May 1, 2009 / 2:56 PM / in 8 years

UPDATE 3-Broker Aon misses forecast, shares drop 12.4 pct

* Aon net higher, adj cont ops misses expectations

* Brokerage business declines across regions

* Investment income falls short

* Shares slide 12.4 pct (Recasts lead, adds detail from conference call, share price, byline)

By Lilla Zuill

OMAHA, Neb., May 1 (Reuters) - Aon Corp AOC.N, the world’s largest insurance broker, posted adjusted earnings that missed Wall Street expectations on Friday as softer insurance pricing and the economic downturn ate away at business.

Shares fell more than 12 percent.

Overall, Aon’s revenue fell 3 percent to $1.9 billion, eroded by market conditions, a 10 percent decline from foreign currency translation and a 44 percent drop in investment income.

Cost savings and new business from last year’s purchase of reinsurance broker Benfield still drove Aon to a higher profit, but on an adjusted basis earnings missed Wall Street expectations.

Brokerage business in both United Kingdom and the Asia-Pacific region fell by more than a fifth as a hoped-for increase in insurance pricing failed to materialize.

Chief Executive Greg Case, on a post-earnings call, said the UK market was “really bearing the brunt of the economic turn down.”

Brokerage revenue there fell to $116 million. Business from Europe, the Middle East and Africa was also depressed, falling 12 percent to $448 million.

Aon’s brokerage earned the most in the United States, Canada and South America, where revenue was $477 million in the quarter but still down 3 percent from last year.

Lower revenue partly reflected the value of the U.S. dollar against other major currencies, shaving 2 cents a share from net earnings.

Chief Financial Officer Christa Davies told investors foreign exchange volatility could be a persistent problem for the company throughout the rest of the year.

Chicago-based Aon, which helps business clients secure insurance coverage, posted 28 percent growth in net income to $280 million, or 97 cents per share.

Excluding items, mostly related to restructuring efforts, the company said its earnings improved 9 percent to 76 cents per share, 12 cents shy of analysts’ forecasts, according to Reuters Estimates.

Reinsurance was the only area where Aon’s main business -- risk and insurance brokerage -- saw any growth in the quarter, although analysts said they had expected even better.

Overall revenue for the division fell 1 percent to $1.55 billion, reflecting declines across all regions where Aon operates.

Excluding certain items, so-called “organic growth” in brokerage business was 1 percent.

Fox-Pitt Kelton analyst Daniel Farrell, in a research note, said he had expected 2 percent organic growth. Aon’s expense controls will help it in future quarters though, he added.

Cost savings from restructuring were $45 million in the quarter, and Aon said it still expects cuts to trim between $273 million and $306 million this year.

Aon shares fell 12.35 percent, or $5.21, to $36.99 in early trade on the New York Stock Exchange.

The stock has fallen about 10 percent in the last 12 months but has bounced back from a 52-week low of $33.58 last October, Reuters data shows. (Reporting by Christopher Kaufman and Lilla Zuill; Editing by Lisa Von Ahn and Steve Orlofsky)

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