Aon Reveals $27 Million in Alexander Losses

Aon Corp. said it has contacted law enforcement authorities after discovering an insurance brokerage firm it recently purchased had $27 million in hidden losses. Aon, the world’s second-largest insurance broker behind Marsh & McLennan Cos., said it had discovered the losses after examining the books of Alexander & Alexander Services Inc. Chicago-based Aon purchased Alexander & Alexander early this year for $1.2 billion. In a statement, the company said Alexander & Alexander had engaged in highly volatile securities transactions and “incorrectly” classified them as something else. The securities transactions included bonds linked to home mortgages called collateralized mortgage obligations, Aon said. Alexander & Alexander’s books had classified the bonds and loans as high-quality money market instruments, at inflated values. The company has “contacted law enforcement authorities and is cooperating with their investigations,” Aon also said. Spokesman John Roskopf said Aon could not comment further because the investigation is continuing. Aon completed its purchase of Alexander for $17.50 a share on Jan. 15, after courting the company for three years. Alexander Chairman Frank G. Zarb then left the company to become chairman of the National Assn. of Securities Dealers. Zarb said he was unaware of the allegations of wrongdoing or the investigation until briefed recently by Aon executives.