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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

Aon Corporation
(Exact Name of Registrant as Specified in its Charter)

        Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes /x/        No / /

        Number of shares of common stock outstanding:

PART I

FINANCIAL INFORMATION

Item 1.    Financial Statements

Aon CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF FINANCIAL POSITION

See the accompanying notes to the condensed consolidated financial statements.

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Aon CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)

See the accompanying notes to the condensed consolidated financial statements.

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Aon CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

See the accompanying notes to condensed consolidated financial statements.

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Notes to the Condensed Consolidated Financial Statements

1.    Statement of Accounting Principles

        The financial results included in this report are stated in conformity with accounting principles generally accepted in the United States and are unaudited but include all normal recurring adjustments which the Registrant ("Aon") considers necessary for a fair presentation of the results for such periods. These interim figures are not necessarily indicative of results for a full year as further discussed below.

        Refer to the consolidated financial statements and notes in the Annual Report on Form 10K/A for the year ended December 31, 2001 for additional details of Aon's financial position, as well as a description of the accounting policies that have been continued without material change, except for the adoption of Financial Accounting Standard Board's (FASB) Statements No. 141 and 142.

        Certain amounts in prior year's condensed consolidated financial statements have been reclassified to conform to the 2002 presentation.

Other Than Temporary Impairments on Investments Recognition Policy

        Declines in the market value of invested assets below cost are evaluated for other than temporary impairment losses on a quarterly basis.

        Impairment losses for declines in value of fixed maturity investments and equity securities below cost attributable to issuer-specific events are based upon all relevant facts and circumstances for each investment and are recognized when appropriate in accordance with SAB 59, FASB Statement No. 115 and related guidance. For fixed maturity investments with unrealized losses due to market conditions or industry-related events where the Company has the positive intent and ability to hold the investment for a period of time sufficient to allow a market recovery or to maturity, declines in value below cost are not assumed to be other than temporary.

        Aon's policy for equity securities is to recognize impairment losses on specific securities that have had continuous material unrealized losses for more than three consecutive quarters or less, due to market conditions or industry-related events.

2.    Accounting and Disclosure Changes

        Effective January 1, 2002, Aon adopted FASB Statement No. 142, Goodwill and Other Intangible Assets. As a result of adopting Statement No. 142, the Company's goodwill is no longer amortized. Pursuant to Statement No. 142, goodwill must be periodically tested for impairment and the new standard provided six months to complete the impairment review. In first quarter 2002, Aon completed its impairment review that indicated that there was no impairment as of January 1, 2002, (see note 7).

        Aon also has adopted FASB Statement No. 141, Business Combinations. In accordance with Statement No. 141, other intangible assets that do not meet the criteria for recognition apart from goodwill (as defined by Statement No. 141) are to be classified as goodwill upon adoption of the statement. Aon has reclassified $287 million of these intangibles, net of accumulated amortization, to goodwill as of January 1, 2002. The December 31, 2001 consolidated statement of financial position has been reclassified for this item.

        Aon also adopted FASB Statement No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective January 1, 2002. The adoption of Statement No. 144 did not have a material impact on Aon's consolidated financial statements.

        In June 2002, the FASB issued Statement No. 146, Accounting for Costs Associated with Exit or Disposal Activities. Statement No. 146 supercedes Emerging Issues Task Force (EITF) Issue No. 94-3,

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Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). Statement No. 146 is effective January 1, 2003. The adoption of this statement is not expected to have a material impact on Aon's consolidated financial statements.

3.    Unusual Charges (Credits)—World Trade Center

        In the third quarter 2001, Aon recorded pretax unusual charges of $53 million, net of insurance and reinsurance recoveries, related to losses sustained as a result of the destruction of the World Trade Center on September 11, 2001 and the death of 175 employees. Costs incurred in this period included $29 million of destroyed depreciable assets at net book value and $30 million for salaries and benefits for missing employees and other costs. Offsetting these expenses were estimated insurance recoveries of $51 million as of third quarter 2001. These costs also included $192 million of insurance benefits paid by Aon's Combined Insurance Company of America subsidiary (CICA) under life insurance policies issued for the benefit of deceased employees, which were partially offset by reinsurance recoveries of $147 million. Reinsurers have disputed their liability as to approximately $90 million of reinsurance recoveries under a Business Travel Accident (BTA) policy issued by CICA to cover U.S.-based employees of subsidiaries of Aon, and legal actions have been filed by both parties. In fourth quarter 2001, Aon recorded a pretax $90 million allowance for a potentially uncollectible receivable related to this dispute. On September 11, 2002, CICA's action with respect to the BTA policy was dismissed by the Court for the lack of subject matter jurisdiction. CICA is seeking an expedited appeal.

        In third quarter 2002, a partial settlement was reached with Aon's property insurance carriers regarding reimbursement for depreciable assets destroyed. This settlement resulted in a pretax credit of $18 million, which is reported as an unusual credit—World Trade Center in the condensed consolidated statements of income.

4.    Planned Divestiture of Underwriting Business

        In April 2001, Aon's Board of Directors approved, in principle, a plan to spin-off its current underwriting businesses to Aon's common stockholders, creating two independent, publicly traded companies. The company was named Combined Specialty Group, Inc. (Combined Specialty). In August 2002, Aon announced it was investigating alternative options for Combined Specialty, including a sale of all or part of Combined Specialty and/or a spin-off of part of Combined Specialty. At that time, a prompt sale of all or part of Aon's underwriting operations, at an acceptable price was believed to be achievable within a reasonable timeframe. However, due to adverse market conditions for mergers and acquisitions, Aon announced on October 31, 2002 that it has decided not to sell, or spin-off, its major underwriting subsidiaries. However, during the fourth quarter 2002 the Company will have costs associated with the winddown of the expanded corporate and underwriting staff that was added in contemplation of the spin-off.

        In the first nine months of 2002, Aon incurred $8 million of expenses related to the proposed divestiture. These expenses primarily represent outside professional fees and have been recorded in general expenses in the condensed consolidated statements of income.

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5.    Comprehensive Income

        The components of comprehensive income, net of related tax, for the third quarter and nine months ended September 30, 2002 and 2001 are as follows:

        The components of accumulated other comprehensive loss, net of related tax are as follows:

6.    Business Segments

        Aon classifies its businesses into three operating segments based on the types of services and/or products delivered. There is also a fourth non-operating segment, Corporate and Other. The Insurance Brokerage and Other Services segment consists primarily of Aon's retail, reinsurance and wholesale brokerage operations, as well as related insurance services, including claims services, underwriting management, captive insurance company management services and premium financing. Certain service businesses related to insurance underwriting operations are also reflected in this segment. The Consulting segment is Aon's human capital consulting organization that utilizes five major practices: employee benefits, compensation, management consulting, outsourcing and communications. The Insurance Underwriting segment provides specialty insurance products including supplemental accident, health and life insurance coverages, extended warranty and other specialty property and casualty insurance products. Corporate and Other segment revenue consists primarily of investment income from equity, fixed maturity and short-term investments that are assets primarily of the insurance underwriting subsidiaries that exceed net policyholders' liabilities. Revenues are derived from investment income from certain investments (which include non-income producing equities), valuation changes in remaining limited partnership investments, and gains and losses on disposals of all securities and other than temporary impairment losses, including those pertaining to assets maintained by the operating segments. Corporate and Other expenses include general expenses, including administrative and certain information technology costs, interest expense and, in 2001, goodwill amortization.

        Amounts reported in the tables for the four segments, when aggregated, total to the amounts in the accompanying condensed consolidated financial statements. Revenues are attributed to geographic areas based on the location of the resources producing the revenues. There are no material inter-segment amounts to be eliminated.

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        Selected information reflecting Aon's operating segments follows:

(1)

Includes $18 million of unusual credits—World Trade Center.

(2)

Includes $8 million of unusual charges—World Trade Center.

(3)

Includes $45 million of unusual charges—World Trade Center.