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Aon to Cut 2,700 Jobs, Profit Soars 92%

Aon Corp, one of the world's largest insurance brokerages, said on Wednesday it will eliminate 2,700 jobs, or about 6.3 percent of its work force, in a bid to save $240 million a year by 2010.

The cuts primarily affect workers who do not deal directly with clients, Aon said. About 1,100 jobs will be outsourced or sent outside the United States, European operations will be simplified and some finance, human resources and information technology operations will be merged, Aon said.

Chicago-based Aon said it employs 43,000 people in more than 120 countries. It expects a $360 million pre-tax charge for the restructuring, Aon's second in two years.

Separately, Aon said third-quarter profit rose 92 percent to $204 million, or 64 cents per share, from $106 million, or 32 cents, a year earlier, helped by growth in brokerage and insurance underwriting premiums and higher consulting fees.

Excluding items, operating profit was 70 cents per share and revenue rose 11 percent to $2.41 billion. On that basis, analysts on average expected profit of 59 cents per share on revenue of $2.27 billion, Reuters Estimates said. Adjusted operating margin rose to 13.7 percent from 10 percent.

Like New York-based Marsh & McLennan, its main insurance brokerage rival, Aon is trying to sustain commissions as property and casualty insurance rates fall.

"People wonder whether they're cutting too close to the bone, but Aon's margins are not top shelf," said Chuck Hamilton, senior equity analyst at FTN Midwest Research in Nashville, Tennessee. "The critical thing for investors to watch is net commissions and fees, because if you cut too much, production staff and salespeople flee to rivals."

"Soft" Market Conditions

Aon said the $360 million charge covers termination costs, the ending of some leases, write-downs and other expenses. It expects savings of $50 million to $70 million in 2008, $175 million to $200 million in 2009 and $240 million by 2010.

The company said it has largely completed a separate restructuring begun in November 2005. That plan was expected to result in a loss of 3,600 jobs, a $365 million charge and $280 million of annual savings by 2008.

Chief Executive Greg Case said the restructurings are similar and reflect "continuing efforts to simplify our complex organization" amid "soft" market conditions.

"Commercial premiums are declining in the industry and, if you depend on commissions, your top line will shrink," Hamilton said. "Aon's ability to boost organic revenue growth suggests they're adding market share. My sense is Aon is winning market share at Marsh's expense."

Hamilton rates Aon a "buy." Marsh is expected to report quarterly results on Nov. 8.

Aon shares closed on Wednesday up 10 cents at $45.32 on the New York Stock Exchange. They have risen 28 percent this year, while Marsh is down 16 percent.