

08127120 3 01 :12 PM

my goal is to make sure you are comfortable with the final arrangementwe are proposing . As I stated in my attached explanation on 7/24, we areredesigning your compensation to mirror how you presently get paid by MassMutual and Met Life, as you explained it to me . That being normal basecompensation and a normal bonus program (UnumProvident Rewards Program)

aggregated for all your producers under one producer number (Atlanta) .

Now that said, it would also mirror the way UnumProvident approaches thebroker examples you gave die in your 8/22 reply . Therefore, in the finalanalysis, this would create carrier compensation parity and also brokercompensation parity .

I believe that resolves your final questions . I will call you today todetermine the next step in the agreement signature process .

------Original Message-----From: aoncons.comSent : Friday, August 22, 2003To,Subject : RE : Aon Meeting 7/28Importance : High

To: unumprvvident .comx: r1DCE/Aan Cons

[mailto:aoncons.com)10 :36 AM

Confpdential Treatment Requested Ap{g-14-001117

Exhibit 24

of 3

=ram : 099A @libertymutuai .com]

dent; Tuesday, August 05, 2003 8 :MAM

ro: 099A r

object RE AON Partnership dividend - LM Property

' you would need to do the math but I can think of 5 ways we potentially pay aon on the same account you might want to domath on a theoretical $500,000 account';

policy co mmission 15% or $60,D0 0

local office producer incentive 3% or $15,DQ0

corporate psa 3% or $15,03 0

eon re for treaty 1% or 55,000

and potentially fac re through aon re at 1 % or $5,000.

percentages in this example are estimates but are dose to actual .

ou work up an example we can go through it at the august ops meeting.

-°--on7i4 Me moge-

From : NPZMJM1MJMW099 A

Sent Malday, August 04, 233 4 :43 PM

TO:

c'--

subject FW : AO' ship dnvided - LM Property

awsome details and background on the aon psa.

it is driven by retail results but its purpose is to allow aon re the opportunity to earn back some of the treaty reinsurancecommission we. took away .

f?r nur. piirposes and discussions.with 4=rol .l w~uuld simply .describ? it,as .a corporate psa, driven. by overall reaail'resuttsand that is the contactlowner.

I would not go into any of the aon re treaty details or background ,

if you need anything else, let me know .

I will be in all day on tuesday.

CONFIDENTIAL (PUBLIC OFFICERS LAW -4 S7 (2)ID)) LM 006157

Exhibit 25

PARTNERSHIP DIVIDEND PLAN AGREEMENT

This ACjREEMENT is effective July 1, 2002 (the "Effective Date"), by and between Aon Re Inc . (-Acu,Re") anIllinois corporation, a Wholly owned subsidiary of Aon Corporation, a Delaware corporation (which, together

with its. other subsidiaries and affiliates is herrinafer referred to as "Aou Corp.") with its principal place ofbusiness in Chicago, Illinois and Liberty Mutual Insurance Co ny, domiciled in Massachusetts, along withcertain of its affiliates and subsidiaries, through and exclusively for its business unit Liberty Mutual Propertywith as principal place of business in Weston, Massachusetts .

WT! NESSFM

L SERVICES AGR.E2 4ENr

1 . Liberty Mutual Property and Aon Re have entered into an agrecmeat, whereby Aoa Re has agrcodto ace as reiaszunnx intermediary broker in placing treaty refit crane business at the instructionof Liberty Mutual Property for the tam extending from July I, 2002, through June 30, 2003 .

2 . Helmsman kruaranoe Agency, (°HWA") a liccased broker, is a subsidis¢y of Liberty MutualInsurance Company. Aon Re agrees to utilize HM to provide to Am Re services relating to theLiberty Mutual Propeny treaty reinsurance business having effective dates doting the periodextending from July 1, 2002, through June 30, 2003 . The services will be described in a separatememorandum of agriecummt.

3 . consideration of this Services Agreement ., Liberty Mutual Property agrees to the provisions ofthe Placement Service Agreement as detailed herein with rat to retail property ins rancebusiness placed by Aon Corp . with L ey Mutual Property.

II . PLACEMENT SERVICE AGREEMENT

1 . ln' c dera ion of its agreement to the terms of the Services Agreement, Ann Re becomes eligibleto receive Placement Service Payments in conjunction with the placement of retail propertyinsurance business with L arty Mutual Property by Aon Corp . In cakaila;hg the PlacerncntService Payments due Ana Re, all retail pcopaty i trance placed by Mn Corp. and written byLbe ty Mutual Property shall be eIig ble _

2 . Payments hereunder are ts f ed to as 'Placetpent Service Incentives ' and shall be in addition to,and not at lieu of, customary commissions due Mn Caps is conjunction with retail prope rtyinsurance busimc" placed with and written. by Liberty Mutual Property as well as anybrokerage due Aon Re in accordance with the placement of property reinsurance on beba`if ofL3 ty Mutual Liberty Mutual Property shall pay Ann Re separate Placement Service Incesativesbased on Direct Written Premium and Loss Ratio as follows:

a . Liberty Mutual Property slhail pay Aon Re a Placement Service Incentive in an amountequal to the Payout as set forth below based on the Direct Written Pr ism for Subjectpolicies with effective dates from July 1, 2002, through June 30, 2003 :

W 1fS4ni= Payout

or> $40,000,000 $500,000= or> $35,000,000 to $40,000,000 $400,000- or > 532,000,000 to $35,000,000 $300,000 .

Ana Re shall not be entitled to any Placement Insurance Incentive based on Direct WrittenPremium if the Direct Written Premium is less than $32,000,000 .

Confidential TreatmentRequestect AONa014304

"Direct Written Premium" is defined as direct written premium for rttatl propertyinns ancc business placed by Aon Corp . and written by Liberty Mutual Property lesspremiums refunded by Liberty Mu a1 Property with respect to returns, allowances., ofcancellations; provided, that no deduction shall be made for return premiums in the event apolicy is canctded and rewritten mid-tam by Liberty Matual Property through another

broker. If Aoo Corp . is appointed, purse nt to a broker of record letterand not part of a

pwchase, merge:, or otb acquisition, is broker on any policy or policies w ittea byLberty Mutual Property through a different broker. Direct Written Premium attrtbatable tosxht policies shall not be rccogniztad in the calculation of the Placement Service In=tire.Dirac Written Premium attributable to the renewal of any such policies during the term ofthis Agreement shall be recognized as part of the Placement Service Incentive ealcal au ifthe broker of record appointment is still in effect on the date of renwaL

U-octy Mutual Property shall pay Ann Re a Placement Se ice Incentive in an innmmtequal to the Payout as set forth below based on the- Lou Ratio resulting from the retailpropeny itmemnce business placed by Mn Corp. with liberty Mutual Psoparty.

Less than 20% $1 .000,00020'/. to 2.5'% $800,000> 25% to 304. $600,000> 30% to 35% $400,0007 35% to 40% S20O,000 .

"Lou Ratio " is deGnod • as direct losses incurred from all . accident dates (paid and/orres rvcd), excluding cat strophe tosses, on all retail property kmuranoe bueux s placed byAon Corp . with Liberty Mutual Proper ty having effec tive dates extending from 3aly 1,2002, through June 30, 2003 , divided by the earned portion ( as of tie date of calculation) ofDirect Wri tten Premium for retail property insurance business p1sced by Ann Corp . withliberty Minus) Property having effective dates extend from July 1, 2002, through June30, 2003.

In the event the Direct Written Pr =ii= for the above tam is less than $15,000,000, therewill be no pay t under this Lass Ratio section .

3 . AU dcfmitiotu and cakudauoce of Direct Written Premium and loss ratio shall be based solely onLberty Mutual Property reporting matiicx although, Liberty Mutual Property shall allow Aca Rereasonable access to its books and records for purposes of verifying any ambnnts due hereunder .

4 . Liberty Mutual Property shall prepare and deliver Placement Service incentive Statements to AonRe within 45 days of the and of each ca en day quarts *nd payment of Pbwcux=t Se viceIncentives absU be trade by September 30, 2003 . alt ougb, liberty Mutual Popery shall beentitled to retain from any such payment any return premium and return commissions 'due toLiberty Menial Property under any szinsuranoc treaty or insurance policy with respect to anyproperty business the subject of this Agreement . At each subsequent June 30, until etch time asall liabilities under the retail property insurance bMsiness placed by Aon Corp . and written byLiberty Mutual Property are fully extinguished, Liberty Mutual Property shall recalculate thePlaccmret Service Incentive based on Loss Ratio and any amount due either party based on therecalculation shall be paid by September 30 . Ace Re shall not be entitled to any Place eatService incentive if either this Placement Service Agreement or the Services Agreement artcanceled by Aon Corp. or Aon Re, or if Liberty cancels the Services Agreement before the serviceare received or if Liberty cancers the Placanent Service Agreement because of n resentation,fraud, malfeasance, or nonfeasance by Ann Corp . or Aon Re.

Confidential TreatmentRequested

AON00'14305

III. TERMS APPLICABLE TO BOTH AGREEMENTS

D gesalt~tion Any dispute arising under this AU=Dent shall be resolved by bindingarbitration purpiant to the rules of the American Arbitration Association before a panel of threearbitrators The party demanding arbitration shall notify the other party in writing of its intent toinvoke ttvs proviwio n, and shall notify the recipicat of the name and address of its abitxator. Theparty teociviag the notice to arbitrate shall have 21 days a fter receipt of such notice to select anarbitrator, and to provide the eauae and address of its arbitrator . In the event dc party receivingnotice fails to sei t an arbitrator within 21 days, d w party demandig arbitratioat aba.11 be entitledto sdect the other party's arbitrator. The two arbitrators shall sekc t a durd arbitrator within 21days of the naming of the second arbitrator. All arbitrators shall be experienced in the insuranceindustry, with knowledge of the instu== braking business, and shall be disinterested in theoutcosx of the arbitration. The arbitration shall be oooducted in Boston . Mass:chasctts .

2 . Tam and Terminative This Agreement, and the Services A gr eement and Placement ServiceAgreements corspsising this Agreemem, shall be effective on 1n1]' 1, 2002, and shall rexmaio ineffect tluough hmc 30, 2003, unless terminated in accordance as provided herein . Either partymay terminate this Agreemwt at any time by providing written notice to the other . Tcrmi nation ofone of the two Agreements comp-icing this Agmcnert automatically trzmissates the otherAgoemeot . Notwithstanding the expiration of this Agreement, the terms and conditions of thisAgreement shall continuo to apply to all obligatiocsa anti duties asmanad bander until theseobligations and duties axe satisfied in full. -

Confidmtislity The termer of these Agreements are confidential and shall not be disckoed byy either parry cscept as maybe required by law .

4 . jgrt: Thew Agrv=cnts and the rights, duties and responsibilities act forth herein shall notbe as ignable by either parry hewn .

5. j3 p gm All notices as required under this Agreement shall be scut by prepaid, first class mail tothe odrcx party uxf sha11 be deemed to have been effected when scat Notices shall be sent to :

Aon CorporationAou Re Inc.A.tte Michael D. O'H al l crap200 East RandolphCbitago, Illinoi s 6060 1

Liberty Mutual PropertyAttn:9 Riverside Roa dWeston, Massachasetts02493-229g.

Or to such other person or address as either party may from time to time so notify the other party .

IN WITNESS WHEREOF, the undersigned have executed this Agreement effective as of the date first above-Written.

Ann CorporationRe Inc. Libdty Mutual Insurance Company

gy Bar.Name : Mi 1 D. OThtleran Name:

Date 1 b~ Date:

Confidential Treatment AON0014306Requested

N

AONReinsurance Services

V

VIA OVERNIGHT COURJFR

April 14, 2003

Mr.Liberty Mutual Insurance Company

9 Riverside Roa d

Weston, MA 02493-229 8

Dear Mr. .

Pursuant to the Memorandum of Agreement among Aon Re inc., Helmsman Insurance Agency,and Liberty Mutual insurance Comps y, effective July 1, 2002-, the fee for the period July 1,2002, through June 30, 2003, shall be 53,000,000 .

Please_sign below indicating your acknowledgement and return an original to ne .

Sincerely yours,

Mi D.O'Hallaran

(fib if of Bel Insurance gmcy

On behalf of Liberty Mutual insurance Company

By. "MIONMUNIF- -

Confidential TreatmentRequeste d

Aon R i nc. AON0014307200 Em Rudolph Suety • Ol+c&q 116r01 6060 1

31z -361 .3 300 • Ea : S%z .99i .0160 • ► .+. am C*M

MEMORANDUM OF AGREEMENT

In anticipation of a continuing business relationship between Liberty MutualInsurance Company, a Massachusetts domiciled insurance company (VL IIC") and Aon

Re Inc. ("Aon Re") and its affiliates, an Illinois domiciled reinsurance intermediarybroker, the parties to this Memorandum of Agreement ("Agreement') deem it desirableand prudent to reduce to writing the manner in which they will continue to do business

together.

In an effort to more efficiently coordinate its property treaty reinsurance needs,LMIC hereby delegates to Helmsman Insurance Agency, a Massachusetts licensedinsurance broker ("-ILA"); and a wholly owned subsidiary of LMIC, the responsibilityfor coordinating and administering specific Property Catastrophe and Property Per Riskreinsurance treaties for LMIC and the Wausau Insurance Companies ("WIC") .

Therefore, the parties hereto make the following representations and jointlyagree to'the following.

1. -pest Efforts. HIA will assist LMIC in preparing and packaging LMIC's and`WICs Property Catastrophe and Property Per Risk reinsurance needs andshall submit to Aon Re LMICs requests for reinsurance placement. Aon Reagrees to use its best efforts to procure, from time to time and at the requestand direction of HIA, reinsurance for IMIC.

2 Binding. I-HA acknowledges that it is not an agent of Aon Re, and as such ithas no power to bind Aon Re or any reinsures.

3. Licensing. HIA represents that it is a duly licensed insurance broker inevery state in which it transacts business.

4. Premiums. HIA agrees to be responsible for forwarding to Aon Repremiums (including premium adjustments) for such reinsurance placed by

Aon Re on behalf of LMIC .

5. Servicing Fee. Aon Re agrees to allow HIA a servicing fee for the

reinsurance placed for LMIC by Aon Re. The amount of this servicing feewill be agreed to each year.

Confidential Treatmen tRequested AONO014308

-x-

6. Accounting . 'Aon Re will issue a separate premium invoice to HIA for eachplacement of reinsurance for LMIC and HIA will forward invoices to LMIC

for payment . LMTC shall forward premium payments to HIA for

remittance to Aon Re in accordance with due dates agreed upon . TheServicing fee may be offset against premium before payment is remitted to

Aon Re.

7. Claims and Losses. HIA acknowledges that Aon Re will be the designated

intermediary and that as such Aon Re will receive from HIA for filing withthe reinsurers all notices of occurrence or claim, unless specificcircumstances dictate otherwise. Each party agrees to furnish the otherwith copies of correspondence to and from the reinsu ers and LMIC in aprompt manner upon request To the extent called upon to do Sa by LNfIC,each agrees to assist LMIC with the presentation of their claims to thereinsurer whenever feasible.

8. Termination . This Agreement may be terminated by either party uponforty-five (45) days written notice to the other party .

Except as is otherwise indicated, this Agreement shall be effec tive as of July 1,2002, and shall apply generally to all future reinsurance placed by Aon Re for L UC atHIA`s direction.

This Agreement dated 1 l~l b

AON RE INC.

sy: ~uAuthorize epresentative

Acknowledged and Accepted by.

LIBERTY MUTUAL INSURANCE COMPANY

Br• A .Authorized Represents i

Confi dential TreatmentRequested AQN0014309

-2-

HELMSMAN INSURANCE AGENCY

Exhibit 26

08/3W2Q0212:47 PM

To: Scott Clark/A.RW,U fAON@AONtyAcc: RWNSIAON@AONIIL . -

AWW1KARWAJS/AON@AOH~A1GMMichael

OWk ranfASC'.JIkWAONPAONNA,4IIIIIIIIII~ARWNS/AON@AONNA

Subject Re: AON Pa rtnership dividend - LM Property (Virus CheckedI D

When the agreement is drawn up they should not try to recapture the mooey through a lower remittance .There are boo many factors Involved. We should receive the tull premium and return to them anydeemed excess amounts . This is how all of t wse agreements have worked .

The preference would be to settle this annually , but certainly no more frequent than quarterly.

4,00Scott Clark

Scan Clark08fX Y2002 1 o-46 AM

To: lliS1AON@AONNA. rARW/US/AON@A0NHAcc: ARWIUSJAON(PAONUk /ARSkJSJACNCAONWL Michael

O' Halleeran/AS=S/AON AONh1A,'~1~ ARWNSJAON

Subject : AON Partnership dividend - LM Property [Virus Checked [

Here Is where we are currently; I'll speak wtMIM ASAP to clarify any points and get back to you .Also, III speak with iftabotA the reality of putng significant business Into LMG In order b bigger thepartrwrshfp dividend . Until this Is resolved . I suggest we book only the $2rn minimum. Also. MDO saidhe'd take this up with senior Liberty management when the time is best probably at the Greentxfar . Illkeep you posted, Regards,

Forwarded by Scott C VARW1USJAO on O8r3t]t24021Q43 A M

i CD L i bett~u a I. corn > on 08/3012002W.09:11 AIWA

To: Scott Clark/ARWJUSJAONCDAONN A

Subject. AON Partnership dividend - LM Property (Virus Checked ]

Scott-I got your voicemait yesterday . rm in until 1 :OOPM today, and most of next week. I agree we need tofinalize this and we should have the PSA (draft) by the end of next week.

My understanding of the partnership dividend program between LM Property and AON Is as follows:

2 separate (but related) agreements:

1 . Co-brokerage via ices, for the difference between the actual brokerageand $2M minimum. The $2M minimum was agreed to in Portugal considering your cost structure andthe value added AON offers ( quoted S1 .5M flat). In our last discussion you Indicated the actua l


V

brokerage may be close to S5M given the significant increased premium for the program. Based on thiswe would expect $3M ($SM -S2M) to come back to LM Property via ii0 through lower (net)quarterly remittance to AO N .

Z The partnership dividend program is to promote overall business between AON and LM Property. Tothis end we would have a separate PSA agreement for all LM Property business produced throughAON. This PSA would be based on overall production (direct written premium) on policies effective7/1/02 - 03_ There would also be a protital lity component related to loss ratio . The understanding waswe would construct the payoff such that with "stretch goals' met the PSA would return roughly half ofthe co-brokerage amount (S1 .5M In the example above).

17-74

f att1 .htm

Confidential Treatment Requested . AON_19 791

Exhibit 27

. 7' Scott ClarkO 81I112002 1210 P M

To: IJARWAJS/A0N@A0NNA

cc: NSIAON@AON 1-■fiM-'ARWA.W0N AONNA Michas!Q'Ftai eranlASMSIAOMCAONNA. MWAftWIAR%WAjS.IA0N, tl

WWWWARSM&MONCAONNA

Subject Re: Lk" Ahfhrat

I this is a k ng Story but essentially, in order to keep this account, two years ago we were forced 10enter Into a partnership arrangemerd. The agreement apprmed by Aon and LMG senior managementwas Aon Re get a min mum S2 .OOO,DOO and our brokerage can Increase tf AFRS put profitable businessInto UG . W . president of LMG has met with and of ers to promote tradeand LING Is reviewing a partnership agreement S rrWar to what we have with INEWm# but rye beenmore aggresstve . I hope to have a document returned by L berty soon .

Sorry that this is a surprise but this has been discussed quite often and we went through put vaerxI ngd ones to save the account . rm in the office next week and if you like Fl give you a can to discuss.Regards,

12 .48 PM

To- Scott C.lartARWfUS1AOt4 AonWAcc ARW,USIA0r70AONNA, ARw/VS/A *l AONNA, Michaet

--/AONCAONNA

Subject. Liberty Mutual

Scott :

has advised me that the re is a parirtiershfp agreement in place, or being put in pia'oe. thatwoad regruIre us to Put up a large accrual against our Liberty Mutual brokerage .

Gan you provide any details?

Also, please provide me with a copy of the agreement when It is finalized .

Confidential Treatment Requested AQh1-F-008723

Exhibit 28

S

RURU Iruur nee Company

9025 N . Lindbergh Dr, Peoria, IL 6 1615-143 1Phone :309.692•1DOO Fax .309-692 .1068

w w I . c o t O . r. O ❑'

August 16, 200 1

VIA FACSIMILE(312-381-4150) & UPSW XTDAYAIR

Mr. Michael D . O'Hallera nPresident and Chief Operating OfficerAON Corporatio n200 E. Randolph St.Chicago, IL 60601

Dear Michael :

It was great to see you again yesterday in your new offices. The building is beautifuland a testament to where AON stands as an entity .

We discussed my letter to you dated 3uly 27, 2001 (copy attached) . You and Iagreed to all aspects of that letter except for item #3 - Defining those placementswhere AON Re will deal with direct markets .

I have now reviewed your suggestion that AON Re handle direct placements for allproperty treaties where AON Re is broker, except for the Construction program, and Ifind this completely acceptable to RUI .

I would like to thank you again for the relationship with you and AON . We lookforward to our meeting in your offices September 4, 2001 at 10 :00 a.m.

Sincerely,

iaww

Att .

cc : ONNOWDave Kelley - AON

a

CONFIDENTIALRLI 000993

F u N 6 )- M E N T A L l V

Z nnova tive

Exhibit 29

• C~ oOG°~~'l, • RLIRU Insurrnce compaiy

9Q25 N. Lindbergh Qr. Peoria, tL 6!615-143 1Phone : 3O9- r92- I DOO Ftx: 309-6' 2-1068

w w w .I I i Co r p .C O m

July 27, 200 1

YTA UPS N 7 DAYA M

Mr. Mlchael .D. O'HalteranPresident and Chief Operating OfficerAON Corporation200 E. Randolph St .Chicago, IL 60601

Dear Mike :

My apologies for not responding sooner to your letter of May 21st, however, I'm su reyou know that we met with Dave Kelley on July 11th and had an extensive discussionof the issues enun ciated In your letter .

Let me restate where we come out on this :

1 . My understanding of the extant 'relationship dividend' Is that it applies tojj ceded reinsurance premium placed by AON Re. I do understand thatmy view Is not held by AON (Dave) and the letter outlining theunderstanding is not a picture of clarity . Please understand that thisrepresents $1,000,000 of lost revenue to us ( if your understandingprevails) .

2. We will agree to relinquish our claim to the additional . relationshipdividend for prior years so long as it applies on a go forward basis to abusiness placed by AON Re commenting Janua ry 1, 2001.

3. We a re agreeable to Instructing our direct market reinsurers on capacityplacements (currently our Cats ) to deal with AON Re'at the 2002 renewal .We view this as a positive initial step to your proposal . As this unfolds wewill consider extending this arrangement to additional placements .

4. Obviously the relationship dividend Is a ve ry strong incentive for us toutilize AON Re as our prima ry reinsurance intermedia ry .

5 . We a re very Interested . En meeting with your brokerage team to exploreways to enhance RLI's position as a leading market for ACN In thosemarkets we serve. We would propose the meeting In Chicago with yourassociates referenced in your letter and I'll have our Product VP'sIncluding : 'Programs, /Prima ry Liability,_

Wesday,

xcess/Umbrella / Professlonal,1nsportation , Looking at our calendars, eitheray , August 1S'~r Thur August 23 d would work best for us .

Would you be available on either of those dates?CONFIDENTIAL

RLI 001000F U N 0 A .4 $ N T A L

innovativeY

0

Page 2

6. We believe that the current market place makes with any effort a 20%growth fairly certain . However, we agree with your proposal on theadditional 5% relationship dividend if you don't meet that target in 2001,2002 and again in 2003 . We should discuss further growth goals in 2003for year 2004 . Obviously we'll need to work out the details on this as soonas possible .

We hope this meets with your approval so we can move forward in continuing tostrengthen the relationship between RLI and AON .

Sincerely,

cc : %allDave Kelley - AON

bcc :

CONFIDENTIA Lof I nn411l1I .

Exhibit 30

`~loNfECElVED

MAY 2 4 200 1

May 21, 200 EVP

Mr.

RLI Insurance Company9025 North Lindbergh Drive

Peo ria, Illinois 6161 5

DearI

ECEIVEO 1I .Ofl Car

MAY 2 3 20o1 poratIo n

President & CEO Mt CA AoL D O•Hnu, :ti,rrRLI Corp Proideuf & Clef Ofrr esiaa Off'r r

Ta

r+?t

Many thanks for hosting a great day in Peoria, despite the golf results!!! Also, pleaseonce again thank NOW for allowing two weary Irish travelers a place to lay their heads .You have a beautiful home and should be proud of it-

Per our discussions, we agreed that Aon would host a meeting at our Glenview facilities .I suggest the following atlenndccs from Aon :-

Representing WholesalersAffinity and Association business

Dave Kelley Reinsurance

Since all except Dave are from Chicago, please give me some dates that work for you . I

suggest after 711 due to travel and renewal market issues .

I'm also enclosing a Transformation book for markets that can give you a road map towhere we are going in the future. You will readily see that organized this way, we will beable to go to markets in an organized, focused approach .

We also discussed dates for the trip to Wisconsin with the girls. How does July 18`s and191 work? You could fly to Lake Geneva and we could go right up to Whistling Straitsfor a round of golf, return that afternoon, dine in Lake Geneva and play golf at Big Footon the 19'" . On the I8" the girls could play at Lake Geneva Country Club or join us atKoehler. although I don't think Iff could join, as she will not be able to walk 18 holes .

Finally, after an exhausting day on the course, I made the following offer to create awin/win for RLI and Aon well into the future :

CONFIDENTIALRLl 00129 1

ISon Corpararic n

123 North Wacker Drive • Chicago, Illinois 60606 . to : (312) 701-3065 • Frx : (31.2) 701-4150

y

Aon Corporatio n

1 . Aon agrees to pay RLI 20% relationship dividend of all reinsurance brokerage forwhich Aori is the intermediary including current direct placements .

2 . Aon will discuss this arrangement with the direct writers and will, upon their

agreement, provide a seam less approach to handling accounting, contracts and other

services as required. We do billions of dollars of business with these "directs" .

3 . In the event Aon's global distribution does not deliver in excess of 20% growth in2001, we further agree to an additional 5% relationship dividend . .

W, this allows RLI to streamline reinsurance administration, use Aon's leverage withmarkets, create an additional income stream, and get added growth through Aon'sdistribution.

I'll look forward to your review of this offer as soon as possible.

Please extend my thanks to "' or a great day. It's always great being with you and 1look forward to our meeting in July .

Thank you again.

Best regards ,

I"I.. tMichael D. O'Halleran

MDO:sg

cc: Dave Kelley

CONFIDENTIALRLt 001292

Exhibit 3 1

'hohlicorp Tonylriicorp@rlicorp,

03 12512003 11:03 AM INEWolrlicorp@riicorp,dMMok/ P rlho/rticorp@rlicorp

cc

bcc

Subject D&O RF P

I talked to Dave Kelley this morning regarding the RFP . His responses were as follows :

1 . On the question of brokerage, Dave said that in 2002 Liberty agreed to 10% of net on brokerage .The other two markets were at 5% of net (about 3% of gross) .

Dave said that the treaty has changed in complexion over the last three years - going from a treatythat had a real need for an excess of loss to one that is now really a pro-rata treaty .

He acknowledged that brokerage of 2 1/2% Is right for a pro-rata treaty . He indicated that AONwould reduce its brokerage to whatever it takes to place the treaty . He mentioned that they would golower than 2112% if necessary . I told him it probably would be .

2. Dave disputed that brokerage was a problem in placing the business this last year . He saidlast minute decision was the real reason for the difficult placement, followed by

IMMW firing of Gxff4lNMjL which effectively took them out as a marke t

3. On the expertise question - Dave has committed &mdkd n (Stanford AON) to be the lead brokeron the account- has significant D&O and other professional experience and Up requested thaAwbe more involved . Dave indicated that would no longer be involved .

4. Dave committed to AON's delivering more business to RLI .

Lets talk about this in the morning . 1 suggest we talk either right at 8 :30 a .m. or around 4 :00-4 :30 (1 amplaying golf from 9 :30 to 3 :30) .


EPG 7/1103 Renewal Timeline and Deliverable s

Renewal timeline :

Week Of ActivityMarch 31 S` Initiate Renewal Exhibit Preparation as of 3/31/0 3April 11' Renewal submission to AON R e

April 21s' Renewal structure finalized including input/alternativesdiscussed with AO N

Apri l 28' Renewal submission to broker markets including placemen tslip

May 20th Reinsurance Presentation & Golf Outing - Summit, NJMay 2l"-22°d Underwriting file review - Summit, NJ

May 28" ' Receive lead market renewal quot e

May 29th RLI will update AON regarding lead positionJune 9th Firm order terms in the marketJune 23rd Placement complete with bound linesAug 1 Covemote signed by RLI & reinsurersOct 1 I & L's signed by RLI & reinsurers

*See attached of suggested list of renewal exhibits

Audit schedule :

May 215`- 22nd File review in Summit, NJOther dates to be agree d

Expectations for Renewal :

1 . Dave Kelley, and will be the brokers handling the

account .

2. S 15M in limits for all coverages (D &O, E & 0, Fiduciary, Crime, Kidnap &Ransom) Managed Care E & 0 will be submitted to reinsurers . We will need aspecific strategy for this class of business .

3 . Ceding Commission to follow lead terms (expectation is 32%)4. Maintain VQS for excess business .

5 . Evaluate structure for primary business in conjunction with ILF review .6. AON to provide assistance with rate change information/presentation .7. Full disclosure of brokerage charge. No non-concurrency between markets .

Brokerage to be standard market brokerage . (1 .5% - 2.5% of Gross . )8. More than 50% of the placement must be in the broker market with

approved/quality security .9. AON will endevour to produce S25M in retail premium production for the

product line.

10. AON to secure RLI as the guest speaker at the next National FSG Meeting .


Exhibit 32

S--LG 3 t-2 1 139 ; 27 P .ol'0a

AoN1+firhrd D . Owttoo-n

Pta :dcn: and Oitef Opee►ctna Oftku

August 31, 2001 •

Mr. !r

dTraveler sOne Tower SquareHartford, CT 06-183

Mr.

TravelersOne Tower SquareHartford, CT 06183

Re: Travelers/Aoa Relationship Divideud Progra m

Dear dWNW

Many that ks for affordirLr, your valuable time to inert and discuss our very importantshrategic relationship and the issues related thereto in regards to reiusuranoe =d growthinitiatives.

We are very proud to have represented your aperation for the past 17 years and want toen5uxc that the next 17 yea=s areas mutually rewarding as the p ast

To achieve the ends, we agreed that a proactive approach to relationship b uilding ismost appropriate. We have agreed that we will call a meeting in t e very near future tocreate a Busi ess Plan Wgether that will focus on growth, and proStablity . I will workwith~;~d d to compose a team of Aoa repres-entativcs to.attend this meeting. I'll await your suggested team as welL

In addi tion, *at will try and meet with you at the Greenbrier for coffcc or drinks .

Fir ,41Y as promised, we mutually desire awinlwin scenario for ourretaxionship that issustainable through hard and soft markers and creates incentives for both patters in thercladonship to achieve the i hes: professional qualities and results .

We are proposing the creation of a relationship dividend program that ties togathcr theperfonnance of our retail business to growth targets beyond the expected year end andnumbers at 2001 which we highlighted on page 2 of the exhibits attached . Please

. rcoognize that these are merely examples, i .e., 80,000,000 estimate which wilt beadjusted to actual witbiu 90 days of year end to provide t e targets to attain a minim=of 20% gxowt it 2002 .

nve [nu ., _ i00 L wlolr~ 5oe .c . 7t1~1ooe -C1:aro . a. W40 1ee1 :)lid![.iQdS . ,-3u2 i-~t3o•~a .~re~u. .Wx,,~ ., .,a,.+~. ,- ..•..,;,*+.roa STP 00002

auG--31-2 1 99 :27

4- W pr

b

P . t32' 4

Please also note we have used your mauins from our rcinsurence presentation and of Jr' ~~

cotuse if they are incorrect , please advise otherwise . Also these margins are ofcours e

across the entire book and not rcfle ve of pure Aon twills:

The Retail and Reinsurance margitu for:Aoa fro fully loaded, i . e., with a factor 'for runoff Vcost buiit in.

Ia summary, what we are proposing is a simple, mcaswable approach. Wr-control the

amount of business we show you and you control the acceptance and underwriting results

of the boob

if we g ow the book at 20% or greater, Ao i will not lve to pay,a :clatioasbip dividend

However, if we do not achieve 20% or greater gawthwe pay'as foUaws:

At 15% to 19°/4 we agree to pay a750,O0O t~TtQ ~. ~o ct . ['/~

At 10%o to 14!o we agree to pay S 1,000,00 0At 0 %to 9% we agree to pay 51,500,000Note: This ass=es r c i n s t z n nee brokerage of approximately 53, $00,000 amually. 4 .ark d .Lt .

'~ cook ( r. p ctlAs you can see, the increase in margin and the dedication of our distribution to your 'organization can yield much h her retinas than the proposal from our competition .

As importantly, it puts the onus on Aon to put its "money where its month is" or pay.

I realize you will need to reflect upon this proposal and may have questions regardingatunbcrs, etc. Please do not hesitate to call eitbcr @vr 1 to question any or a3L

I'm really looking forward to building this partnership . Tban3c you for yourconsideration. .

lvii . o' alleran

MDO :sgAttachment

cc-.

STP 00003

47

•r:,,; ay o ti.. ff.si/C %Ntc{Q~ "7~e~swJ v~

-A P-4- C~?'j fJ vl (.[FS~"

C:.UsF~.ce/ ~. jr~ ►f.4f[Fkfc.JC. :i . a~,~ a~ CS„tiJ~-

~" •7• +igun w av~~vu uncJUlfc~4fYiJ - •. .. _ ~C ;Gt trAR7~411~11

UG-31-2ea% 09:V P.6u04

*xCoNk"IDENTL&L** _

TRAVELERS RELA.TION'SHIF DIVIDEND MODEL

L . Estimated 2001 AoA cedrd prcnzium and mar gin to Travdem by tine:

(040's cin dj

Premium TravelersMltrpin

Bond 545,000 31% 1 S 14jC00

F- ccux vC Li3biUty 135,00

Total S80,OC0 29% /S22,400

Margin is pre-tax but includes imvesrmew income credit

IL £,stimated Aon rcu.i1 brokera;c and margin no above:(000's Or !Ued)

RctaU Retail .Premium Coammissiau mar i n

Bond 545,000 2D''J. ! S9.000 1 S% ! SZ,40 0

Exccu~ve Liability 535,000 20% f 57,000 15% 1 $i)OO

Total S80,000 S16,000 15°/• 1 S21400

uI E3fimxted 2001 Aon Rc rcinssmnce brokerage and zn~.rgine(Cows o read)

WI WIPrendiim Bra k t Margin

Band $45,000 S2,000 3SYo 1$740

Executive L;iabiiity $35,00 1600 35Ya / SS560

Toed $80,000 53 ,600 S1,Z60

"'R-7 Rrakerage it cdculdtcd on tatafsubject mv&cr ;prtmiutn for Surety andE reccufvc LLzbJIily, ~.at juu Aon ceded prern iurr.

SIP 00004

_. ~__ t4nr.pNi r_fftlJ RC SCI ,,,

it-Q1-2004 15 :54 rors -sjo,,5ui ~r,A . ntK 41 nnR ( L: I I L.~.r II,,

P . 04/04

r~ Jla-31-2~c31 09 : 29

**CON-FMF-NT11.*9

N. Premium Growth Table(000's omitted)

Perccat Ynaeasc in New increast inIiusinms oil .80,00D Travclcr s

$ase' Mar iz► I~crcgse in Aon's M2r'P_it t

Rcrad Reinsurance 'Total

3 S' s S S

10% 8,000 2,200 240 20 2601211/0 9,600 2,'700 290 24 31414% 11,200 3,100 340 28 36816% 12,800 3,600 380 32 412180/0 14,400 4,000 430 36 46620'Jo 16,000 4,400 480 40 520' .

"Arsumert uniform increase fo-Surery and Fxcecuflvc LiabiIily.

NOTE'S:

1 . Por every dollar in new premium from Aon. Travel=s r kes'an avers a marginof 29~ and Aorr makes a combined margin at rctai7 eou=issian and R/ibrckerag£ of 3 ¢, a leverage ratio of approximately 4 :1 .

Z The acwzl 2002 zcin=ance stru x r will change the remsvrancc broke age andmargin esi5mau3 accordingly.

STF 00005

Exhibit 33

AON

Facsimile Transmittal

Date : June 19, 2000

To : Mike O'Halleran

Fax Number : 312-701-4150

From :

Re : Chubb

Aon Re worlduride

Upon instructions from visited me today to discuss AonRe's position on brokerage rebating, IMM has askedVM who is the ceded buyerat Chubb, to have comparable meetings with Carpenter, , IMWMM% and R .K.Carvill, YAM* did b ring an exhibit with her estimating annualized brokerage to Aon Reof roughly $2,300,000, excluding Executive Risk . This is reasonably accurate .

As you would expect, I advised IM that we do not look to rebate brokerage to ourstrategic trading partners . I went through the retail and corporate relationship betweenChubb and Aon as I know it, however, 11 indicated that our competition does notshare our position in this area. I told that she should report back to TU thatwe would be prepared to discuss this entire matter at a higher corporate level if it putsAnn Re in any kind of a competitive disadvantage . IMpromised that she wouldpass that message back to W~

Mike, it might make some sense for you to also touch base on this matter directly with>i rm frankly not certain if this is a smoking gun or not .

On a related note, I finally hooked up with I r1 L r today of Executive Risk.mentioned that fir has set up a meeting for you withil*win July an d

that they are beginning to think about their January 1 reinsurance . Carvill is obviouslymaking a very strong play to continue in their role . Guy Carpenter and Aon Re havealso expressed a strong interest in being involved . ,T i did say one thi that doesconnect back to the original subject of this memo . Just todaymentioned to II&V that Aon Re originally received the Chubb casualty reinsuranceprogram some three years ago because of commitments made by OHalleran/Ryan toDean O'Hare regarding increased retail growth . lW1olditmthis did not happenand, therefore, IS* attitude was so much for the leverage card .

Ass R& rity.1735 Mat Strut Suite 3401 6 Pbihddphie, PA 19103-7503 s tel : (215) 569-52901 far (215) 569-5289

Confidential Treatment AON-F-020487Requested

w w

AOS R, 111 41735 { ct 5trw, Suite 3401 a Phade]phia, PA 19103-7503 • r]: (215) 569-5290. 5cr (215) 569-5289

Confidential T reatment AON-F-020488Requested

Exhibit 34

Aoiv

Facsimile Transmittal

Date : August 29, 2000

To: Mike OHaileran

Fax Number : 312-701-4150

From : GWMWWWRe: Chubb/Revenue Sharing Agreements

Aon Re worldwide

Following our conversation last evening, thought I should confirm the main pointsdiscussed with nd

■ Carpenter has inked a specific revenue sharing deal with Chubb and they arevery close to agreements with both and Carvill . While I could not getthe specific terms agreed to by Carpenter, I believe it is in the range of a 20%to 25°/a return of their earned brokerage .

• The agreements being discussed with our competitors are reinsurance only anddo not tie into any kind of overall corporate partnerships .

AMM became extremely angry and animated when I indicated that any•conversations we would have would be in the context of the overallAon/Chubb corporate trading relationship . He strongly advised me "not to gothere" for the following reasons :

A.on/Chubb relationship is deteriorating.

> MGA - - California . Completely dissatisfied with Ann handling .

Overall premium volume between Aon/Chubb down some $90,000,000 . InChubb's mind, Aon did' not deliver on original promises made when theyawarded Aon Re the casualty reinsurance some three years ago .

> Aon completely non-supportive of their Y2K policy .

Severe problems with continued movement of ARS business 'tb Hartford .Specifically mentioned the XIMRIM account .

Avg R,Inc :1735 Maiket Su=t, Suits 3401 • Phiiaddphia. PA 19103-7503 • 0 : (215) 5695290* f m (215) 569-5289


Page Two

sat in a very short amount of the meeting and did not stop Jwftfrom delivering his message to me.

> Was not happy with the Aon involvement on the El Commandante claim inPuerto Rico .

had numbers and know that Aon Re currently earns roughly$4,500,000 in brokerage per year between Chubb and Executive Risk . #jl*Windicated this represents roughly 20% of the total brokerage pot .

? QgMdoes not want to wait until the Greenbrier to get together . He hasrequested a Visit from us in September .

■ On a positive note, did acknowledge that we do a very good job on theircasualty reinsurance program .

Mike, I will await your thoughts . Should we have Pat Ry join inJptember?

cc:

Aox Rr Lu

1735 Mulm t Streit, Suitt 3401 • Philad4)hia, PA 19103-7503 • tel : (215) 569-5190• ff {215) 569-5289


Exhibit 35

MEMORANDUM

July 31, 2000

TO: Mr . D . R . O'Hare

FROM:

SUBJECT: Aon

Dear Dean :

As we discussed, I think this will give you what you need for your upcoming discussion with patRyan .

ARS (Aon Risk Services) - This is the largest po rt ion of the book and represents the businessproduced by their retail field operations . It experienced negative growth in 1999 due to their fearson Y2K and their position on the sue and tabor clause . In 2000, growth continues to be negative .However, we have created an incentive agreement to stop the bleeding and get the premium backto the level it was at year -end 1998 . Their growth at the end of June stands at -12% for the US . and-7% Worldwide) . Last year, their growth was - 10% for the U . S . and -7% Worldwide . (SeeAttached )

AIS (Aon Insurance Services) - This is their affinity business which would include the $and programs of business. I have told you what we are doing with both of theseprograms. However, theme program relates to our refusal to grant an exclusive to Aonfor all not for profit D&O business . We could not do that since we already write $230 million ofthis business with our other producers. I don't have to tell you much more about Jan Graharn .' Weare prepared to write the condo/coop D&O through all producers going forward .

FSG (Financial Services Group) - This would include Executive Protection and DFI. Thisrelationship is strong and doing very well and in fact Aon will receive an incentive for their resultsif their history continues .

Personal Lines - Aon wants to write more personal lines business and has conveyed that we are akey partner in this arena . However, they recently appointed AIG and4lbilibioRIM responded tothem that we felt this was unacceptable.

Ann Enterprise - I have asked 45V t N~ to advise Aon Enterprise that we are out by year-end.They continue to be unable to move the business from Aon Risk Services to Aon Enterprise. Iwould estimate that at the end of this year we will have approximately $20 million in premium at acombined ratio of approximately 94% . With that size, it is hardly worth the trouble . We gavethem $2 million to help them move business from Aon Risk Services to Aon Enterprise. Thebusiness did not move. Please see attached memo from regarding Aon Enterprisehistorical results.

I have also attached the six month Aon numbers as well as several exhibits for your review, I amon my way to Birmingham . I am staying at the Courtyard Marriott (205) 967-4466 this evening andwill be in the branch following breakfast on Wednesday should you wish to discuss.

00111111111111110P4MPEk-Attachments

731001

2CHLJ 3B - 000951CONFIfENT'YAL

Exhibit 36

Cc '•

MEMORANDU M

TO: U.S. Zone Officers 4-yFROM :

DATE: August 30, 2000 f1

SUBJECT: Aon Visit on Anguit 28, 2000

On August 28' i -, and I vished Chicago and spent several hourswith and Also in attendancewas from our Chicago Office, as well as from Aon Enterprise. I hadrequested this meeting to review the year-to-date numbers over op nal issues . Thetone of the meeting was cordial hovrever we made it clear that there were gal issuesconcerning us that were fraying in the ChubWAon relationship. Those rMlved zrotmd their IanGraham operations, Huntington T . Block operation, and Aon Enterprise . We were also concernedabout their possible use ofAlG in their high-end Peal Lines business, as well as theirinability to grow their business with us in the majority of their offices through seven months ofthis year.

With regards to the three operating units mentioned most of the discussion wasdiscounted because the people silting around the table saw themselves as Aon Risk Servicesemployees as opposed to AonGro employees . They under ood our con xns but feh that ourdiscussion was best held with and Mike O'Ralleran . I think 3 got the point across tdespite how they run their organization we were looldng at the Aon relationship in total and wereconcerned that several parts of their business were running oppos$c to what we are trying toaccomplish. This is especially disturbing when it effects current customers let alone crcatbg anew model that would compete against us for now customers.

On the Personal Lines Concerns they agreed whole beartedly that Aon should be verywary of AIG's involvement in the high-cod Personal Lines business and they would work hard tomake sore that the local offices would not entertain AIG approaches. Subsequent to our meet ingwe have contacted Personal Lines in the major locations and have told them to be+col:jmtioicati.ng-with us shox1d they see AT.G working to make inroads with Mn on new orrenewal bus iness. L. .JL~rw~w ►gave the group an update on Ann Enterprise and outlined ourfrustration with regards to not being able to determine a firm and defined model for running thebusiness . Additionally the financial results are not good and we 're concerned about the abi lity tomove forward with current conditions.

2CHUBB - 000962CONFIDENTIAL

of 2.August 30, 2000

I made the suggestion that our respective field management should meet eitherindividually or collectively to deal with specific issues across the country. This was receivedwell by the Aon Management Team. Their next group meeting was to be September 2S x, whichthey indicated the agenda was already full. The next meeting would not be until November . Wethen suggested that each respective Zone Officer and Zone Underwriting Manager meet with thefive Aon members over the next 30 days.

Those people are41_ ► on the West Coast, •C'in the Midwest,in the Mid-Atlantic/Northeast, - South, an as national head of FSG. Iwill work with It17 and - -- -OM.ho make sure we can coordinate tbcst sessions. Ialso think it would be useful to have somebody from Marketing on the visit with FSG to helpcoordinate CBER issues in the branches .

After this happens I would be hopeful that a group meeting may be set inNovember/December to make sure that we are all focused on what needs to be done to have asuccessful 2001 .

As a follow-up to this meeting, Dean will be discuss some of the issueslcoi with patRyan. Additionally there will be a meeting at the Greenbrier between

cc :

W

BCHUBB - 000963CONFIDENTIAL

Exhibit 37

r - ~

tine

Chi Xm Fli C82 I4op endowSbvd lbPori OHkae Ek)x 2002S msbW. CT 06070.768 :3

Err at dnbb c=

a~r,FM 22, 2000 MAY 24 2000

Mfr.

Ann Re Inc.One Landmark SquareStamford, CF 06901-260 1

Dear

Thank you for your letter of May 8th on the subject of Aon's Reinsurance Modeling Softwme .

Pat Ryan is well-known for leveraging the scope of Ann's brokerage relationships . Can you ask

him why they just moved $15,000,000 in non-profit D&O ( ) business from me inWashington, DC through at Ann Affinity Services, when at the same time you wesoliciting our business here in Simsbury ?

r

Confidential TreatmentRequested

AON-F -020514

Exhibit 38

DEAN R O'HAREVISIT WITH AON IN CHICAGO

SEPTEMBER 13, 2000

LUNCH IN WDC WITH PM . OF INDIASEPTEMBER 14, 2000

JET TAIL M N841C

MMDNESDAY, SF 'lBER 1 3

Patrick G. RyanChairman, President & CEOAon Corporation123 North Wacker DriveChicago, IL 60606Td #: (312) 701-3010Fax #: (312) 701-303 0

2:28PM Lv. MMU FBO-Signature Flt . Supp.(973) 292-5103

4:00PM Ar. Chicago FBO-Attantic AviationMidway (773) 582-5720

Limo to hotel. "Top Flight" - Tel # : (800) 560-5155 - Yogi

5 :30PM Cocktail s6:00PM Dinner with Pat Ryan at Four Season !

Four Seasons Hotel120 E. Delaware PlaceChicago, ILTel # : (312) 280-8800Fax # : (312) 280-1748

7:30PM Limo pick-up to airport. (Same company as above)

9:D0PM Lv. Chicago FBO-Atlantic Aviation11 :49PM Ar. WDC FBO-Signature Fit . Supp.

(703) 417-3500

11 :49PM ANMMWLinw (tel #: 2D2-3'33=u 4§) pick up to hutd.

2CHUBB - 000984CONTIDEN'PYAL

Exhibit 39

Memorandum

To: Dean R O'Hare

From :

Date : September 13, 2000 £

Subject : AON Update

Dear near :

I spoke to Mike O'Halleran . He was upbea t tand extremely positive . His personal opinion asthat Chubb was a real partner and that we enjoyed a great relationship, however recently therehad been a stumble or two on the part of Aon . -- .

In particular he had the following to say :

ARS (Aon Risk Services) - Our position on Y2K had an impacfon the volume . He also saidthey had not supported us early on on our price increases, but things were improving and he wasvery pleased with their new business production . He believes that we are willing to walk away

from business and that also contributes to lost business, but their field force is getting better at

selling increases .

SOLUTION: We need to let Pat know that we offered a signi ficant financial incentive to get.11 their written premium growth to 0%. They have improved to -8 .1%. The ball is in their cou rt .

Also, we have become more active in soliciting new business and #Jhw R is looking for 5%

growth next year. We need to tell them we are open for business (e .g., their new business

production) and are pA)inj them extra for it

- They recognize they have a real problem. O'Halleran remembers that I toldhim early on that they would have a problem. He thanked me for the heads-up . They view"as a "bad guy" . Pat will update you on their plans here. I did not bring up the law suit, but didsay we were not getting cooperation on compliance and pricing issues, and that 10 was difficultto meet with.

SOLUTION : We need significant rate increases and a book that is compli an t . Ian has to be outof day-to-day operations --he is not capable of getting it done , It does not look likes will .earna contingency check We could reward Aon and not [an by creating a financial incentive in lieuof a contingea


Aon Enterprise -1.understands our position. He said we all went into this in good faith andthey have had trouble moving the business into enterprise from the branches . He believes theconsortium companies do not have a broad enough appetite and the types of business they hadhoped would fit really belong in a consolidator (i .e., E & S) market . They are highly frustratedwith their own of iices, but will give it one last chance and stick it out . The new proposal weoffered they are not comfortable with because we are proposing a preferred market approach andthey see enterprise as an-auction environment

SOLUTION: They really appreciated our support . I told them we were happy to support Aon,but now is the time to walk away and if Aon is successful because we were in early that wouldbe great - the essence of a true partnership . We should walk away now but tell them we will beopen for business of this type through our branch system if it fits our appetite . I can negotiatethis with O'Halleran . Lastly, we should tell Pat we are open to other futuristic approaches to the

business .

Reinsurance - Aon Re is our reinsurance broker for our casualty treaty. hasasked all our reinsurers to take less ceding commission- O'Halleran has agreed to this . Hewould like a way to get a "rebate" (i .e., earn it back) somehow in the future. They would alsolike to quote CBER's program .

SOLUTION : We would be happy to pay Aon an override if all of their business units in theaggregate achieve the profit and growth targets we set for them. This is probably doable in 2001 ;it is not doable this year.

Affinity -This was brought up briefly. I sensed they knew we are mad about the United WayAdift said he wanted us to know they want to do business with us .

SOLUTION : Ask Pat what they can give us to replace the business we lost I would be happy tomeet with view their Hatboro, PA facility after we have discussed what they might

be able to steer our way .

Dean, I think your dinner will be more pleasant than both you and I might have thought I thinkthey know we are decisive and they probably admire that . We need them to save face and tellthem we will work with them on anything they choose, but we both need to see results .


Exhibit 40

s

To: fRjM/Ch,bbMa]l@ChubbMad

10111f20D0 02:54 PM cc:

Subject : Exhibit

Here goes-

2001 reins planscenariol bad

2CHUBB - 0000 6CONFIDENTIAL

Chubb Executive Risk

2001 Proposed Reinsurance StructuresScenaria # I h -same as Scenario #1 a with revised 2001 premirnm estimates

(t+,xelnrle r. lntcrnalional )

Line(s) of Business Covered

Puhlic and large not-for-profit D&O ;Managed Care D&OIE&O

EPLI (stand-alone)

00 i ergs F.&O (inc lading Large and

Z Mid-sized Law Firms, Accounting

Ip Firms , Employed Lawyers ,

o Consultants and Media)4 o .

ca0

Hospital Professional Liability

Fsl .iniatcd Gross Cession Expected

Premium Cost Cost (* )

Proposed Structure (in millions ) ( in millions) ( in millions)

$1Omrn xs 55mm $ 204 .7 $ 74 .0 $ 25 .0 (A)

.510ntm xs .515 rani 32 .7 32.7 24 .5 (B)

525mm xs 525mm 13 .5 13 .5 10 .1 (B)

S7.Smm xs $2,5mm 186.6 39 .0 13 .0 (C)

$15mm xs $10mm 9 .2 9.2 6 .9 (B )

$25mm xs $25mm -0 -0 - 0

S7 .5 mm x5 S2 .5nim 55 .7 22 . 8 .5 (D)

$40mm xs $lOmm 8 . 6 8 .6 6 .5 (B )

Current Structure will Remain Unchanged

$1 .5mm xs $500,000 51 .1 9.5 9.5

ti

4

Intcrmediarv -

Carvi I I

Carpenter

Cn,1,nr;i1e CmsuaIty irelty?

Carpenter

Carpenter

Corporate Casualty treaty?

Ann

Ann

h3

Z c, CA

E5 ca Carvi 11m IZ o-Ion~ra

$Smm xs $2mm 8.0 8 .0 7.2 (E )

$40mm xs 5 10mm 1.5 1.5 1.4 (E)

'i'nfal Subject t 'reminm to Reinsurance Treaties $ 571 .6 $ 218,6 $ 112.6

[.,irie of Business not Reinsured :

,PrivateD&O $161 .1 $-0 $-0 (F)

Small not-for-profit D&O 164.1 - -

Fidel iry/Crime 112.5 - - (F)

MPL,/111 .wrancc AgcnisE&O 74.1 - -

Fiduciary 120.6 - - (F )

Total Subject Premium not reinsured $ 632.4 $ - 0 $-0'

Tnfal - All 1,itir,s $ 1 ,204.0 $ 218.6 $ 112. 6

(") •I'he "Expected Cost" is based on modeled results showing expected losscs to a given layer . Expected losses were determine d

by trending fequencylseverity distributions to 2001 . This process constitutes one pricing methodology -- there are several others --

and may result in high or low expectations depending on what methodology is employed by reinsurers to price the business .

n (A) Assumes a cost sha ri ng mechanism (e .g . annual aggregate deductible, swing -rate, etc .) whereby CBER assumes the equivalen t

M of the first $50 million on expected losses to the layer of $63.2 million .Z?M CO (13) Assumes a 25% co-participation .

rn I (C) Asctimcs a cost sharing nmechanism (e:6 . annual aggregate dedncI hlc . swing-ra te. etc .) whereby CfiER assumes the equivalen tZ o-1 0

Am°r•r~

cA

2c'j p$ - 000910COhk)ENTIAL

of( he Cyst $15 niiilion on expected fosses to the layer of $26 .5 million ,

(D) Assumes a cost sharing mechanism (e .g. annual aggregate deductible, swing-rate, etc .) whereby CBER assumes the equivalen t

of the first $7 .5 million on expected losses to the layer of S14 .4 million .

(E) Assumes a 10% co-participation .(F) l im,mits excess of $25 million will he reinsured ; however to date premium exposing hiniIs excess of $25 million has been ditniniinus .

C? OO C

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Exhibit 41

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Confidential AON-F -020510Treatment Requested

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Confidential TreatmentRequested AON .F -020511

Exhibit 43

C

A0N

October 30, 2000

Chubb Corporation15 Mountainview Road -Warren, NJ 07061

C

Aon Corporation

Miau. D. O H,u. ni4P,w u &C6hfOp rt rl O,f/x w

First off, many thanks for your support in the decision to move the Executive Risktreaties to Aon. As promised, I am arranging a conference call with our financial servicespeople, you and Executive Risk and also chocking on personal lines issues.

Further . I am attaching a draft agreement for reinsurance services in respects to ourrelationship dividend agreement . Please review and give me your comments when timeperTnits •

I'm looking forward to Florida. Thanks again'

R

At'~1~4e-,e

wow

VI 6 o~a~Tot Q .

Am Crpwadw

123 North Wacker Drive - Chic,go, Iitinoi: 60606 • tel: (312) 701 .3063 • Fiu : (312) 7ol-4i5o

CHUBB - 03$508CONFIDENTIAL

Exhibit 44

It J

Eric Andersen To: @chubb.com

10106/2003 01 :51 PM cc.Subject : Re : Aon PSG CSI September 2003 results [Virus Checked] [

Good - thankschubb .co m

Ir4onoWchubb.com To: Eric_Andersen@ars .aon .com

1 4 0612003 01 :39 PM cc 'Subject: Rey Aon FSG CSI September 2003 results [Virus Checked )

Eric

Very happy to hear how hard you emphasized the relationship from the

tcp .Perhaps we have issues on more of an isolated basis with individuals . I

believe we may be getting together this week-if not, I will call you with

specifics .

Eric Andersen@ar s

aan.com To: @chubb.com

cc :

'- 0/06/03 11 :28 AM Subject : Acn fSG CSI

September 2003 results [Virus Checked ]

I wanted to respond to your note below regarding the lack of focus based onthe incentive relationship between our two firms . I want to get a bettersense as to who or what region you are referring to in your comments below .

I can tell you unequivocally that we have maintained a very aggressivepro-Chubb position as you have repositioned your book of business based on

your allocation position . The growth in the middle market area, for

example, has been very strong (much to the angst of your competitors whocall weekly, pay a larger commission percentage and demand a greater shareof that business based on their more active role on the primary placementsfor the large accounts) .

we have also spent time at our overall group meetings, conference calls,

etc . stressing the value of the Chubb/Aon relationship and its financial

impact so am very concerned if you think that we are not focusing on it orthat you do not see the value in it . Frankly, it has been a significantdriver in the amount of work and time that has been committed to try andwc+rk .through the marketplace £ s.sues with you of this year and keep thebusiness moving in a growth mode .

If you are hearing things to the contrary from our brokers, I would like t o


9

hear about it as these relation slips,we have today with our partners are

getting more and more attention in our firm . If that is not the messageall of our people are conveying, I would like to know . I look forward to

hearing from you . Thanks

Eric

----- Forwarded by Eric Andersen/CA/ARS/US/AON on 10/06/2003 11 :07 AM -----

To: EricAndersen/CA/ANS/US/AON@AONNA

10/02/2003 02 :37 cc:PM Subject: Aon FSG CSI

September 2003 results [Virus Checked ]

FYI

Acn is Ices

Financial Services Group

Fa

Fax :FFax :Address :

New York, NY 1005 5----- Forwarded by /NY/ARS/US/AON on 10/02/2003 02 :36 PM -----

Chubb . com To:

ars .aon .corncc :

10/02/2003 12:47 Subject : on FSG CSISeptember 2003 results [Virus Checked ]

PM

----- Forwarded by ChubbMail on 10/02/03 12 :44 PM ---

.loon*

To :ars .com

cc :

10/02/03 12 :17 PM Subject : Aon FSG CSI


4

September 2003 result s

%Nownumbers through September . Some growth slippage vs . August in the Northern,

Southern, and Western territories . Feedback we are receiving from our fieldis that this agreement has little or no effect on Aon's placement of

business . Relationship seems to be spotty-very strong in certain

territories but less so in others .

low----- Forwarded by /ChubbMail on 10/02/03 11 :01 AM -----

(See attached file : Aon FSG CSI Sept 03 .2ils)(See attached file: AonEFFP_DFI_Sep03 .xls )

Chubb specialty Insurance

chubb .com

(See attached file.: Ann FSG CSI Sept 03 . xls)(See attached file :AonFRP DFI Sep03 .xls )

#### Aon FSG CST Sept 03 .x1s has been removed from this note on October 062003 by#### AenER?_DFI_Sep03 .xls has been removed from this note on October 062003 by MEOW


CERTIFICATE OF SERVIC E

The undersigned, an attorney herein, does hereby certify that he caused a copy of theConsolidated Complaint for Violations of the Federal Securities Laws to be served on counselbelow via messenger on this 26`x' day of May, 2005 .

David F. GrahamJames DucayetSidley Austin Brown & WoodBank One Plaza10 South Dearborn StreetChicago, IL 60603