1.                                       Statement of Accounting Principles

The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and include all normal recurring adjustments which Aon Corporation (“Aon” or the “Company”) considers necessary to present fairly the Company’s consolidated financial statements for all periods presented.

Certain information and footnote disclosures normally included in the financial statements prepared in accordance with U.S. GAAP have been condensed or omitted.  These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2008.  The results for the three and six months ended June 30, 2009 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 2009.  Certain amounts in prior period financial statements and related notes have been reclassified to conform to the 2009 presentation.  In addition, due to the adoption of new principles regarding noncontrolling interests and participating securities, certain amounts in prior period financial statements and related notes have been restated to conform with the requirements of these new principles.

The preparation of financial statements in conformity with U.S. GAAP requires management to make certain estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements, and the reported amounts of reserves and expenses during the reporting periods.  Actual amounts could differ from those estimates.

Management has reviewed all material subsequent events through August 7, 2009, the date the financial statements were issued, to determine whether any event required either recognition or disclosure in the financial statements.

2.                                       Accounting Principles and Practices

Changes in Accounting Principles

On January 1, 2009, Aon adopted revised principles related to business combinations and noncontrolling interests.  The revised principle on business combinations applies to all transactions or other events in which an entity obtains control over one or more businesses.  It requires an acquirer to recognize the assets acquired, the liabilities assumed, and any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date.  Business combinations achieved in stages require recognition of the identifiable assets and liabilities, as well as the noncontrolling interest in the acquiree, at the full amounts of their fair values when control is obtained.  This revision also changes the requirements for recognizing assets acquired and liabilities assumed arising from contingencies, and requires direct acquisition costs to be expensed.  In addition, it provides certain changes to income tax accounting for business combinations which apply to both new and previously existing business combinations.  In April 2009, additional guidance was issued which revised certain business combination guidance related to accounting for contingent liabilities assumed in a business combination. The Company has adopted this guidance in conjunction with the adoption of the revised principles related to business combinations. The adoption of the revised principles related to business combinations has not had a material impact on the consolidated financial statements.

The revised principle related to noncontrolling interests establishes accounting and reporting standards for the noncontrolling interests in a subsidiary and for the deconsolidation of a subsidiary.  The revised principle clarifies that a noncontrolling interest in a subsidiary is an ownership interest in the consolidated entity that should be reported as equity in the consolidated financial statements.  The revised principle also requires reported consolidated net income to include the amounts attributable to both the parent and the noncontrolling interest. The revised principle requires retrospective adjustments, for all periods presented, of stockholders’ equity and net income for noncontrolling interests.  In addition to these financial reporting changes, the revised principle provides for significant changes in accounting related to noncontrolling interests; specifically, increases and decreases in Aon’s controlling financial interests in consolidated subsidiaries will be reported in equity similar to treasury stock transactions.  If a change in ownership of a consolidated subsidiary results in loss of control and deconsolidation, any retained ownership interests are remeasured with the gain or loss reported in net income. In previous periods, noncontrolling interests for operating subsidiaries were reported in other general expenses in the condensed consolidated statements of income.  Prior period amounts have been restated to conform to the current year’s presentation.

On January 1, 2009, Aon also adopted a new principle which supplements current disclosure requirements for derivative instruments and hedging activities, under which Aon is required to provide enhanced qualitative and quantitative information.  See Note 13 for these disclosures.

Effective January 1, 2009, the Company also adopted additional guidance which states that unvested share-based payment awards that contain non-forfeitable rights to dividends or dividend equivalents are participating securities, as defined, and therefore should be included in computing earnings per share using the two class method.  Certain of Aon’s restricted stock awards allow the holder to receive a non-forfeitable dividend equivalent.  All prior periods earnings per share data have been adjusted to conform to the current presentation.  See Note 4 for further discussion of the effect of adopting this new guidance on the Company’s financial statements.

Effective April 1, 2009, Aon adopted a new principle which establishes the period after the balance sheet date during which management is required to evaluate events or transactions that may occur for potential recognition or disclosure in the financial statements.  This principle also requires that Aon disclose the date through which subsequent events have been evaluated, as well as whether that date is the date the financial statements were issued or the date the financial statements were available to be issued.  See Note 1 for this disclosure.

Aon also adopted the following effective April 1, 2009:

·                  additional guidance for estimating fair value in accordance with current principles, when the volume and level of activity for the asset or liability has significantly decreased.  This guidance also assists in identifying circumstances that indicate when a transaction is not orderly.

·                  guidance related to debt securities, which requires an entity to recognize the credit component of an other-than-temporary impairment of a debt security in earnings and the non-credit component in other comprehensive income when the entity does not intend to sell the security and it is more likely than not that the entity will not be required to sell the security prior to recovery.  Entities are required to record a cumulative effect adjustment for the non-credit component of previously recognized other-than-temporary impairments that meet certain criteria.

·                  disclosure guidance related to the fair value of financial instruments for interim reporting periods as well as in annual financial statements.

The adoption of the preceding guidance did not have a material impact on the Company’s financial statements.  See Note 16 for the disclosure regarding interim reporting of the carrying and fair value of Aon’s long-term debt.

Recent Accounting Pronouncements

In December 2008, the Financial Accounting Standards Board (“FASB”) issued an amendment to current principles regarding employers’ disclosures about pensions and other postretirement benefits.  These changes provide guidance as to an employer’s disclosures about plan assets of a defined benefit pension or other postretirement plan.  This amendment requires pension and other postretirement plan disclosures be expanded to include investment allocation decisions, the fair value of each major category of plan assets based on the nature and risks of assets in the plans, and inputs and valuation techniques used to develop fair value measurements of plan assets.  The Company is currently evaluating this amendment to determine any additional disclosures required in the 2009 annual report.

In June 2009, the FASB issued guidance amending current principles related to the transfers of financial assets and variable interest entities (“VIEs”).  This guidance eliminates the concept of a qualifying special-purpose entity (“QSPE”), creates more stringent conditions for reporting the transfer of a portion of a financial asset as a sale, clarifies other sale-accounting criteria, and changes the initial measurement of a transferor’s interest in transferred financial assets.  Former QSPEs will be evaluated for consolidation based on the updated VIE guidance.  There are also changes to the approach a company must take in determining a VIE’s primary beneficiary and requires companies to more frequently reassess whether they must consolidate VIEs.  Additional year-end and interim period disclosures will also be required.  These changes will be effective for Aon beginning in the first quarter of 2010.  The Company is currently evaluating this guidance to determine what impact, if any, it will have in its consolidated financial statements.

3.                                       Cash and Cash Equivalents

Cash and cash equivalents at June 30, 2009 and December 31, 2008 included restricted balances of $117 million and $194 million, respectively.  Restricted balances are held in trust for the benefit of reinsurance contract holders.

4.                                       Income Per Share

Income per share attributable to Aon stockholders is calculated as follows (in millions, except per share data):

As discussed in Note 2, the Company began following new guidance regarding participating securities, effective January 1, 2009.  There were approximately 7 million participating shares for the three and six months ended June 30, 2009 and approximately 8 million participating shares for both the three and six months ended June 30, 2008.  Basic net income per share was reduced from $3.91 to $3.82 for the three months ended June 30, 2008 and from $4.55 to $4.44 for the six months ended June 30, 2008 as a result of adopting the new guidance.

5.                                       Goodwill and Other Intangible Assets

The changes in the net carrying amount of goodwill by operating segment for the six months ended June 30, 2009 are as follows (in millions):

Other intangible assets by asset category are as follows (in millions):

Amortization expense on intangible assets was $22 million and $45 million for the three and six months ended June 30, 2009, respectively.  Amortization expense was $11 million and $25 million for the three and six months ended June 30, 2008, respectively. As of June 30, 2009, the estimated amortization for intangible assets is as follows (in millions):

6.                                       Disposal of Operations

Continuing Operations

In December 2008, Aon signed a definitive agreement to sell the U.S. operation of the premium finance business of Cananwill, Inc. (“Cananwill”).  This disposition was completed in February 2009. Cananwill’s results are included in the Risk and Insurance Brokerage Services segment.  A pretax loss totaling $7 million was recorded, of which $2 million was recorded in first quarter 2009 and $5 million in 2008.  This disposal did not meet the criteria for discontinued operations reporting.  Aon may receive up to $10 million from the buyer over the next two years based on the volume of insurance premiums and related obligations financed by the buyer over this period that are generated by certain of Cananwill’s producers.

Discontinued Operations

Property and Casualty Operations

In January 2009, the Company signed a definitive agreement to sell FFG Insurance Company (“FFG”), Atlanta International Insurance Company (“AIIC”) and Citadel Insurance Company (“Citadel”) (together the “P&C operations”).  FFG and Citadel are property and casualty insurance operations that were in runoff.  AIIC is a property and casualty insurance operation that was previously reported in discontinued operations. The sale is subject to various closing conditions and is expected to be completed in the second half of 2009.  Aon anticipates incurring a pretax loss of approximately $191 million on the sale of these operations, which was recorded in 2008 in income (loss) from discontinued operations.

As of November 30, 2006, in connection with the sale of Aon Warranty Group (“AWG’), Aon sold Virginia Surety Company (“VSC”).  VSC remains liable to policyholders of the P&C operations to the extent reinsurers of the property and casualty businesses do not meet their obligations.  In connection with the AWG sale, Aon provided an indemnification which protects the purchaser from the credit exposure related to the property and casualty balances that were reinsured.  These reinsurance recoverables amount to $597 million at June 30, 2009.  Trust balances and letters of credit offsetting these reinsurance recoverables totaled approximately $118 million at June 30, 2009. The liability balance reflecting the estimated fair value of this indemnification was $9 million at June 30, 2009.  The Company is not aware of any event of default by any reinsurer which would require it to satisfy the indemnification.  In conjunction with the sale of the P&C operations, the buyer will assume the indemnification with respect to these reinsurance balances.

AIS Management Corporation

In 2008, Aon reached a definitive agreement to sell AIS Management Corporation (“AIS”), which was previously included in the Risk and Insurance Brokerage Services segment, to Mercury General Corporation, for $120 million in cash at closing, plus a potential earn-out of up to $35 million payable over the two years following the completion of the agreement.  The disposition was completed in January 2009 and resulted in a pretax gain of $86 million in first quarter 2009.

Accident, Life & Health Operations

On April 1, 2008, the Company sold its Combined Insurance Company of America (“CICA”) subsidiary to ACE Limited and its Sterling Life Insurance Company (“Sterling”) subsidiary to Munich Re Group.  These two subsidiaries were previously included in the Company’s former Insurance Underwriting segment.  After final adjustments, Aon received $2.525 billion in cash for CICA and $341 million in cash for Sterling.  Additionally, CICA paid a $325 million dividend to Aon before the sale transaction was completed.  A pretax gain of $1.4 billion was recognized in the second quarter 2008 on the sale of these businesses.

The operating results of all businesses classified as discontinued operations are as follows (in millions):

The assets and liabilities reported as held-for-sale are as follows (in millions):

7.                                       Restructuring

Aon Benfield Restructuring Plan

The Company announced a global restructuring plan in conjunction with its merger with Benfield Group Limited (“Aon Benfield Plan”) in 2008.  The restructuring plan is intended to integrate and streamline operations across the combined Aon Benfield organization.  The Aon Benfield Plan includes an estimated 500 to 700 job eliminations.  As of June 30, 2009, approximately 400 jobs have been eliminated under the Plan.  Additionally, duplicate space and assets will be abandoned.  The Company recorded $21 million and $30 million of restructuring and related expenses in the second quarter and six months 2009, respectively.  The Company estimates that the Aon Benfield Plan will result in costs totaling approximately $185 million, of which $104 million was recorded in connection with the Benfield merger and is included as part of the Benfield purchase price allocation, and $81 million of which will result in charges to earnings.  All costs associated with the Aon Benfield Plan are included in the Risk and Insurance Brokerage Services segment.  Charges related to the restructuring are included in compensation and benefits, other general expenses, and depreciation and amortization in the accompanying condensed consolidated statements of income.  The Company expects the restructuring activities and related expenses to affect continuing operations into 2011.

The following summarizes the restructuring and related costs by type and estimated to be incurred through the end of the restructuring initiative related to the merger and integration of Benfield (in millions):

(1)          Actual costs, when incurred, will vary due to changes in the assumptions built into this plan.  Significant assumptions likely to change when plans are finalized and approved include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.

(2)          Other costs associated with restructuring initiatives, including moving costs, consulting fees and legal fees, are recognized when incurred.

2007 Restructuring Plan

In 2007, the Company announced a global restructuring plan intended to create a more streamlined organization and reduce future expense growth to better serve clients (“2007 Plan”).  The 2007 Plan includes an estimated 3,900 job eliminations.  As of June 30, 2009, approximately 2,300 positions have been eliminated.  The Company also expects to close or consolidate several offices resulting in sublease losses or lease buy-outs.  The Company estimates that the 2007 Plan will result in cumulative pretax charges totaling approximately $550 million.  Expenses will include workforce reduction, lease consolidation costs, asset impairments, as well as other expenses necessary to implement the restructuring initiative.  Costs related to the restructuring are included in compensation and benefits, other general expenses and depreciation and amortization in the accompanying condensed consolidated statements of income.  The Company expects the restructuring and related expenses to affect continuing operations through the end of 2009.

Below is a summary of the 2007 Plan restructuring and related expenses by type incurred and estimated to be incurred through the end of the restructuring initiative (in millions):

(1)          Actual costs, when incurred, will vary due to changes in the assumptions built into this plan.  Significant assumptions likely to change when plans are finalized and approved include, but are not limited to, changes in severance calculations, changes in the assumptions underlying sublease loss calculations due to changing market conditions, and changes in the overall analysis that might cause the Company to add or cancel component initiatives.

(2)          Other costs associated with restructuring initiatives, including moving costs, consulting fees and legal fees, are recognized when incurred.

The following is a summary of actual restructuring and related expenses incurred and estimated to be incurred through the end of the restructuring initiative, by segment (in millions):

Restructuring Liabilities

As of June 30, 2009, the Company’s liabilities for its restructuring plans are as follows (in millions):

Aon’s unpaid restructuring liabilities are included in accounts payable and accrued liabilities as well as other non-current liabilities in the condensed consolidated statements of financial position.

8.                                       Investment Income and Investments

The components of investment income are as follows (in millions):

The Company earns investment income on cash balances and investments, as well as on premium trust balances that Aon maintains for premiums collected from insureds but not yet remitted to insurance companies. Premium trust balances and a corresponding liability are included in fiduciary assets and fiduciary liabilities in the accompanying condensed consolidated statements of financial position. The Company’s interest-bearing assets are included in the following categories in the accompanying condensed consolidated statements of financial position (in millions):

9.                                       Debt

In 1997, Aon created Aon Capital A, a wholly-owned statutory business trust (“Trust”), for the purpose of issuing mandatorily redeemable preferred capital securities (“Capital Securities”). Aon received cash and an investment in 100% of the common equity of Aon Capital A by issuing 8.205% Junior Subordinated Deferrable Interest Debentures (the “Debentures”) to Aon Capital A. These transactions were structured such that the net cash flows from Aon to Aon Capital A matched the cash flows from Aon Capital A to the third party investors. Aon determined that it was not the primary beneficiary of Aon Capital A, a VIE, and, thus reflected the Debentures as long-term debt.

During the first half of 2009, Aon repurchased $15 million face value of the Capital Securities for approximately $10 million, resulting in a $5 million gain reflected in other (income) expense in the condensed consolidated statement of income.

To facilitate the legal release of the obligation created through the Debentures associated with this repurchase and future repurchases, Aon dissolved the Trust effective June 25, 2009. This dissolution resulted in the exchange of the Capital Securities held by third parties for the Debentures. Also in connection with the dissolution of the Trust, the $24 million of common equity of Aon Capital A held by Aon was exchanged for $24 million of Debentures, which were then cancelled.

Following these actions, $687 million of Debentures remain outstanding as of June 30, 2009. The Debentures are subject to mandatory redemption on January 1, 2027 or are redeemable in whole, but not in part, at the option of Aon upon the occurrence of certain events.

Also during the second quarter 2009, $100 million of short-term debt related to a VIE where Aon is the primary beneficiary was repaid.

Subsequent to quarter end, on July 1, 2009, an indirect wholly-owned subsidiary of Aon issued €500 million ($703 million at June 30, 2009 exchange rates) of 6.25% senior unsecured debentures due on July 1, 2014.  The principal and interest on the debentures is unconditionally and irrevocably guaranteed by Aon.  Proceeds from the offering were used to repay the Company’s $677 million outstanding indebtedness under its Euro credit facility. Consequently, the amount due under the Euro credit facility at June 30, 2009 has been included within short-term debt in the condensed consolidated statement of financial position.

10.                                 Equity

Common Stock

During the first six months of 2009, Aon issued 966,000 new shares of common stock for employee benefit plans.  In addition, Aon issued approximately 5.0 million shares of treasury stock for employee benefit programs and 157,000 shares in connection with employee stock purchase plans.

Aon’s Board of Directors has authorized the Company to repurchase up to $4.6 billion of its outstanding common stock.  Shares may be repurchased through the open market or in privately negotiated transactions from time to time, based on prevailing market conditions and will be funded from available capital.  Any repurchased shares will be available for employee stock plans and for other corporate purposes.  The Company did not repurchase any shares in first quarter 2009. The Company repurchased approximately 3.4 million shares at a cost of $125 million in the second quarter 2009.  Since inception of its share repurchase program in 2005, the Company has repurchased a total of 94.2 million shares for an aggregate cost of $3.9 billion.  As of June 30, 2009, the Company remained authorized to purchase up to $730 million of additional shares under the current stock repurchase program.  The timing and amount of future purchases will be based on market and other conditions.

There are also 22.4 million shares of common stock held in treasury at June 30, 2009 which are restricted as to their reissuance.

Other Comprehensive Income (Loss)

The components of comprehensive income, net of tax, are as follows (in millions):

The components of accumulated other comprehensive loss, net of tax, are as follows (in millions):

11.                                 Employee Benefits

Pension Plans

The following table provides the components of the net periodic benefit cost for Aon’s U.S. pension plans, along with the material international plans, which are located in the U.K., The Netherlands, and Canada (in millions):