Aon expects to continue delivering organic revenue growth at the mid-single-digit or greater pace seen in each of its divisions in the third quarter at the group level through 2022 and over the long term, as it also said it is on course for full-year margin expansion in 2021.

Greg Case – Aon

Commenting on the firm’s earnings call this morning, CEO Greg Case said that the 12 percent organic growth reported at the group level meant that Aon has delivered its strongest growth in over a decade for two quarters in a row.

The performance was driven by mid-single-digit or greater organic growth in Commercial Risk Solutions (+13 percent), Reinsurance Solutions (+8 percent), Health Solutions (+16 percent) and Wealth Solutions (+4 percent).

“Our Aon United strategy is delivering significant momentum in every solution line, with net new business generation and ongoing strong retention,” said Case.

He added that the firm saw double-digit growth for the second consecutive quarter in the more discretionary portions of its business, such as transactional liability, human capital and project-related work in Commercial Risk Solutions and Health Solutions.

Aon's organic revenue growth

“We continue to expect mid-single-digit or greater organic revenue growth and margin expansion in the full year 2021, 2022 and over the long term as we continue to win share in our core business and execute to further expand our total addressable market,” he added.

As well as the delivery of the Aon United strategy – which Case said was helping the firm grow its book with new and existing clients – the executive highlighted investment in Aon Business Services to create a core operating platform spanning the whole firm.

The strategy has helped grow margins by driving efficiencies and improving client service delivery and scale innovation to accelerate organic growth.

He again pointed to accelerating innovation at scale, by helping clients navigate new forms of volatility, build resilient workforces, access new forms of capital and address the underserved through digital solutions in a bid to grow the addressable market for its products.

Expense repatterning

Despite the strong organic growth numbers in the third quarter, Aon reported an adjusted operating margin that deteriorated by 30 basis points to 22.1 percent.

On the call, CFO Christa Davies reminded investors of changes to the timing of expenses, with $65mn moved into Q3 from Q4 in relation to Covid-19-related actions to reduce discretionary expenses last year in preparation for the impact of the pandemic and potential macroeconomic distress.

Aon says adjusted operating margin driven by strong organic growth

In Q3 2021 the repatterning negatively impacted margins by 240 basis points. Excluding the repatterning, the adjusted operating margin would have increased by 210 basis.

“In Q3, excluding the impact of the rebating, our strong organic revenue growth significantly outpaced expense growth similar to Q2. We continue to evaluate investments using our return on invested capital framework in the areas of talent, and business services and innovation to enable long-term growth. We expect that these areas of investment will continue to ramp up significantly during Q4,” said Davies.

She also said that the continued resumption of travel and entertainment (T&E) is expected as well as modest increases in real estate costs as more colleagues return to the office.

Nevertheless, Davies confirmed that Aon still expects to deliver full-year margin expansion for 2021 and over the long term. She noted that the firm has delivered 890 basis points of margin expansion over the last decade.

Also on the call, Aon president Eric Andersen highlighted areas of investment made by the group, including digital capabilities alongside modelling and analytics to help clients get more information and better understand it.

And he pointed to the shift to use technology to interact with clients on a mass scale as a factor that could impact T&E expenses positively going forward, including virtual events that allow it to bring global capabilities and insights to any region and share best practices.

“The historical model of doing a road show, putting people in conference rooms [from] city to city to city … Our ability to do it in two hours and talk to 4,000 clients at the same time is material,” he said.

“We have found over the last 18 months that the clients have really valued that access, being able to get right to the point of the expertise and being able to bring it and deliver it in a really easy way for the client to digest it and really build those relationships as well,” Andersen continued.

Share repurchases continue at pace

In its third-quarter results Aon disclosed that it bought back 4.4 million of its shares in the period for around $1.3bn.

On the call, Davies said that based on the firm’s outlook for long-term free cash flow growth, it expects stock repurchases to continue to be its highest return on capital opportunity for capital allocation.

The company bought back $16bn of its shares between 2010 and 2020 and currently has $3.7bn remaining on its repurchase authorisation as at the end of Q3 2021.

Free cash flow in the quarter declined by 40 percent as strong revenue growth was offset by the $1bn termination fee along with additional payments related to the Willis Towers Watson (WTW) combination being pulled.

Davies said the company expects to continue driving free cash flow in the double-digit range over the long term after its track record of 14 percent compound annual growth over the last 10 years, based on operating income growth, working capital improvements and reduced structural uses of cash facilitated by Aon Business Services.

Additional expenses of $363mn related to the termination of the WTW deal were at the low end of the $350mn to $400mn range previously indicated.