LONDON, 11 October 2005 – Aon Limited, the UK arm of one of the world’s largest insurance broking and risk consulting firms, today unveiled an innovative insurance product called Warranty Replacement and Acquisition Protection (WRAP), to replace the usual giving of warranties by a seller to a buyer in an M&A transaction.  This new type of insurance cover, which is the first of its kind in the UK insurance market, will be applicable in instances where a seller is unable to provide the buyer with the normal business warranties in the event of an issue arising with the business post sale.

Instead of the potential indeterminate risk that comes with buying a business without the benefit of warranties, the buyer can replace this exposure with Aon’s WRAP product.   

In practice, it is the buyer that takes out the WRAP policy, and payment of the premium might be another item that the buyer and seller negotiate as part of the sale agreement.  For instance, the seller could agree to pick up the cost of paying the premium on the basis that the sale price would not be discounted as a result of no warranties being given.

Commenting on the launch, Anka Taylor, Director of Aon’s Transaction Liability Unit said:

“We have worked long and hard to come up with an innovative solution to the problem caused to potential buyers when sellers are unable to give warranties and we’re confident that we’ve achieved this via our new WRAP insurance product. There might be a number of reasons why the giving of warranties with the resultant long term liabilities can be a problem for certain types of seller. In particular, we think that the private equity market will find this risk transfer option extremely helpful, especially in instances where they want to achieve a clean exit with no residual liability, but with no resultant drop in the sale price. 

“We are hopeful that WRAP will further facilitate the growth in the M&A market, providing a resolution to the stalemates we’ve seen in certain deals in the past.”

In terms of cover, the WRAP policy is designed to respond to “acquisition statements” set out in the insurance policy, turning out to be untrue or inaccurate.  Acquisition statements are similar to a standard set of warranties except that they are made within the context of the insurance policy, as opposed to the sale agreement.

Stephen Drewitt, Corporate Partner at Macfarlanes said:

“There are certain private equity disposals for which a traditional warranty & indemnity purchaser policy is not a solution.  For example: transactions with management who refuse to accept any risk of liability, and; transactions with management who have no equity or with equity which has no value.  Sales do occur without the giving of warranties but, in this context, they are often difficult to negotiate and there is usually an impact on the price of the sale.  Indeed, some planned exits do not occur because the warranty debate is not resolved amongst the interested parties. 

“Against this background, Aon's new acquisition protection policy is a welcome addition to the M&A market.  It offers substantial financial protection for purchasers without management being exposed to any warranty liability."

Jonathan Watmough, Corporate Partner at Reynolds Porter Chamberlain said:

"This new policy is surely one of the most innovative developments in the M&A market in recent years.  Deals which might not have been possible - either at all or at the right price - due to lack of sufficient warranty protection, will now have the opportunity to proceed at full value.  M&A professionals, especially in the private equity arena, should take careful note."


Notes to Editors

About Aon
Aon Corporation (http://www.aon.com) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 48,000 professionals in its 500 offices in more than 120 countries.  Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.

This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results, depending on a variety of factors.  Potential factors that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, resolution of pending regulatory investigations and related issues, including those related to compensation arrangements with underwriters, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, and the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure.  Further information concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is contained in the Company’s filings with the Securities and Exchange Commission.