Updated from 11:16 a.m. EDT
fell 4% Friday, after the big insurance broker withdrew its full-year earnings guidance in the wake of the kickback and bid-rigging scandal that's rocked the insurance industry.
The Chicago-based broker said it can no longer stand behind its earlier full-year earnings estimate of $2.20 a share, citing "softening market conditions'' and its earlier decision to stop accepting the disputed fees at the heart of the insurance scandal.
Aon, the nation's second largest broker, made the statement Thursday after reporting third-quarter earnings that failed to meet analyst expectations. Aon is one of the firms New York Attorney General Eliot Spitzer is investigating over contingent commissions brokerage fees.
In a conference call with analysts, Patrick Ryan, Aon's chairman and chief executive, said the firm was cooperating with the investigation. He said an internal review had yet to find any evidence that Aon employees engaged in illegal bid rigging or price fixing.
"We haven't yet found evidence of the serious sort of conduct that's been found against one of our competitors," Ryan said. "But beyond that, I don't think I should comment any further."
In the third quarter, Aon earned $122 million, or 36 cents a share, compared to $115 million, or 36 cents a share, in the year-ago period. On an operating basis, which excludes certain costs, Aon also earned 36 cents a share, well below the Thomson Financial estimate of 49 cents.
As of the end of September, Aon had collected $117 million in revenue from contingent commissions, which are payments from insurers for steering business to them. In the fourth quarter, Aon likely would have taken in $50 million in contingent commissions, but going forward Aon will no longer be able to count on that revenue.
Spitzer and other regulators have compared contingent commissions to kickbacks and are threatening legal action against Aon. Earlier this month, Spitzer shocked the insurance world by filing civil fraud charges against
Marsh & McLennan
, the nation's largest insurance broker, because of the payments.
Marsh, which also is not accepting contingent commissions, took in $845 million in disputed fees last year.
Spitzer's office also charged Marsh with orchestrating a bid-rigging scheme to drive up premium costs. So far, there's no evidence that Aon engaged in the same kind of action.
In Friday morning trading, shares of Aon most recently were down a $1, or 4.6%, to $20.37.
But Aon has a lot more to worry about than the loss of contingent commissions and the uncertain course of the investigation. By the firm's own admissions, its brokerage division performed poorly in the quarter.
Brokerage revenue was $1.65 billion, up just 1% from a year ago, and that figure includes contingent commissions. Total revenues in the quarter were $2.4 billion, also up 1% from a year ago.
In the conference call with analysts, Aon executives said the company did not fare as well as expected in bringing in new business in the quarter.
"Theres' a lot of very good production. But it's not where it ought to be,'' says Ryan.