LONDON, 7 December 2006 – Companies will be able to provide pension scheme members with far more security while focusing more assets on growing the business with a product launched today by leading insurance broker and risk management consultant Aon.

Aon’s Pensions Security Indemnity product (PSI) provides security for pension schemes by making a cash injection, should a company default on the scheme. It operates in the same way as the Letter of Credit (LOC) approved by the Pension Protection Fund and is fully compliant with the regulatory guidelines on contingent funding.

<>

 

Paul Campbell, product development leader, Aon Risk Management Solutions, commented: “The level of pensions deficits continues to create a financial headache for UK companies despite improved investment performance over recent years. Scheme members and trustees are also more aware of the risk to their pension benefits created if the sponsoring employer becomes insolvent.

<>

<> 

“With no obvious end to the corporate pensions crisis in the UK, this product from Aon addresses a number of the financial concerns around pensions.  It provides another option for businesses dealing with legacy defined benefit (DB) pension issues, in a way that will also be beneficial for trustees and members.  PSI can help even those companies with the largest pension deficits in the UK.”

Pensions regulation in the UK places the burden of responsibility for funding deficits squarely on the shoulders of UK business.  Trustees are entitled to demand cash to fully fund deficits.  However, funding future liabilities from today’s profits curtails opportunities to invest for growth with far-reaching consequences for companies and shareholders alike. 

A third of companies believe the increased cost of funding their DB scheme is impacting negatively their share price, while 50% state it is negatively affecting their ability to compete effectively, according to research published by Aon in May 2006.  In addition, the risk of overfunding DB schemes is very real and companies are concerned that they will be left with a trapped surplus in their schemes in years to come. PSI addresses this problem by providing a guarantee to trustees without requiring companies to post valuable assets, cash or credit facilities as collateral.

The 200 largest UK pension schemes had a total deficit of £46 billion at the end of November, according to Aon. Typically, scheme trustees could expect to make 60%-70% recovery on the pension deficit in the event of the employer’s bankruptcy; a 50% recovery rate has not been uncommon. The PSI product ensures that pensioners can receive up to 100% of their benefits in such situations (depending upon pre-agreed limits) by funding schemes in deficit in the event of the employer’s insolvency.

Notes to editor:


About Aon

Aon Corporation is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, our ability to execute the stock repurchase program, our ability to consummate the pending sale of the Aon Warranty Group, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, and ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.

 

Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.