The reinsurance claim in dispute is a World Trade Center claim, relating to accidental death coverage for Aon employees, which Aon said it continues to pursue with reinsurers at Lloyds.

In its Aug. 7 earnings release, Aon also said it had partially conceded the accounting of another item, relating to impaired investments, which coincidentally also amounted to $56 million, but on a pre-tax basis. The SEC had commented that Aon should have recognized temporary impairments of certain securities sooner than it had. Aon described these as equities and certain fixed-maturity securities below investment grade that had been trading below cost.

To respond to the SEC comment, Aon recorded a pre-tax, non-cash $56 million (13 cents per share) adjustment to second-quarter 2002 earnings, and agreed to recognize impairments on an earlier timetable in the future.

At that time, however, there was an open question of whether the SEC would instead require Aon to restate income for prior periods. The restatement, for the same $56 million total amount, would have reduced 1999 pretax earnings by $27 million, 2000 by $24 million, and first-quarter 2002 by $5 million.

That particular disclosure prompted several law firms to announce class action filings against Aon and some of its directors for misstating prior income.

Last week, Aon said the SEC would accept the second-quarter adjustment and not require the company to restate prior periods, “provided the adjustment is deemed immaterial to full-year 2002 results,” which Aon believes will be the case. Aon stressed that none of the adjustments impacted its equity of $3.7 billion.

Aons accounting for two other items–the sale of partnership income to a special-purpose entity, and business transformation charges–was cleared with the SEC as originally presented.

Reproduced from National Underwriter Property & Casualty/Risk & Benefits Management Edition, August 19, 2002. Copyright 2002 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.