Overview

This Management's Discussion and Analysis is divided into six sections. First, key recent events are described that have affected or will affect our financial results during 2008. We then review our consolidated results and segments with comparisons for the third quarter 2008 to the corresponding period in 2007. We then discuss our financial condition and liquidity as well as information on our off balance sheet arrangements. The final section addresses certain factors that can influence future results.

The outline for our Management's Discussion and Analysis is as follows:

KEY RECENT EVENTS

Acquisitions and Divestitures

Restructuring Initiatives

Share Repurchase Program

Change in Chairman of Aon's Board of Directors

CRITICAL ACCOUNTING POLICIES

REVIEW OF CONSOLIDATED RESULTS

General

Consolidated Results

REVIEW BY SEGMENT

General

Risk and Insurance Brokerage Services

Consulting

Unallocated Income and Expense

FINANCIAL CONDITION AND LIQUIDITY

Cash Flows

Financial Condition

Borrowings

Stockholders' Equity

Off Balance Sheet Arrangements

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS

KEY RECENT EVENTS

Acquisitions and Divestitures

In October 2008, we reached a definitive agreement to sell AIS, which was previously included in our Risk and Insurance Brokerage Services segment, to Mercury General Corporation, for approximately $120 million in cash, plus a potential earn-out of up to $35 million, payable over the two years following the completion of the agreement. The sale is subject to various closing conditions and is expected to be completed in first quarter 2009. Operating results have been reclassified to discontinued operations for the quarter and nine months ended September 30, 2008 and 2007.

On August 22, 2008, we announced that we had entered into an agreement to acquire Benfield, a leading independent reinsurance intermediary. Under the terms of the definitive agreement, we will acquire all of the outstanding shares of common stock of Benfield for £844 million or 350 pence per share ($1,557 million at September 30, 2008 exchange rates) in cash and assume £91 million ($168 million) of Benfield debt. We intend to fund the transaction through cash on hand.

The transaction is expected to close in the fourth quarter of 2008, subject to customary closing conditions, including regulatory approval. On October 14, 2008, Benfield shareholders voted to approve the sale of Benfield. Following the close of the transaction, we intend to integrate the Benfield business with our existing reinsurance operations (Aon Re Global) and operate the division globally under the newly created Aon Benfield Re brand.

In first quarter 2008, we agreed to buy substantially all of A. J. Gallagher's U.S. and U.K. reinsurance brokerage business for $30 million in cash, plus the revenue produced by the acquired businesses in the first year after the deal closes. This transaction gives us a larger presence as a reinsurance broker for accident, health and life insurance in the U.S., and for accident and specialty casualty and financial institutions insurance in the U.K.

In December 2007, we announced that we signed definitive agreements to sell our CICA and Sterling subsidiaries. These two subsidiaries were previously included in an Insurance Underwriting segment. Both of these transactions were completed on April 1, 2008. In more detail:

† CICA was sold to ACE Limited for cash consideration of $2.525 billion, after final adjustments. We also received a one-time dividend of $325 million from CICA prior to the close of the transaction.

† Sterling was sold to Munich Re Group for cash consideration of $341 million, after final adjustments.

We have included CICA and Sterling's operating results through the date of sale in discontinued operations. We recorded a pretax gain on these sales of approximately $1.4 billion.

Restructuring Initiatives

In 2007, we announced a global restructuring plan intended to create a more streamlined organization and reduce expense growth to better serve clients. This three-year plan has evolved as new opportunities have been identified and existing initiatives have been finalized. We estimate this restructuring plan will result in cumulative pretax charges totaling approximately $450 million, which is an increase of $90 million from our estimates in previous quarters. Expenses will include workforce reduction and lease consolidation costs, asset impairments, and other expenses necessary to implement the restructuring initiative. We recorded approximately $211 million of restructuring and related expenses through September 30, 2008, including $52 million and $165 million in the third

quarter and nine months of 2008, respectively. We expect the remaining restructuring and related expenses to affect continuing operations through the end of 2009. We anticipate that these initiatives will lead to annualized cost-savings of approximately $75-$80 million in 2008, $220-$245 million in 2009, and $300 million by 2010. However, there can be no assurances that we will achieve the targeted savings.

Based on our current projections, the 2007 restructuring plan eliminates an estimated 2,700 jobs, 300 more jobs than previously disclosed, beginning in the third quarter of 2007 and continuing into 2009. To date, approximately 1,000 jobs have been eliminated. We also expect to close or consolidate several offices resulting in sublease losses or lease buy-outs. These efforts will also trigger asset impairments in the form of accelerated amortization of the remaining leasehold improvements.

The following table summarizes 2007 restructuring and related expenses by type incurred and estimated to be incurred through the end of the restructuring initiative.

                                                     Actual                                       Estimated
                                                     2008                         Total           Total for
                                       Six           Third          Nine         Incurred       Restructuring
(millions)               2007         Months        Quarter        Months        to Date         Period (1)
Workforce
reduction             $       17    $       76    $        42    $      118    $        135    $           284
Lease
consolidation                 22            18              7            25              47                 88
Asset impairments              4            14             (1 )          13              17                 44
Other costs
associated with
restructuring                  3             5              4             9              12                 34
Total
restructuring and
related expenses      $       46    $      113    $        52    $      165    $        211    $           450

Workforce reductions reflect a cash expense, though we may recognize the expense prior to paying for the expenditure. Asset impairments are non-cash expenses. Lease consolidation accruals reflect the present value of future cash flows. Other costs are cash expenses, which are expensed in the period in which they are incurred.

The following table summarizes actual restructuring and related costs incurred and estimated to be incurred through the end of the restructuring initiative, by segment.

                                                    Actual                                       Estimated
                                                    2008                         Total           Total for
                                      Six           Third          Nine         Incurred       Restructuring
(millions)              2007         Months        Quarter        Months        to Date           Period
Risk and Insurance
Brokerage Services   $       41    $      106    $        51    $      157    $        198    $           403
Consulting                    5             7              1             8              13                 47
Total
restructuring and
related expenses     $       46    $      113    $        52    $      165    $        211    $           450

Share Repurchase Program

We are currently authorized to repurchase $4.6 billion of Aon's common stock. Pursuant to this program, during the first nine months of 2008, we repurchased approximately 42.6 million shares at a cost of $1.9 billion. The volume of share repurchases increased during the second quarter, as we began to use the proceeds received from the sales of CICA and Sterling to repurchase shares. Since the program began, through September 30, 2008, we have now repurchased 90.8 million shares at a cost of $3.7 billion. Share repurchases were suspended

in August 2008 in light of the anticipated acquisition of Benfield. We do not expect to make any further share repurchases in 2008, but expect to complete the share repurchase program by the end of 2009.

Any repurchased shares are available for issuance through employee stock plans and for other corporate purposes. Of the shares repurchased since the program's inception, we have reissued approximately 21.6 million shares for stock options, stock awards and other benefit plans.

Change in Chairman of Aon's Board of Directors

Patrick Ryan, the Executive Chairman of Aon's Board of Directors, retired from Aon on August 1, 2008. Mr. Ryan founded Aon, which had its origin in a small insurance agency he started in 1964.

Mr. Ryan is succeeded by Lester B. Knight, an independent director since 1999. Mr. Knight was elected Non-Executive Chairman of Aon's Board of Directors on July 18, 2008.

CRITICAL ACCOUNTING POLICIES

There have been no changes in our critical accounting policies, which include restructuring, pensions, contingencies, policy liabilities, valuation of investments, intangible assets, share-based payments and income taxes, as discussed in our 2007 Annual Report on Form 10-K.

REVIEW OF CONSOLIDATED RESULTS

General

In our discussion of operating results, we sometimes refer to supplemental information derived from our consolidated financial information.

We use supplemental information related to organic revenue growth to help us and our investors evaluate business growth from existing operations. Organic revenue growth excludes the impact of foreign exchange rate changes, acquisitions, divestitures, transfers between business units, investment income, reimbursable expenses, and unusual items. Supplemental organic revenue growth information should be viewed in addition to, not instead of, our condensed consolidated statements of income. Industry peers provide similar supplemental information about their revenue performance, although they may not make identical adjustments.

Because we conduct business in over 120 countries, foreign exchange rate fluctuations have an impact on our business. In comparison to the U.S. dollar, foreign exchange rate movements may be significant and may distort true period-to-period comparisons of changes in revenue or pretax income. Therefore, we have isolated the impact of the change in currencies between periods by providing percentage changes on a comparable currency basis for revenue, and have disclosed the effect on earnings per share. We have also provided this form of reporting to give financial statement users more meaningful information about our operations.

Some tables in the segment discussions reconcile organic revenue growth percentages to the reported commissions, fees and other revenue growth percentages for the segments and sub-segments. We separately disclose the impact of foreign currency as well as the impact from acquisitions, divestitures, transfers of business units, reimbursable expenses, and unusual items, which represent the most significant reconciling items.

Consolidated Results



The following table and commentary provide selected consolidated financial
information.



                                             Third Quarter Ended         Nine Months Ended
                                                  Sept. 30,                  Sept. 30,
(millions)                                    2008          2007         2008         2007
Revenue:
Commissions, fees and other                $     1,756    $  1,672    $    5,493    $   5,125
Investment income                                   91          77           218          236
Total revenue                                    1,847       1,749         5,711        5,361

Expenses:
Compensation and benefits                        1,132       1,048         3,432        3,188
Other general expenses                             425         397         1,350        1,228
Depreciation and amortization                       49          48           157          141
Total operating expenses                         1,606       1,493         4,939        4,557
Operating income                                   241         256           772          804
Interest expense                                    32          33            96          102
Other income                                        (3 )         -            (9 )        (29 )
Income from continuing operations
before provision for income tax            $       212    $    223    $      685    $     731
Pretax margin - continuing operations             11.5 %      12.8 %        12.0 %       13.6 %

Revenue

Commissions, fees and otherincreased by $84 million or 5% on a quarterly basis and $368 million or 7% on a year-to-date basis. The impact of foreign currency translation and organic growth in the Risk and Insurance Brokerage Services and Consulting segments primarily drove the increases in both periods.

Investment incomeincreased $14 million or 18% on a quarterly basis but decreased $18 million or 8% on a year-to-date basis. Interest income from investing the sale proceeds of CICA and Sterling positively impacted investment income on both a quarterly and year-to-date basis while distributions from our Private Equity Partnership Structures I, LLC ("PEPS I") investment increased $13 million for the quarter but decreased $25 million on year-to-date basis from 2007.

Expenses

Compensation and benefitsincreased $84 million or 8% on a quarterly basis and $244 million or 8% on a year-to-date basis. The impact of foreign currency translation and higher restructuring charges primarily drove the increase in both periods. Partially offsetting these increases are benefits from our 2007 and 2005 restructuring programs, and on a year-to-date basis, lower pension expense from the 2007 changes to our U.K. defined benefit pension plans.

Other general expensesincreased $28 million or 7% on a quarterly basis and $122 million or 10% on a year-to-date basis. The increases were driven by the impact of foreign currency translation, higher litigation and restructuring expenses, and costs related to anti-bribery investigations and related compliance initiatives. On a year-to-date basis, last year's expenses included $21 million for the settlement of litigation in early 2007 for acquired employees in our U.K. reinsurance business. Partially offsetting these increases are benefits from our restructuring programs.

Depreciation and amortization expenseincreased $1 million or 2% on a quarterly basis and $16 million or 11% on a year-to-date basis. The nine month increase was due to restructuring-related impairments and foreign exchange translations, partially offset by lower software amortization.

Interest expensedecreased $1 million on a quarterly basis and $6 million on a year-to-date basis, due primarily to the redemption of our 3.5% Senior Convertible Debentures during 2007.

Other incomeincreased $3 million on a quarterly basis resulting from a restructuring of ownership interests of one of our subsidiaries in third quarter 2008, which more than offset expenses related to the pending Benfield acquisition. On a year-to-date basis, other income decreased $20 million primarily due to gains on the sales of businesses in 2007.

Income from Continuing Operations Before Provision for Income Tax

Income from continuing operations before provision for income tax decreased $11 million or 5% to $212 million on a quarterly basis and $46 million or 6% for the nine months ended September 30, 2008. The decrease is mainly attributable to higher restructuring costs and gains on the sale of businesses in 2007, which more than offset the favorable impacts of foreign currency translation and organic revenue growth in 2008.

Income Taxes

The effective tax rate for continuing operations was 27.8% for third quarter 2008 compared to 41.7% for third quarter 2007. The effective tax rate for continuing operations was 27.9% and 35.8% for the nine month periods ended September 30, 2008 and 2007, respectively. The rates for all reported periods were favorably impacted by the resolution of prior year tax items. In the third quarter 2007, legislation was finalized in the United Kingdom which reduced the corporate tax rate from 30% to 28%. This required us to revalue our deferred tax assets related to the U.K. operations, and which resulted in a one-time non-cash charge of approximately $22 million, which was included in the third quarter 2007 tax provision. Our 2008 third quarter and nine month tax rates also reflect the benefit of statutory rate reductions in key operating jurisdictions, particularly the U.K., and the projected geographic distribution of earnings. The underlying tax rate for continuing operations was 29% in 2008 and 33.5% in 2007.

Income from Continuing Operations

Income from continuing operations for third quarter 2008 and 2007 was $153 million and $130 million, respectively. Basic and diluted income per share in the third quarter 2008 was $0.56 and $0.52, respectively, versus $0.44 and $0.41 in 2007, respectively. Income from continuing operations for nine months 2008 and 2007 was $494 million and $469 million, respectively. Basic and diluted income per share for nine months 2008 was $1.70 and $1.62, respectively, versus $1.59 and $1.47 in 2007, respectively. Income from continuing operations in 2008 included $0.04 and $0.17 per share for foreign currency translation gains for the third quarter and nine months, respectively. Our basic and diluted per share calculation for the quarter and nine months 2008 was favorably impacted by lower shares outstanding as a result of our share repurchase program.

Discontinued Operations

The third quarter loss from discontinued operations was $36 million (($0.13) and ($0.12) per basic and diluted share, respectively) for 2008 versus income of $74 million for 2007 ($0.25 and $0.23 per basic and diluted share, respectively). Nine months income from discontinued operations was $974 million ($3.37 and $3.19 per basic and diluted share, respectively) for 2008 versus $188 million for 2007 ($0.63 and $0.58 per basic and diluted share, respectively). In third quarter 2008, a definitive agreement to sell AIS was reached and as such, the business was reclassified to discontinued operations for all periods presented.

Included in the third quarter 2008 results of AIS was a $25 million provision for a lawsuit settlement. Also included in third quarter 2008 results was a $26 million pretax expense related to final settlements with ACE Limited and Munich Re Group in connection with the sale of CICA and Sterling. Results for 2007 primarily reflect operating results from our AIS, CICA and Sterling businesses, while year-to-date results for 2008 primarily reflect first quarter operating results from our CICA and Sterling businesses and a $1.0 billion after-tax gain from the sales of these operations, which were sold on April 1, 2008.

REVIEW BY SEGMENT

General

We classify our businesses into two operating segments: Risk and Insurance Brokerage Services and Consulting. Our operating segments are identified as those that:

† report separate financial information, and

† are evaluated regularly when we are deciding how to allocate resources and assess performance.

Segment revenue includes investment income generated by invested assets of that segment, as well as the impact of related derivatives. Our Risk and Insurance Brokerage Services and Consulting businesses invest funds held on behalf of clients and operating funds in short-term obligations.

The following table and commentary provide selected financial information on the operating segments.

                                          Third Quarter Ended       Nine Months Ended
                                               Sept. 30,                Sept. 30,
(millions)                                 2008          2007        2008        2007
Operating segment revenue: (1) (2)
Risk and Insurance Brokerage Services   $     1,473    $  1,411   $    4,649    $ 4,330
Consulting                                      337         325        1,016        979

Income before income tax:
Risk and Insurance Brokerage Services   $       188    $    228   $      657    $   734
Consulting                                       52          38          158        129

Pretax Margins:
Risk and Insurance Brokerage Services          12.8 %      16.2 %       14.1 %     17.0 %
Consulting                                     15.4 %      11.7 %       15.6 %     13.2 %

(2) Intersegment revenues of $20 million and $24 million were included in nine months 2008 and 2007, respectively.

The following table reflects investment income earned by the operating segments, which is included in the foregoing results.

                                           Third Quarter Ended        Nine Months Ended
                                                Sept. 30,                 Sept. 30,
(millions)                                 2008           2007        2008         2007
Risk and Insurance Brokerage Services   $       48     $       56   $     148    $     154
Consulting                                       2              1           4            8

Risk and Insurance Brokerage Services investment income decreased $8 million from third quarter 2007 and $6 million on a year-to-date basis reflecting the impact of lower interest rates, partially offset by overall weakness in the dollar and higher invested balances. The $4 million year-to-date decrease in Consulting investment income is attributable to a 2007 gain from the sale of an investment.

Risk and Insurance Brokerage Services

Aon is a leader in many sectors of the insurance industry. Aon was ranked in 2008 by Business Insuranceas the world's largest insurance broker, by A.M. Best as the number one global insurance brokerage in 2008 and 2007 based on brokerage revenues, and voted the best insurance intermediary and best reinsurance intermediary in 2008 and 2007 by the readers of Business Insurance.

Changes in premiums have a direct and potentially material impact on the insurance brokerage industry, as commission revenues are generally based on a percentage of the premiums paid by insureds. Insurance premiums are cyclical, and may vary widely based on market conditions. Premium rates usually increase when the industry has heavier than expected losses or capital shortages; this situation is referred to as a "hard market." A hard market tends to increase commission revenues. Conversely, a "soft market," characterized by flat or reduced premium rates, results from increased competition for market share among insurance carriers or increased underwriting capacity. A soft market tends to reduce commission revenues. Hard and soft markets may be broad-based or more narrowly focused across certain product lines or geographic areas. We experienced a soft market in many business lines/segments and in many geographic areas in 2007. Prices fell throughout the year, with the greatest declines seen in large and middle-market accounts. Prices have continued to decline in the first nine months of 2008, and we expect the soft market to continue through the remainder of 2008.

The recent disruption in the global credit markets, the repricing of credit risk and the deterioration of the financial markets have created increasing difficult conditions for financial institutions, including those in the insurance industry. Continued volatility and further deterioration in the credit markets may reduce our customers' demand for our brokerage and reinsurance services and products and could negatively impact our results of operations and financial condition. In addition, the potential for a significant insurer to fail or withdraw from writing certain insurance coverages that we offer our clients could negatively impact overall capacity in the industry. This could then reduce placement of certain lines and types of insurance and reduce our revenues and profitability.

Risk and Insurance Brokerage Services generated approximately 81% of Aon's total operating segment revenues for third quarter 2008 and 82% for nine months 2008. Revenues are generated primarily through:

†          fees paid by clients,

†          commissions and fees paid by insurance and reinsurance companies, and

†          interest income on funds held on behalf of clients.

Our revenues vary from quarter to quarter throughout the year as a result of:

†          the timing of our clients' policy renewals,

†          the net effect of new and lost business,

†          the timing of services provided to our clients, and

†          the income we earn on investments, which is heavily influenced by
short-term interest rates.

Our brokerage companies operate in a highly competitive industry and compete . . .