Aon profits surge as revenues remain flat

Cost-cutting remains the principal method for UK-based brokers to profit as the financial crisis and soft rates continue to suppress organic revenue growth.

According to Companies House filings posted last week, the UK legal entities of international broking groups Aon Corporation and Cooper Gay & Cashman both posted improved results in 2010, despite little or no revenue growth over the previous year.

Aon’s UK profit after tax surged 134% to £60.9m in 2010 from £26m in 2009. But revenues fell 0.9% to £640.5m from £646m. “The slowing economy has contributed to softening insurance prices and this has impacted on revenue generation,” Aon said in its annual results filing.

Most of the improvement came from a sharp drop in restructuring charges in 2010 to £14.8m from £84.2m. Operating profit before exceptional items also rose by 14.5% to £128.4m from £112.1% in 2009.

Administrative expenses fell 4.1% to £512.1m from £533.9m, which Aon attributed to efficiencies and cost savings from its 2009 reorganisation and restructuring.

Cooper Gay & Co also returned to pre-tax profitability in 2010, posting a profit before tax of £2.2m compared with 2009’s pre-tax loss of £4.1m. But the company’s revenues were broadly flat, coming in at £43.5m in 2010, compared with £43m in 2009.

Cooper Gay described brokerage growth as “disappointing”, blaming continued economic difficulties and the lack of market hardening.

“The company continues to look at all opportunities for growth, both organically and by investing in new opportunities as and when they arise,” the filing said.

The return to pre-tax profit was driven by a 9% fall in operating expenses before exceptional items to £41.9m from £46.1m.

And while 2009’s results were hit by a £1.2m exceptional charge – related to the cost of setting up a back-office outsourcing function with Xchanging – the 2010 accounts included no such charges.

“The first full annual effect of the outsourcing project was realised,” Cooper Gay said in the Companies House filing. “Combined with a defined strategy to manage existing costs, the effect on the results can clearly be seen.”

Neither company’s 2010 results showed a large contribution from acquisitions. Aon derived £106,000 from acquisitions in 2010, compared with £143.7m in 2009, while Cooper Gay did not report any revenue from acquisitions during the year.

We say …

? Only so many efficiencies can be gained before service suffers.

? If brokers can no longer cut costs, they will need to start buying rivals to boost revenue – yet acquisitions result in one-off restructuring costs that can dampen profitability.

? A positive note for firms such as Aon, which has a pension deficit, is last June’s announcement that public sector pensions will be index linked to the consumer price index rather than the retail price index. Aon shaved £107.4m off its pension deficit in 2010, mainly by switching indices.