Aon Corp. is under more intense pressure to stop taking so-called contingent commissions from insurers after a rival announced Thursday it no longer would accept such payments.
London-based Willis Group Holdings Ltd., the third largest commercial insurance brokerage in the U.S. after No. 2 Aon and embattled industry leader Marsh & McLennan Cos., said it will no longer accept the back-end commissions insurers pay based on the volume and quality of business brokers place with the them.
â€œWe want our clients to know that we have heard them loud and clear: they donâ€™t like contingency agreements,â€� Willis CEO Joseph Plumeri said in the announcement.
Marsh last week announced it would suspend acceptance of the commissions following a lawsuit by New York Attorney General Eliot Spitzer. The insurance industry was thrown into turmoil last week when Mr. Spitzer alleged Marsh rigged insurer bids to steer clientsâ€™ business to companies that paid higher contingent commissions. Marsh has pledged cooperation with Mr. Spitzer.
Of the top three brokers, Chicago-based Aon remains the only one that hasnâ€™t publicly stated its stance on the commissions, following Mr. Spitzerâ€™s lawsuit against Marsh and his general criticism of the industry for its compensation arrangements. An Aon spokesman again declined to comment today.
The payments contributed $200 million, or 2%, of Aonâ€™s revenues last year, but analysts say they accounted for as much as 20% of its earnings because there are so few costs associated with the payments.
Some analysts say Aon will follow the other brokers. â€œThey have to do it,â€� says Mark Lane, an insurance industry analyst with William Blair & Co. LLC in Chicago. â€œThey donâ€™t have a choice.â€�
The market responded positively to the news that Willis would drop the payments. The companyâ€™s stock rose more than 8% in late trading. Aonâ€™s stock was down nearly 2%.
Separately, Standard & Poorâ€™s lowered its credit rating for Aon today to BBB+/A-2 from A-/A-2, saying â€œthe disruption to earnings resulting from the prospective suspension of (contingent commissions) materially reduces Aonâ€™s ability to improve its operating and financial profiles.â€�
S&P left Aon on a negative CreditWatch even after the downgrade.
Mr. Spitzer has subpoenaed Aon, and reportedly is scrutinizing whether Aon steered business to insurers that used Aonâ€™s separate reinsurance-brokerage business to buy reinsurance. Aon hasnâ€™t been implicated to date and has said it believes â€œto the best of our knowledgeâ€� that its employees didnâ€™t rig bids or steer business to favored insurers.
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