Aon Corporation Q4 2008 Earnings Call Transcript

Aon Corporation (AOC)

Q4 2008 Earnings Call

February 06, 2009 08:30 AM ET

Executives

Gregory C. Case - President and Chief Executive Officer

Christa Davies - Executive Vice President and Chief Financial Officer

Analysts

Keith Walsh - Citigroup

Dan Farrell - Fox-Pitt Kelton

Brian Meredith - UBS

Jay Cohen - BAS-ML

Meyer Shields - Stifel Nicolaus & Company, Inc.

Jay Gelb - Barclays Capital

Mark Lane - William Blair & Company, L.L.C.

Daniel Johnson - Citadel Investment Group

Presentation

Operator

Good morning ladies and gentlemen and thank you for holding. Welcome to Aon Corporation's Fourth Quarter and Full Year 2008 Earnings Conference Call. At this time, all parties will be in listen-only mode until the question-and-answer portion of today's call. I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time.

It's important to note that some of today's comments may constitute certain statements that are forward-looking in nature as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our fourth quarter results as well as having been posted on our website.

Now, it's my pleasure to turn the call over to Mr. Greg Case, President and Chief Executive Officer of Aon Corporation. Sir, please go ahead.

Gregory C. Case

Thank you, and good morning everyone. Welcome to our fourth quarter 2008 conference call. Joining me here today is our CFO, Christa Davies.

Just as we've done in the last few calls, I'd like to cover three areas before turning the call over to Christa for further financial review.

First area is our performance against key commitments to shareholders. The second is our continued areas of investments across Aon. And the third is around our overall organic growth performance.

Start by saying that from our team's perspective, the results for fourth quarter represent another solid quarter of continued progress and momentum and a strong finish to the year.

Irrespective of marketplace or economic conditions, we continue to execute on our plans to substantially strengthen our firm for long-term and shareholder value creation.

On the first topic, our performance versus commitments, as we do each quarter, we measure our performance against three metrics we committed to shareholders: growing organically, expanding margins, increasing earnings per share.

Our operating plans are focused on achieving all three outcomes over the course of each year, not necessarily every quarter. Further, we said we would not sacrifice one of these metrics for another.

As I've already commented, our results reflect the quarter of continued progress against our goals. Organic revenue growth was 2% overall, with growth across all brokerage business and our consulting services business. Adjusted pretax margin increased 120 basis points and EPS on an adjusted basis increased 19%.

When you look at our results across the organization and compared to the industry, they represent meaningful progress from Aon colleagues, who are dedicated to building our firm while delivering industry leading capabilities to support our clients during an unprecedented time in the global economy.

However, we are not immune to the affects of the turmoil. As we are a global firm with operations in more than 120 countries, our team is making tough decisions on multiple fronts to ensure that we drive performance and continue to deliver results for our shareholders.

Christa will talk more about that in a bit, but let me be clear. We are also faced with a time when our clients need our help more than ever. Events over the last quarter alone continue to reinforce our convictions that the cost of volatility is increasing and demand for the advice and service we provide is expanding.

On the second topic further areas in investments, as commented, we will continue to make significant investments to support our clients and build on our industry leading capabilities. A few examples during the quarter include, in reinsurance, we want to officially welcome grandchildren and all colleagues across Benfield.

During the quarter, we work closely together to create a reinsurance franchise of unique capability and skill that is unmatched in the industry. The reaction from clients and colleagues around the world has been exceptionally positive. And our development plans are well underway. We feel very fortunate to being able to bring together and create this level of unmatched capability at a time of arguably highest need ever for our clients. It's an exciting opportunity for all involved.

In retail brokerage, we continue to invest in and expand our affinity business in Latin America while adding key talent in emerging markets such as China, India, and the Middle East and areas that continue to deliver strong double-digit growth.

In consulting, we added key leadership in our benefits business globally in emerging markets in Asia Pacific and in our U.S. leadership team. These categories highlight just a few of the investments we're making to further strengthen our capabilities and better serve our clients.

One key point that we covered in our last call: as investors, it's important you understand these investments are being made in the context of our overall margin improvement efforts.

As we continue to build our firm, we're removing inefficiency and costs from non-client facing areas, areas such as finance, HR. IT to fund investment in client facing capability and simultaneously improving margin over the course of the year.

We can do this in ways other firms may not be able to given how we came together over the last 20 years. Christa will talk about our efforts in this area as we increased our overall cost savings commitment by 70 million in the quarter.

The key takeaway here is that we continue to make meaningful investment in our firm and remain excited about how our fundamental client serving capability continues to strengthen around the world.

And finally on the third topic of growth, I will highlight our organic growth for the quarter across each of our primary business segments starting with brokerage. Overall brokerage growth for the segment was 2% with positive growth across all businesses. This marks the 13th consecutive quarter of organic growth despite weak economic conditions and a soft market globally.

For the quarter, pricing was down on average to low single digits globally in both retail and re-insurance, representing a modest change from the mid single digits declines on average globally in the prior quarter.

These results reflect solid management of our renewal book with retention rates at 90% or better on average highlighting strong client satisfaction. And we continue to drive new business from the investments we are making in many areas such as facultative reinsurance and in our emerging markets with strong double digit growth in several areas across the firm including Latin America, China and the Middle-East Africa regions.

Turning to the individual regions across retail brokerage and re-insurance, on retail in the Americas, organic revenue increased 3%. This was driven by strong management of our renewal book in the U.S. retail segment and continued strength in Latin America.

These results are especially remarkable given soft market conditions and the continued slowdown in both our construction and private equity M&A sectors. Really solid work here by our colleagues that were focused on closing opportunities with existing clients in a difficult economic market, and the results highlight the work put in place over the last year in our revenue engine effort to drive improved performance through pipeline management, productivity improvements, and client service.

Now turning to Europe, Middle East and Africa; organic growth increased 1% including the impacts of adjustments that were made during the quarter to confirm revenue recognition to Aon's overall accounting policies. Excluding this impact, organic revenue would have increased 3%. And these results reflect strong retention rates above 90% on average driven by our number one position in most markets.

Pricing was relatively flat similar to the prior quarter and we achieved double-digit growth in emerging markets such as Africa and Middle East. We saw solid growth in Continental Europe as we manage against a weakening economy.

The results were driven by benefits from deployment of our revenue engineer effort and local marketing campaigns. And we are able to achieve these results while we continue to invest across the region and in the emerging markets.

Turning to Asia Pacific, organic growth was 3% with significant growth in markets such as China, Hong Kong, New Zealand, as well as positive organic growth in Australia. Results continue to be affected by weakness in a specific part of Japan around certain regulatory changes. But on this topic, we have set of initiatives in place and closure of the issue is nearly complete.

But overall, a solid platform of leadership position across Australia, New Zealand, China, and across the region as we continue to grow in this important area of the world.

In the UK, organic growth was 1%. Retention rates held firm while pricing was down in low single digits. The result was really driven by growth in captives and our network business partially offset by a modest decline in our UK retail business. Overall, as you take a step back and look across retail brokerage, we feel very good about our progress.

I'd like to remind our investors that this call really marks the one year anniversary of the formation of ARS, our global operating committee under the leadership of Steve McGill and Ted Devine that coordinates our entire global retail business over 60 billion in premium flow.

And this 25-person operating team has performed extremely well as we are beginning to capture the full benefits of being a global firm for our clients and our shareholders. For me, it's been very exciting to watch our colleague's progress, not just what was accomplished in 2008, but for what we set the stage to accomplish in 2009 and the coming years.

Now turning to reinsurance; organic growth was 2% for the quarter was driven by growth in facultative placements and new wins and treaties. Today, much of that progress has been offset by higher season retentions and soft pricing, but overall continued solid results that lead the industry.

Our Aon Benfield colleagues provide our clients with a unique and integrated solution around capital management, number one in treaty, number one in facultative, and the number one broker in capital markets. We stand in a privilege position with more capability to help our clients at a time of highest client need.

Now turning to our consulting segment, overall growth was 3%. Our team delivered 4% growth on our core services business despite weak economic trends. And this growth was driven by solid results across most practices including retirement, heath and benefits, and human capital, and it really highlights the strength and diversity of our portfolio both from a product and geographic standpoint.

In outsourcing, we saw a modest growth in our benefits outsourcing business offset by a decline related to previously announced termination of a significant outsourcing contract, but overall another solid quarter of leadership and progress in the consulting group.

In summary, our team feels very good about the results for the fourth quarter and the progress we made as a team against our key commitments in 2008. For the year 2008, organic growth was 2% in a very challenging market environment, where pricing was down 5 to 15% on average.

Pre-tax margin for 2008 on adjusted basis increased to 100 basis points to 15.9% with margin improvement in each segment. And EPS for the year on an adjusted basis increased 24% to $2.90.

As we look now forward to 2009, we think about two distinct parts. One is the core business performance and the second is the external market headwinds that we are facing.

In terms of the core business, we feel good about our industry-leading position and are focused on delivering on each of our key commitments to shareholders, while supporting our clients at a time when both their risk and cost of volatility are increasing.

However, as a global firm operating over 120 countries, we're not immune to the external market challenges that not only impact the global economy such as declines in GDP and unemployment, but also in three specific areas... excuse me.

The first is around pension expense given the changes in asset values and discount rates. The second is around investment income given the decline in interest rates. And the third is around foreign currency translation.

I am now pleased to turn the call over to Christa, who will discuss these specific impacts in greater detail as well as provide further financial review.

Christa?

Christa Davies

Thanks Greg. Good morning everyone. As Greg noted, our fourth quarter results reflected strong finish to the year and continued progress against our initiatives.

We delivered meaningful improvement across our three key financial metrics and took further steps to streamline our product portfolio around our core businesses, while reducing capital requirements and improving the financial flexibility of our balance sheet.

Our results for this quarter are complicated by the merger of Benfield, the divestitures of the U.S. assets of Cananwill, the remaining property casualty run-off operations as well as the sale of the Automobile Insurance Specialists that completed subsequent to the fourth quarter.

During the fourth quarter, we completed the merger of Benfield, the total consideration of 1.43 billion, a reduction of 320 million before transaction costs of 46 million.

As Greg discussed, the merger of Benfield creates an industry leading reinsurance franchise with unparallel resources and capabilities. The management team in reinsurance is fully in place and our restructuring program is well underway. I'll discuss more about the program shortly.

Additionally during the fourth quarter, we entered into an agreement to sell the U.S. assets of our Cananwill Premium Financing and close that transaction earlier this week. This agreement does not include the international assets of Cananwill. However we will continue to evaluate strategic alternative to the remaining portion of this business.

Further, we entered into an agreement to dispose of the remaining property casualty run-off insurance operations. Lastly and subsequent to close of the quarter, we completed the sales of Automobile Insurance Specialists receiving 120 million in cash at closing and an additional potential consideration of 34.7 million over the next two years.

These actions represent the final significant steps in transitioning from insurance company to a professional services firm, fully focused on risk advice and human capital solution.

It has also built a balance sheet that requires a less capital commitment and greater financial flexibility to drive long-term shareholder value.

Turning now to continuing operations, EPS was $0.43 a share for the fourth quarter, down 26% from the prior year quarter. There are several items that we have highlighted, which we think are important to understand in assessing core performance.

First: restructuring charges in the fourth quarter were 87 million or $0.22 per share. Second: we incurred 46 million or $0.11 per share of hedging and transactional cost related to the merger of Benfield. Third we recorded 11 million or $0.03 per share for the previously disclosed review and compliance activities related to the Foreign Corrupt Practices Act.

Lastly, we incurred 8 million or $0.2 per share of curtailment costs related to freezing the U.S. non qualified pension plan. Consequentially, we would view the core EPS performance of our continuing operations of $0.81 per share, up 19% over the prior year quarter. Also included in the results, foreign currency translation had an unfavorable impact of approximately $0.01 per share due to fluctuations in the U.S. dollar against the most major currencies.

Before turning to the business segment, let me spend a moment on each of the restructuring programs, key initiatives that are enabling concurrent funding of investment and delivering meaningful margin expansion. The 2005 program is now complete, and we believe that we've achieved our target of 270 million in cumulative annual savings in 2008. Going forward, we will only highlight the 2007 Aon Benfield restructuring program.

With respect to the 2007 restructuring program, we incurred 86 million of charges and achieved approximately 32 million of savings in the fourth quarter. As we managed against challenges in the broader global economy, we are making tough decisions around expenses that will further streamline our cost structure globally.

As a result of these actions, we expect to incur an additional 100 million of costs to achieve an additional 70 million of annualized saving. The majority will be achieved in the brokerage segment through workforce reduction. In total, the 2007 restructuring program is now anticipated to incur approximately 550 million of total cost to achieve 370 million of annualized savings in 2010.

We've only just begin to realize the benefits of this program with 78 million or roughly 21% of the total annualized savings target achieved under this program to date.

Regarding the Aon Benfield restructuring program, there were no restructuring charges or savings associated with the program that we announced during the quarter. However, our integration plans are in place and we are now beginning to implement projects related to the program.

We expect the program to result in approximately 185 million of costs, of which a portion of these will be allocated to purchase accounting while delivering 122 million of cumulative annual savings in 2011.

Now let me talk about each of the segments. In our brokerage segment, adjusted brokerage pre-tax income increased 5% or $14 million to $314 million. And adjusted pre-tax margin increased 150 basis points to 19.9%.

The benefits of the 2007 restructuring program continued to offset the inflation report on expenses in our business. Investments were making additional talent and capabilities and $7 million or 14% decline in investment income.

The operating results for Benfield for the month of December were included in our fourth quarter results. Results included $38 million of revenue and a $2 million pre-tax loss, which had an unfavorable impact of 60 basis points from pre-tax margin and a $0.1 unfavorable impact on EPS.

Over the month of December, the seasonally weak period Benfield, we believe the business is fairly similar to Aon's reinsurance seasonality when factoring in our revenue recognition passion.

We realized there are lot of moving parts for you to understand. Overall, we remain pleased with our co-operational performance and are fully on track with our long-term target of achieving a 20%-plus margin in brokerage, despite challenges we face in the broader global economy.

I would point out that adjusted margin for the full year increased 70 basis points even as we are now just beginning to ramp up savings related to the 2007 restructuring program.

Moving to the consulting segments; adjusted pre tax income increased 2% to 65 million, and the adjusted pre-tax margin increased to 180 basis points to 19% despite timing issues related to our compensation group that we discussed in the third quarter.

Overall, our solid performance as benefits related to the 2007 restructuring program offset the inflationary push on expenses and investments we are making in the business. I would point out for the year adjusted margins in consulting increased 220 basis points to 17%.

We believe these margins are industry leading, and would anticipate that margins in 2009 would be slightly lower than 2008 on an adjusted basis due to the headwinds we face with the global economy.

Now let me discuss a few specific items within the unallocated section. Unallocated investment income decreased $5 million in quarter due primarily to the timing of distributions in certain private equity holding. Unallocated expenses increased $35 million from the prior year quarter including $44 million of hedging costs that were noted early as part of the Benfield merger.

Interest expense declined $6 million from the prior year quarter due to fluctuations in foreign currency and the decline in average interest rates on outstanding debts. We would expect the unallocated section to be a loss of approximately $55 million per quarter including 5 to $10 million of revenue and 60 to $65 million of expense essentially inline with the fourth quarter of 2008.

For Aon overall, we continue to invest in building our capabilities to drive future revenue growth, while managing expenses and concurrently driving margin expansion even as we face challenges in the broader economy. As Greg said, we are committed to margin improvement over the course of each year, and I would note the total adjusted pre-tax margin for the year is up 100 basis points.

Lastly, the effective tax rate on continuing operations was 28.9% in the quarter. For 2009, we anticipate that the effective tax rate on continuing operations will be 29%.

Now let me turn to capital management; cash and short-term investments were approximately $1.2 billion at December 31 compared to $2.4 billion at September 30.

Cash and short-term investments declined primarily due to 1.4 billion of cash consideration paid to merge with Benfield during the quarter, partially offset by cash flow from operations.

Total debt outstanding at December 31 was 2 billion, and debt to capital was 27.1% reflecting a solid balance sheet with significant financial flexibility. The next maturity date for outstanding debt is the euro revolving credit facility that expires in October 2010.

As we have discussed before, capital allocation decisions are driven by risk adjusted return on capital process. The potential uses of capital that may include share repurchase, which has been our primary use of capital, mergers such as Benfield, organic investments, dividends and pension commitments.

Moving to the outlook for 2009; as Greg mentioned, we look at 2009 in two distinct pieces: core business performance and external market headwinds. We believe that the core business performance of Aon continues to improve, but with respect to the external headwinds, we are faced with three specific forces that will likely impact 2009.

I'll outline the details of the three potential headwinds that Greg outlined, pension expense, investment income, and foreign currency translation, starting with pension. I wanted to provide an update as of the 12/31/2008 measurement days, unfunded status.

At the end of 2007, the unfunded status of the combined pension plan was 983 million, weak asset performance in 2008 combined with the decline in discount rate in the U.S. and updated mortality table have increased the overall unfunded status of the pension plan to 1.5 billion.

Pension contributions; we contributed approximately 177 million in 2008, and expect this number to increase to approximately 242 million in 2009, depending on management discretion to contribute additional cash or non-cash funds to the pension plans or any other factors that could inflow its potential contribution.

Pension expense; pension expense in 2003 was $72 million. As a result of the performance if the pension plans in 2008 and changes in actuarial assumption, pension expense would have increased to 230 million in 2009, an increase of 158 million in pension expense versus 2008.

In line with our philosophy to move compensation from fixed cost to performance base payments, we made the decision to freeze the U.S. defined benefit plan accruals as announced earlier this week. This decision has resulted in pension expense for 2009 of 115 million, an increase of 43 million versus 2008.

You should expect that we're doing everything possible to manage pension expense and the volatility overall in our pension plans. Freezing of the U.S. plan will partially help manage future volatility as participants will longer be accruing additionally years of service, as well as deviation from expected returns on assets and liabilities will now be amortized over a longer period.

During the quarter, we incurred $8 million of curtailment costs associated with freezing the U.S. non-qualified pension plan that were adjusted for the press release schedule.

Turning to the second potential headwind: investment income; investment income is interest earned primarily on fiduciary funds as well as cash and short-term investments. At 12/31/2008, we held approximately 3.2 billion of fiduciary funds and 1.2 billion of cash and short-term investments, as disclosed in our balance sheet with approximately 45% held in U.S. dollars and 55% in other currencies.

As a result of declines in short-term interest rates globally, we would anticipate incremental pressure on investment income in 2009. Given the uncertainty in the market, it is difficult to predict interest rates. We can explain the sensitivity as the 100 basis point decrease in interest rates globally would have a $44 million negative impact on results. Similarly, 100 basis points increase in interest rates globally would have a $44 million positive impact on results.

Turning to the third potential headwind of foreign currency; we are a global company with local revenue and local expense in most countries. Our four biggest exposures in order sensitivity are the euro, pound, Australian dollar, and Canadian dollar.

A slightly more than half of our revenue in PTI is non U.S. dollar denominated, we generally prefer weaker dollar versus the euro, Australian dollar and Canadian dollar, with the euro as our large exposure at approximately 40% of PTI.

Offsetting our normal translation exposure is our transactional exposure between the U.S. dollar revenue and sterling expense, in which case we generally prefer a stronger dollar versus the sterling, which helps to reduce overall sensitivity to foreign currency fluctuation.

We saw this relationship occur during Q4. We hope that this update was helpful and we want to be clear that resulting uncertainties will not deter us from reaching out 20%-plus target margin in brokerage.

In summary, risk and the cost of volatility increasing globally and we continue to streamline our assets around two of the most critical issues facing clients today: risk advice and human capital management. We continue to drive solid results against our three key financial metrics in a challenging market, while accelerating the benefits of our cost savings programs.

Our balance sheet is strong with excellent liquidity, as we continue to drive value creation through improved business results and effective capital management.

With that, I will turn the call back over to the operator, and will be delighted to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions). And first question is from the line of Keith Walsh with Citi. Please go ahead.

Keith Walsh - Citigroup

Hey good morning everybody.

Christa Davies

Good morning, Keith.

Gregory Case

Hi, Keith.

Keith Walsh - Citigroup

First for Greg; if we just think about revenues, okay, thinking about for '09, looking at new business here. First if you could talk about... are you still a market share taker? I know in the past you've said you on your income statement, you are seeing business at a 2:1 rate coming on versus leaving.

Secondly, thinking about the investments you guys have been making for several years now, I think we're starting to see a real divergence in your results versus some of the others. Maybe if you can quantify those investments in the people that you've brought to Aon, what they've done on the revenue side. And then just the bottom line for '09; in this environment assuming some more deterioration in the economy, can you grow your top line? And then I have a follow up for Christa. Thanks.

Gregory Case

Okay. Thanks Keith, I appreciate it. I will try to get those. I will start with your question around what's happening. I think we're really more in the share area, balance of trade et cetera. I think we've seen... we continue to be very fortunate in our win rates that we continue to track both in the RFP scenarios, as well as in situations, where we initiate.

And what I am very pleased to say is as we brought together global ARS and really thought about how we bring global capability of Aon on to our clients in a very intimate local way, we are increasing our ability to get the clients anticipate needs and addressed needs before their RFPs. And that showed up very clearly in the fourth quarter, where on the renewals side, we are able to do a number of things from a renewal standpoint that were actually quite compelling and showed up in the results.

I would tell you in terms of just movement of business; it's interesting to watch the fourth quarter in 2008 versus what's happening in 2009. The fourth quarter 2008 was very much like for us the post Katrina, in which you saw clients are focused not on their brokers as they shouldn't be, they're focused on their situations and their insurers. And so, there was less movement in the fourth quarter as they focused on their insurers, and now much more movement in the first quarter as they focus on solutions.

And so we are seeing a bit of a flight to quality or flight to capability if you will in terms of just clients wanting to make sure as the tough issues they face today get resolved, they need the best capability in the world to do that, and we've been very fortunate in that context. We still continue to win at a very good cliff, and maintain the rates we've had in pervious years. And so from a new business standpoint, a retention standpoint, we're performing very well, and colleagues have really done a tremendous job as we've rolled up the revenue engine in the U.S. as well as rolled it out of crusher and the rest of the world.

So does that answers your question on the first side in terms of you just kind of balance of trade and market share?

Keith Walsh - Citigroup

Yeah, it does. And just like about the investments, how can we tell that these investments are paying off? It looks like the return you're getting, are you gaining share from these people you're bringing over, and then just about the top line for '09?

Gregory Case

Yeah, so I would take a step back and say from an investment standpoint, we have been... and we said this before in the call. We have been incredibly fortunate in colleagues, who have elected to come and be part of Aon and help us build our firm. And that's true across every aspect of our business. Its true in retail, it's true in reinsurance, and it's certainly true in consulting. And it's essentially what we are doing to build our firm.

Our view is a... that build approach that served us extremely well and will continuing to serve us extremely well. And we want to... as the economy changes over the course of the next few years emerge even stronger in terms of building the fundamental capability of Aon.

What I would tell you is we have not historically broken out in detail kind of here is what we've hired and here is what their impact is. What you can reflect on though Keith, really is just to look at our results versus peers, and think about what's going on overall market. And from a margin return standpoint, what I would say is look, take a step back. Look at us from '05 to '08 from a margin standpoint of the brokerage side.

From '05 to '08, our brokerage margin increased 320, 330 basis points; it's a slight increase from 15.4 to 18.6, 18.7, something like that. And on the consulting side, we have been able to increase almost 800 basis points in terms of margin from 9 to close to 17 as Christa described in her comments.

So, if you step back for us, the acid test is not just the incremental kind did I get a return on somebody I brought in, but are we able to translate that in the fundamental improvement in the income statement over the course of the long-term period of time. And we believe we've been able to that and demonstrate that very clearly.

And I also say as you are well aware that these investment returns and talents take years to develop. This isn't one year cycle; it's really more like a two year cycle or three year cycle. So these things are beginning the come on line for us in a very strong way, and that's actually benefiting us. But from a pure inventor's standpoint, we encourage you to look to what exactly we look to, which is are we improving margin, yes or no, and are we able to grow top-line in the context of that. And we believe we've been able to do that. That, we hope, is your ultimate acid test.

In terms of 2009, look, we, like everyone, are facing the impact on the global economy. But what I would tell you is look what's happening in global economy for Aon really reflects what's happening with our clients. There is just a tremendous amount of uncertainty out there. We see our clients struggling and suffering, and we want to help them. That's... our view is we are going to do everything we can from a client service standpoint to help our client succeed and in the context of that Aon will be very well.

And given the breadth, we are very unique position. We have a very privilege franchise with incredible geographic breadth product breadth capability, and we're well severed to help our clients in the short-term and help Aon in the short-term and long-term.

Some of the negative impacts that we are seeing, clients are thinking about increased retentions. They are thinking about ways to reduced costs, they are looking...we are observing specific sectors that are facing tremendous challenges around construction, M&A, PE, et cetera. A lot of our consumer businesses are going through challenges as well.

And the global downturn may well drive less activity in the marketplace, and that could have an impact on our business. But on the other hand, Keith, if you take a step back, what we see happening is the fundamental risk levels in the economy today are going up.

And the cost of volatility is just flat out going up. And in the context of that, the value for great risk inside and capability is increasing tremendously. And we're being asked by clients particularly... not a non-clients that are under stress to help them solve problems to help them understand and get out of difficult situations to get placements done, they wouldn't have other been able to do to resolve conflicts that between insures and them that were... haven't been able to get accomplished.

So from our standpoint, we see lots of opportunity. And as we continue to come online with the overall ARS group in a way we have, and with what we've got in reinsurance and consulting, our team continues to believe that the opportunity is quite substantial for us, and which is why as Christa described, our commitments to our shareholders around growing organically improving margin and increase in EPS remain in tact.

Keith Walsh - Citigroup

That's great. And then just one quick one for Christa: you are approaching your first anniversary as CFO. Maybe if you can just talk about what you've accomplished versus the initial game plan and has that opportunity expanded and how's that changed the opportunity over last year? Thanks.

Christa Davies

Yeah. It's obviously been an incredible year of learning for me, and the team here is just fabulous to work with. So it's been just a terrific first year. I mean I think the things that we've really tried to sort of achieve in finance around sort of three goals we set at the beginning of the year.

The first one is really improving the control in price environment, and we spend a lot income time over the past 12 months doing that. The second one is improving the quality and timeliness of management information, and the third is really improving efficiency of how the operations all the finance organization runs globally.

And we're making good progress in all three of those, and you can see obviously the efficiency stuff come out in the restructuring plan. You can see the improvement in controls come out in the compliance sort of change we're making around the year (ph) and conformance with our global accounting policy, and we've being doing that throughout the year actually. And then the quality and time with management information is really sort of helping business latest and CEOs to make better decisions faster.

And the last thing I'd say obviously and you've seen this in our portfolio changes throughout the year is, driving through the focus and return on capital as the method of making all decisions for the company whether that's acquisitions or pensions or organic investment or dividends or whatever it is.

And implementing that return on capital discipline through the business has been a very big sort of drive, and obviously it's resulted in a substantial portfolio change particularly during 2008. Well, we're now in a very fortunate position, where we completely exited the insurance underwriting business and have a very clean balance sheet with the normal financial flexibility.

Keith Walsh - Citigroup

That's great. Thanks a lot guys.

Operator

The next question is from the line Dan Farrell with Fox-Pitt. Please go ahead.

Dan Farrell - Fox-Pitt Kelton

Good morning.

Gregory Case

Hi Dan.

Dan Farrell - Fox-Pitt Kelton

Hi, I thought your Americas growth was particularly impressive given the current environment. Could you just give a little more color on some of the drivers of the growth there? Maybe talk a little about how large sort of Fortune 500 business holding up versus middle market. Maybe get some color on line of business or also geography, Latin America versus North America. And then also could you just refresh us on how much cash will be coming in from the sales of the auto business and the Cananwill business?

Gregory Case

Sure, let me start with the first and Christa will take the second piece. We were very pleased, very gratified with the progress we continue to make across the Americas. And the work done in U.S. retail has been terrific. Across the team as we put in the efforts around of revenue engine, which I describe before, which are really nothing more than giving us very clear insight into exactly what's happening today in our business.

So that our colleagues have ammunition, better capability to go address client needs. And it allowed us to, for example, to see what was happening in our construction business, which was a phenomenal business we've got, but obviously under tremendous pressure within the context to what's happening in the global economy, and enabled our construction business to react and do different things to behalf of clients and enabled our colleagues across the Americans to understand we've got to invest and drive in different areas.

We are able to react to the same kinds of pressures in M&A and in PE, which we face those challenges. We've also been able to react on a segment basis. So as we watch the larger companies, global companies that are domiciled in the U.S. seeing some of their challenges.

We've been able to anticipate those that almost real times and react with capability that has helped us serve us very well. It's also allowed us to react when you think about new business versus retention. And in our existing book, as I said before, we... a number of activities driving initiatives around how we build our new business new capability on behalf of clients, but we've also been able to as we watch the year progress. As I said in the fourth quarter, clients really focused on my gosh, what's happening in the world of insurance, what's my capital, what... am I well positioned, and much like a large cat had happened.

When Katrina happened, a very large cat happened. They weren't thinking about changing brokers nor should they be. They should be focused on where they are and how their situation is. And as we saw that happening, it enabled us to serve those needs of our existing clients, but also broaden out from a retention standpoint.

So what I am really highlighting is our ability, our team's ability to understand the situation and react to it in almost a real time way to serve client needs. And what that's done for us is, it helped us tremendously in U.S., it helped us tremendously in Latin America, which continues to be exceptionally strong from an overall growth and profitability standpoint. And we really saw progress across the Americas.

That answer you are question on the...

Dan Farrell - Fox-Pitt Kelton

That's very helpful.

Gregory Case

And then let's talk about the cash piece. Christa?

Christa Davies

Yeah, so Dan, on the Automobile Insurance Specialists, we received 120 million in proceeds as I mentioned with potential consideration over time of 34.7 million. The 120 million in proceeds will net to about an $85 million gain, so that's Automobile Insurance Specialists.

On the sale of the U.S. assets of Cananwill, we did complete that transaction earlier this week. We haven't actually revealed the financial details around that transaction. What I can say is that as a result of this sale, we've reduced the capital required this business by $62 million. So we've already freed up that capital to give up greater financial flexibility, which we are very pleased about.

Dan Farrell - Fox-Pitt Kelton

Great, thank you.

Operator

The next question is from Brian Meredith with UBS. Please go ahead.

Brian Meredith - UBS

Yeah, good morning. Couple of questions here for you all; first one, share buyback; Christa, just trying to understand... I got your discussion on kind of where capital and cash is going. But I was under the impression that you're planning on finishing the share repurchase program. Is that still the case in 2009?

Christa Davies

Yeah. So we obviously have 850 million of share repurchase authorization remaining, and we've got a very strong balance sheet with excellent liquidity and cash flow generation.

While we believe in the underlying value of our stock, we're committed to our share repurchase program. We believe that it's prudent to manage our balance sheet appropriately in a period of extreme volatility in both the financial markets and the broader economy. And therefore, we're not going to commit to when we actually expect to complete the share repurchase program. We will continue to update you on our progress when we report quarterly results.

Brian Meredith - UBS

Okay. And then second one: Greg, there was a story out that your largest competitor got a little bit of a commission rate increase from AIG. And I am wondering what's happening with your commission rights out there. Are you having some success in getting some additional compensation for the value you're delivering or is that more of a challenge in the current environment?

Gregory Case

Brian, as we have always done, we take a step back and we think about overall remuneration. And our strategy around compensation really comes back to a simple philosophy and it really centers around client leadership. Our objective, our view, our approach is all around delivering highest value. We will be the highest value to price for anyone in our arena, not the cheapest, but the highest value to price.

You invest a dollar in Aon, you're going to get a return, the likes of which you will not get anywhere else. That's how we're trying, and working very hard to build our organization. And in the context of that, we start with our view from compensation to make sure clients first of all understand and appreciate what we do, and then we get really compensated for it.

So you can imagine within the context of that, there are a number of initiatives we've been working on for quite some time, one of which is getting paid what's been agreed. Ironically back to kind of the impact, the global effort that I describe by Steve McGill and Ted Devine. There once was the time when Aon actually had the discussion with different carriers and many of 120 countries around the world. You can imagine that may not be occurring now given we've got a 25-person committee looking this every day and some of inequities that were out there in terms of getting paid a different price for the exact same product and the exact same company SIC code for the exact same limits in the same city from the carrier may not happen any more.

So just getting paid for what is agreed is an initiative that's been looking very, very well for us. And then we're appropriate, securing increases and compensation, and only where appropriate, but we've been working very hard to do that. And we're seeing movements there, and we're continuing to work on it. But again it's all in the context of the right value for the price on behalf of our clients. And then also getting reimbursed for the services we provide. So right now, we have a whole range of activities that are less about cash gosh, can we get a higher commission? more about we are absolutely going to be the highest value to price. And in the context of that, what is the right price and then how do we secure that. So, that's really how we thought about it.

Brian Meredith - UBS

And I guess. Do you think getting the right price, and potentially getting some price increases could offset some of the potential hurts (ph) from an exposure standpoint this year?

Gregory Case

Yeah, from our standpoint, we see back to the three, now shifting from sort of the pure client view, from a shareholders view around organic growth, margin improvement, and EPS improvement. We see lots of opportunities to coordinate our global business in a way that can be more effective and more impactful for our clients and our shareholders. So there, we believe there are lots of ways to do that, and that's one of the reasons we're optimistic about the platform for 2009.

Brian Meredith - UBS

Thank you.

Operator

Our next question is from the line of Jay Cohen with Bank of America. Please go ahead.

Jay Cohen - BAS-ML

It's actually Bank of America-Merrill Lynch; you keep getting that wrong.

Gregory Case

We get it, Jay; that's all right.

Jay Cohen - BAS-ML

Three questions; first is: can you talk about the pricing environment? You mentioned prices weren't down as much in fourth quarter. But what are you seeing early in January and if you want to look into your crystal balls, what do you think you'll see for 2009? Second topic, the draft on transparency by the New York commissioner, can you talk about that? And then the last question is do you see... from an economic standpoint, do you see your larger clients being impacted differently than your mid market clients.

Gregory Case

Okay. We will take those in turn. I'll start on the pricing side. Jay, it really is two questions just as you described. One is the impact on price through Q4, and it is... we were very clear that this is a story on Q4 for us. It's a story of still decreasing, but at a lesser rate of decrease. That story holds loud and clear. You can look at the external sources. I think CIAB and MarketScout, if you want to pick those two, saw rates in Q4 9% from 1. I think the Scout was down 9% CIAB was down 6%.

And those rates are actually less then they were throughout the year. Mid-year, they were down roughly at 11% and early 2008, down 15. So the story that rates have decreased at a lesser rate, I think is there, but they're still down. And what we saw in the quarter was exactly that. We saw rates that were down in low single digits. That was an improvement for us, but the rates were still absolutely down. And by the way, we track placements down in very detailed level, a lot more details than you can get from any market source, and we would just tell you that holds exactly.

There are obviously a few notable exceptions around maybe marine, aviation, space, and obviously in D&O. And... but that clearly was the case in terms of the fourth quarter. And in terms of the crystal ball, look, I would still say, Jay, reflecting comments from our colleagues across the world, this is relatively flat with... my headline, relatively flat with maybe limited evidence of increasing prices across the market.

They just aren't there. We just haven't seen them. Again there are clear exceptions. D&O was one. Mike Rice, who leads our practice there has done a tremendous job, tracks everything in the context of this. And in case of D&L, we know we are seeing movement in price. It's positive by the way for the first time in 21 straight quarters it's positive. And there are few others in the peak zones and reinsurance for example. But generally across the board, there's lots of conflicting issues here.

A few examples: there is tremendous pressure on supply, which would imply rates might move north, lower investment yields, higher cat losses et cetera. But there is also a lot of pressure, Jay, on the side in terms of the ultimate behavior of the insurance, and what they're doing and how they're reacting, and there is pressure on the economic slowdown and finally there's pressure on aggregate capacity.

The clients may have a need, but if reinsurance capacity for example isn't there and you can't raise it by capital markets. There's lots of pressure back and forth in terms of what's going to happen in the overall market and the overall pricing. So I would ay for us for 2009, we are going to fight the heck for our clients, best terms, best price everywhere. We'll see how it plays out, but it is... for us. There is a lot being said that's yet to be seeing. So that's what I would say to start on the overall pricing piece.

Does that answer your question on that?

Jay Cohen - BAS-ML

Yeah, that's great.

Gregory Case

And then on the draft comments from Superintendent Dinallo and the New York AG, I just want to say first of all we just appreciate the opportunity given to us to informally review these overall rules and look at them. As we said publicly strongly support the Superintendent's efforts to reinforce and improve transparency in insurance sector. It's just absolutely critical from our standpoint.

I would come back to what we said before. This is really... this is really about clients. It's not about brokers and carriers. It should have nothing to do with us. It's about clients and really two topics for clients. One is the client's right or benefit to understand who is working for them and what they're paying for the service. I'd kind of struggle to even say that, but it seems so obvious, but my God, that's exactly what this is about.

Clients have a right to understand who's working for them. They have a right to understand what they're paying for the service. And then what is the form of compensation across the folks who provided at a level playing field. And we're asking for, what we are arguing for, what we're trying to support the Superintendent on and AG on is everything around transparency.

For us that's the number one issue. That's the most compelling issue. That's the most obvious. What producer they're working for the client? Are they working for the agent? What ensures is the producer approaching? How much is the client paying? How much and how producers are going to be compensated, and all those things are very obvious, very straight forward. We would we believe prerequisite for a healthy industry, and we are just encouraged by the movement.

We're very excited to try to help in anyway we can. And as we said, what we want is a healthy robust industry, in which clients know what they're getting. They can value what they're getting and they can make a judgment on whether it works or not. And if doesn't they shouldn't be able to make choices around that. And so, we're quite encouraged to try to do that and try to drive that.

So, that's on the second question you had. And the third was literally... I think what you asked was the large clients, are they acting differently now than middle market or smaller clients. Is that what you asked?

Jay Cohen - BAS-ML

Yeah, exactly, Greg.

Gregory Case

Look, this is... we talk about this everyday. This is our focus. What's happening with our clients and how we can be supportive and try to be helpful, and what, both Christa and I described as, arguably the highest time of need ever when you think about what clients are... were up to and what they're struggling with.

And I would say there weren't really any particular patterns, Jay. We have... there are a lot of issues facing large clients that are facing smaller clients as well. There are a few obviously as you think about global clients that have interrelated global businesses and network businesses. And so there are a lot of second order effects they're having to deal with at obviously a domestic U.S. player or domestic European player wouldn't have to deal with.

So in many respects, those are the same. What we are seeing is just a huge amplification of just day-to-day issues. Can I get the placement? Can I get the placement at the right price? I have a conflict. I need to get resolution. Who can help me do that? I'm in trouble and I actually need help in terms of in the bankruptcy or out of bankruptcy or in stress and out of stress. And so it really is a lot of the same issues Jay with lots of amplification.

Jay Cohen - BAS-ML

Great, thank you.

Operator

Next is from the line of Meyer Shields with Stifel Nicolaus. Please go ahead.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Pardon me. Thank you, good morning everybody.

Christa Davies

Good morning, Meyer.

Meyer Shields - Stifel Nicolaus & Company, Inc.

If we look at Benfield's seasonality, I guess, from their filings in 2007, it looks like their revenue are about 70% in the first half and 30 in the second. I was wondering if you can get a quarterly breakdown for modeling purposes.

Christa Davies

Yeah, so the revenue part of recognition is very similar to our reinsurance business for the first and the third quarter are slightly stronger than the second and the fourth quarter. If you really model revenues being 25% across every single quarter and then bumps the first and the third quarter up slightly, you get pretty close to the way the revenue pattern given... our revenue recognition policy and the move from IFRS to U.S. GAAP.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Okay, that's helpful, thank you. And I think there were some comments from markets also talking about how AIG's troubles specifically, and I guess in general, the fact that a number of just looking prominent insures are in some trouble that insures are less comfortable having their counter party credit risk consolidated with one carrier. I guess two part question for that, are you seeing that trend and does that translate into high revenues, because you'd have to do more work?

Gregory Case

Meyer, this is the last part of that; can you just... what do... could you just repeat that?

Meyer Shields - Stifel Nicolaus & Company, Inc.

Sure. I am just wondering whether if that trend is in fact showing up where clients wanted their insurance split up among multiple carriers, did that translate into higher revenues, because there's presumably more effort involved?

Gregory Case

Yeah, got it, sorry, just didn't pick up the last part of the question. Yeah, look, we see lots of in this both at the retail level as well as the reinsurance level; absolutely questions and comments turns around capital. Is it there, is it adequate quality capital, how does it look? Again back to the issue of why we see in our view demand going up for the services we provide, the stakes are higher than ever before.

I mean as you think about the work that Aon Benfield does in the context of on the reinsurance side, there once was a time when we're helping clients fight for opportunity; now, in many respects, they are fighting for success. And so what we're doing is helping them to think about the diversified capital they access, how they do it, how it evolves over time, and it creates lots of opportunities to add value. And when we add value as we said before that benefits Aon, but it has to benefit clients in a disproportionate way. And the current environment clearly highlights that need for clients in that opportunity for Aon.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Okay. And one last question if I can, you talked little bit about Aon's specific pension issues that's clearly representative of almost everyone. Is there measurable impact on the demand within consulting for retirement that we should expect for 2009?

Gregory Case

Yeah, the consulting business in terms of sort of again back to have when asked the question before around what's happening global economy we feel lots of pressures in lots of different ways. But in the context of our business again, the need in many respects in different areas of our business is and the demand is increasing. And so we have a number of clients that have real requests and real urgency around this topic. And we continue to look at it and help them through it.

Christa Davies

The only thing, I would on our consulting business is we do face economic headwinds in certain areas of the consulting business, which we've mentioned in previous quarters, particularly in our global compensation benchmarking business and pilot consulting business. And the other thing obviously, benefits brokerage businesses if employment were to decrease then it benefits helping benefits, services would also similarly decrease. And so we have a couple of headwinds facing our consulting business that might me partially offset by the growth in certain areas of business that you described.

Gregory Case

Absolutely right.

Meyer Shields - Stifel Nicolaus & Company, Inc.

All right. That's very helpful. Thanks so much.

Operator

Our next question is from the line of Jay Gelb with Barclays Capital. Please go ahead.

Jay Gelb - Barclays Capital

Thanks and good morning.

Gregory Case

Hi Jay.

Christa Davies

Good morning Jay.

Jay Gelb - Barclays Capital

On the margin for 2009, Greg, I think you've said every year, Aon wants to expand the margin, so with the headwind in consulting, which you said, will be lower probably in 2009, 2008, the impact from pension, our expense is going to more than offset that so that Aon can expand the overall margin for the company in 2009 versus 2008?

Gregory Case

We have not as we... I mentioned and then Christa reinforced, Jay. Our objective... our commitment to shareholders over the course of 2009, over the course of any year, but certainly 2009 is that we are absolutely focused on improving margin, increasing earnings per share and then growing organically.

And we said on the brokerage side in particular, we're going to exceed 20% that is a very clear objective for our leadership team, and we are marching towards that. And listen, this is a lot about trying to understand the situation and react, and our leadership team is very respectful. The headwinds that Christa is describing are real.

They are substantial and our team is... they will always look for ways to adapt to those and to react to those. And I would just say to you... in particular if you look the headwind around invest income, we run a very significant portfolio that has to be invested in a very specific way and rates have come down.

So that's a sort of an uncontrolled outcome that we can't really manage. And we've got to work for ways to manage around that. And I'd highlight for you that over the course of last few years, pricing market, we said we are not going to back away from our objectives, because pricing is down, and we didn't and pricing has been down 5% to 15% over the last three years, and we've been able to move to performance. And in the context of the current global economy, as we've said, there are lots of puts and takes with real headwinds in many respects and real opportunities, the respects and our team is committed to achieving the three outcomes that I described.

Jay Gelb - Barclays Capital

A fair point, thanks. And then on Benfield, I just want to clarify that the expenses would probably match up with the revenue seasonality.

Christa Davies

Yeah.

Jay Gelb - Barclays Capital

So essentially we're not going to see bug shifts in seasonality of earnings in any given quarter because of Benfield deal, is that right?

Christa Davies

That's a fair expectation, Jay.

Jay Gelb - Barclays Capital

Okay. And then Christa, I don't know if you can comment on the amount of expense savings that dropped to the bottom-line from the '05 program, and also the expectations for the '07 program.

Christa Davies

Yeah, Jay, we've always said that with our restructuring program that we continue to invest approximately 20% of the savings back into the business, and that's probably a fair number to use.

Jay Gelb - Barclays Capital

Thanks.

Operator

The next is question is from David Small (ph) with JPMorgan. Please go ahead.

Unidentified Analyst

Yeah, hi, two quick questions; could you just help us understand the seasonality of the margins in the business? There's just been so much restructuring going that it's hard to kind of see... and I'm talking within brokerage. What's the seasonality of profitability would be kind of in a normal year?

Gregory Case

David, clarify little more seasonality or profitability, a little more on that.

Unidentified Analyst

Exactly, that would be helpful. And then the second question would be shouldn't your long-term margin objective be going up now that you are adding Benfield given that reinsurance is a higher margin business?

Christa Davies

Okay. David, let me take the first question on brokerage margins first. We've committed to shareholders as Greg mentioned that we're going to grow PTI margin every year.

During the course of any year, there are going to be puts and takes as you've described, whether they are from restructuring and impact of that or whether they are from certain headwinds we're facing around investment income or pensions or FX. And so it's very difficult to predict margins during the year. And that's why we've committed to shareholders that we are growing margin on a yearly basis opposed to any particular quarter.

Unidentified Analyst

I guess what I'm asking is without those puts and takes, if you had a normal year without so much volatility there would be some... I would imagine there would be some profitability seasonality to the business or...

Christa Davies

Yeah, without those puts and takes you should see Q4 is being the higher margin quarter during the year, and not really as kind of simple as it gets.

Gregory Case

But as Christa said, David, it actually varies around the world of Aon, which is... the reason Christa says and this is about a portfolio for us. Q4 really represents on average overall, particularly acute in the U.S. U.S is really strong in Q4; Europe is stronger in Q1. So we really have a whole portfolio affect that Christa describing that really comes to pass, which is why to get smooth out a bit, but just I think generally that holds.

I think with regard to your question around the target brokerage margin, what we've said is, look, we are going to... we want to need commitments period, and we said we're going to get north of the 20% brokerage margin, and we'll get comfortably north of that, and we'll step back and reevaluate, and right now, we haven't achieved that. And when we achieve that, we're going to get back to you and we'll tell you where we are going from there. But right now, we're marching toward north of 20.

Unidentified Analyst

Okay, thank you.

Operator

The next question is from line of Mark Lane with William Blair & Company. Please go ahead.

Mark Lane - William Blair & Company, L.L.C.

Good morning. I just had a quick one on investment income. You framed the sensitivity as 100 basis point movement up or down equating to $44 million. What's the starting point and what yield level are you starting from in 2008?

Christa Davies

Yeah, it's a great question. So, obviously, you can see our investment income for 2008 is around 250 million for the company. But if you focus on the brokerage number, it's around $190 million for the full year 2008. So if you looked at that, sort of, we're down a little more than 200 basis points in terms of year-over-year declines in interest rate. And so you can sort of factor that through the numbers.

Mark Lane - William Blair & Company, L.L.C.

The 190 for... the fiduciary income, you don't see the balances right, because means there is a lot of free float I guess out there.

Christa Davies

So, we do describe the balances on our balance sheet. It's 3.2 billion in fiduciary funds. And then obviously we still earn interest income on the cash and short-term investments we hold, which is 1.2 billion. So, you can see both those numbers on our balance sheet, which we report every quarter.

Mark Lane - William Blair & Company, L.L.C.

So what yield... what average yield did you see in 2008? How do you look at that, I mean, what...

Christa Davies

It's a bit of complex, Mark.

Mark Lane - William Blair & Company, L.L.C.

Yeah.

Christa Davies

Because we obviously have investments in multiple currencies around the world. And we also as we've disclosed in our 10-Qs and Ks, we hedge a portion of this.

Mark Lane - William Blair & Company, L.L.C.

Right.

Christa Davies

And for the net impact if you were to look at the benchmark is more like three months liable.

Mark Lane - William Blair & Company, L.L.C.

Yeah.

Christa Davies

And obviously, we're investing in more like one month viable. But once you include the impact of hedging, the net result is more like three month liable.

Mark Lane - William Blair & Company, L.L.C.

Okay, thank you.

Operator

And we have a question from the line of Keith Alexander (ph) with JPMorgan. Please go ahead.

Unidentified Analyst

Hi guys.

Gregory Case

Hi Keith.

Christa Davies

Hi Keith.

Unidentified Analyst

Good morning. My first question... and I am just looking for a correction if I'm wrong. I thought before there is a mention that there would be a hedging gain on the Benfield transaction. And if so where was this realized on the income statement and how much?

Christa Davies

Yeah, so Keith, actually what we've described is that we paid less for the transaction, $320 million less, because pound was worth less versus the U.S. dollar. So we have originally said the transaction would cost 1.75 billion, and it costs 1.43, that's $320 million saving was due to the change in the depreciation in the pound versus the U.S. dollar. Offsetting that, as you can see in the schedules is the $46 million hedging cost and transaction costs associated with that purchase.

Unidentified Analyst

Okay, I see. And have there been any changes to your hedging program this year or do you plan any?

Christa Davies

Not materially. As we sort of said, we tend to hedge transactional... on an FX side, transactional exposure, which we've talked about previously. So we have this U.S. dollar-pound mismatch, which we've talked about several times in our UK business. We're around 350 to 400 million of our revenue is in U.S. dollars and we have pound expenses, and we hedge that mismatch. And then we do sort of hedge foreign currency translation to minimize cash flow volatility and the last thing we hedge, which I have described briefly is interest rates. Because we have very long interest rates, and we do go through that in quite a lot of detail, and we'll update that in our filing of 10-K later this month.

Unidentified Analyst

Okay. And just another question: according to our estimates, the cost save program at Benfield should take out about a quarter of the G&A of that business; is that right? And if so, where are these costs going to come from?

Christa Davies

We've said that the overall cost savings of the Aon Benfield restructuring program will be $122 million, which will be the run rate savings by 2011. That's approximately 10% of the total cost base of Aon plus Benfield, so Aon Benfield combined. And we've really said that those cost savings are primary going to come from back office support and property overlap.

Unidentified Analyst

Okay, that's very helpful. And one last question if I may; can you break out the FX impact on risk insurance services between brokerage... between comp and benefits and G&A?

Christa Davies

We can certainly follow-up with that.

Unidentified Analyst

All right, great. Thank you.

Operator

And next from the line of Dan Johnson with Citadel. Please go ahead.

Daniel Johnson - Citadel Investment Group

Great, thanks for taking for taking the call. I just want to ask, Greg, on the expense front, you or Christa, you've talked about these incremental savings from announced restructuring programs, but if I recall in the past, you've got more than a few other things going on outside of the announced programs. Can you talk a little bit about what's going on there and whether not your outlook for savings there has changed, please?

Gregory Case

Dan, just generally our outlook has not changed. We have... as we've said, the restructuring programs we want to make sure we put in place. You can track down to the penny kind of investment for that and return, so you can see exactly with that looks like. And to the extent that evolves a number of colleagues, that's something we want to make sure you have in place and you can track. So we finished the '05 program down in place, but not clear you can go back and look at that, do the same for the other programs for the '07 in the Benfield... Aon Benfield, and those are proceeding very well. And then the other efforts as we described, Dan, are going to continue and have continued and made progress on.

Daniel Johnson - Citadel Investment Group

Very good, thank you very much.

Gregory Case

Sure.

Operator

And we have a question from the line of Andy Sabal with Viking (ph). Please go ahead.

Unidentified Analyst

Yes, good morning, thanks.

Gregory Case

Hi, Andy.

Unidentified Analyst

Most of my questions have been answered, just have one last question. Greg, maybe you can talk us through your emerging markets business; obviously, you've highlighted that as an area of growth for the past few quarters, I guess. We've started seeing some slowdown and coming out of the areas whether it be China, Asia, Middle East. Can you just talk us through what you are seeing through in your own business and the outlook for those areas?

Gregory Case

Yeah Andy, this is great... really a really a great position for us. We've got a terrific brokerage business. Human capital business, it's really emerging very, very well. And just a great part of the world for us when we think about everything around Asia Pacific.

It is though a tale really of multiple different regions within the region if you will. So we've got Australia, where we've got an incredibly strong and privilege position. New Zealand, incredibly strong privilege position, obviously developed markets doing extremely well on; same in Japan. And some of the results overall have been influenced from the situation in Japan we described before that we'd have to deal with based on the regulatory changes.

It's really masked the overall growth that has happened in other areas and the results in other areas continue to be very, very strong in China, in other developing areas across Asia. So it's just is a very, very strong business for us across the board. With tremendous opportunity, obviously again like every place in the world today, we're going to fight different challenges and headwinds as our clients encounter different challenges. But those... in terms... those challenges again are increasing the need for risk advice risk understanding risk litigation and human capital solutions; it just turns out from an advisory standpoint... just there you see different kind of activity, but an increasing demand overall. So, we're quite excited about the platform there, and we think we can deal with it.

Unidentified Analyst

You've not started seeing any deceleration in growth in many of the synergy markets, would you say?

Gregory Case

No. Deceleration, I would say we still see strong growth. It's... we've certainly seen some decrease. The growth is still quite extraordinary. But certainly we've seen a slowdown a bit in terms of what's happening with our clients.

Unidentified Analyst

Great. And just finally on Japan, you said you're sort of looking at some closure on that issue, maybe you could just talk a bit more about that?

Gregory Case

Yeah. What we described before is... we had a business in Japan, which was really... had been in place for a long period of time and a common practice in Japan around just group buying efforts. And so we started our business around group buying insurance, so a keel side business in Japan. And the regulatory changes actually have basically forced us it should completely change direction in that, which we've been trying to do in our sense. We've got a plan in place that will largely get the issued result by in the first quarter... first and second quarter this year.

Christa Davies

I just wanted to follow up on Keith's question on the foreign currency translation benefit to our brokerage expense. So if you refer to page four of our press release, you do see that we have incurred $124 million favorable impact to foreign currency translation in the quarter.

Gregory Case

We just wanted to make sure that Keith got that.

Christa Davies

Yeah.

Gregory Case

Andy, are you good?

Unidentified Analyst

Yes, I am good. Thanks, great.

Gregory Case

Okay.

Operator

Our final question comes from line of Meyer Shields with Stifel Nicolaus. Please go ahead.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Thanks. Two quick follow ups if I can. One: the incremental savings from the 2007 restructuring; is that primarily U.S.?

Christa Davies

No, it isn't. The saving is really split... if you did the 2007 overall charge, the 550 million, 186 million of it's EMEA, 160 million is the Americas, 154 million the UK, and 50 million is APAC. So you can see actually the majority of it's coming outside of the U.S.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Okay. And are we done with drag from CFE (ph) now?

Christa Davies

The consulting outsourcing contract?

Meyer Shields - Stifel Nicolaus & Company, Inc.

Yes.

Christa Davies

We have seen the majority of that impact; it is continuing.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Okay. Do you know when that ends?

Christa Davies

In the next year or so, but it's very small.

Meyer Shields - Stifel Nicolaus & Company, Inc.

Okay. Thanks so much.

Gregory Case

Sure.

Operator

And that concludes today's call. Mr. Case, do you have any final remarks?

Gregory Case

I don't. Thank you for participating today; we appreciate it.

Operator

And ladies and gentlemen, that does conclude your conference. Thank you for your participation. You may now disconnect.

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