TEXT - S&P rates Aon plc

Thu Dec 13, 2012 11:26am EST

Overview
     -- Aon plc, a leading global insurance broker, is issuing 30-year
senior unsecured notes guaranteed by Aon Corp.
     -- We have assigned a 'BBB+' counterparty credit rating to Aon plc and 
similar senior debt rating to the issue.
     -- The outlook is stable, reflecting the company's strong competitive 
position, improving operating performance, and strong liquidity.
Rating Action
On Dec. 13, 2012, Standard & Poor's Ratings Services assigned its 'BBB+/A-2' 
counterparty credit rating to Aon plc (NYSE: AON). At the same time, we 
assigned a 'BBB+' debt rating to AON's proposed senior debt issue. This is 
part of an offer whereby AON is exchanging a portion of its outstanding 8.205% 
junior subordinated deferrable-interest debentures due January 2027 into 
30-year senior notes due 2042. The new notes carry a guarantee form AON Corp.

Rationale
The rating on AON reflects the company's strong competitive position arising 
from its well-established global presence in the risk-solutions business, 
supplemented by its global human-resources solutions segment. The company 
enhanced its market position in consulting and outsourcing with its October 
2010 acquisition of Hewitt Associates Inc. AON was the world's largest 
insurance broker in 2011, according to Business Insurance magazine, because of 
its organic growth and acquisitions. Other rating strengths include its 
appropriately managed leverage and cash flows, and credit metrics that are 
healthy for the rating and compare favorably with those of its global broker 
peers.

The new senior debt issue does not change the amount of AON's outstanding 
debt, its leverage, or its financial tolerance. In addition, issuing this bond 
helps AON reduce its refinancing risk, extends its maturity profile, and 
allows the company to take advantage of low interest rates.

The company is susceptible to the depressed overall economic conditions and 
cyclical insurance pricing, which makes it difficult to achieve organic 
revenue growth and profitability. Another rating concern is the continued 
execution risk regarding AON's strategic initiatives, restructuring plans, and 
new product initiatives. AON has incurred material charges related to these 
efforts each year since 2005. It has exposure to several significant lawsuits 
and could incur significant charges from underfunded pension liability issues. 
As of year-end 2011, AON contributed $477 million to its U.S. and 
international pension plans, but its pension plans remain underfunded by $1.82 
billion.

Outlook
The stable outlook reflects our expectation that AON, through good earnings 
and prudent capital management, will continue to balance cash flows to debt at 
levels consistent with the rating. As a result of continued competitive 
pressures on property/casualty insurance rates, we believe organic growth will 
be minimal in the risk-solutions segments. The HR solutions segment, however, 
could show signs of improvement as economic conditions improve. We believe 
these factors and AON's restructuring programs should result in a pretax 
return on revenue (ROR) of at least 14%, adjusted fixed coverage of at least 
5x, and an adjusted total obligations-to-adjusted EBITDA ratio of 3.5x or less.

We could consider lowering the rating if its strategic initiatives and 
restructurings are not successful, the combined company does not realize 
projected synergies, additional acquisitions detract from operating 
performance or adjusted fixed-charge coverage deteriorates to less than 5x, 
the adjusted total obligations-to-adjusted EBITDA ratio rises to more than 
3.5x, or ROR falls to less than 5%. We do not expect to raise our rating on 
AON in the next 12 months because its financial profile compares unfavorably 
with higher-rated companies. However, our view could be positively influenced 
by consistent improvement in AON's financial profile, delivery of 
industry-leading margins, and significant reduction in pension liability while 
maintaining strong earnings.

Related Criteria And Research
U.S. Insurance Broker Criteria, April 22, 2008

Ratings List
New Rating

Aon plc
 Counterparty Credit Rating
  Local Currency                        BBB+/Stable/A-2    
 Senior Unsecured                       BBB+
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