AON’s 4Q 2021 Earnings Were Strong. What You Need to Know.
- AON reported 4Q2021 organic growth of 10% vs. 3Q21’s 12%. Commercial Risk and Reinsurance were areas of strength, with robustness seen “across the world” in commercial risk. In addition to new business and client retention boosting results, AON also noted double-digit growth in project-related work and transaction solutions which was helped by economic activity and greater client demand. Strong organic growth was reported in the face of fears that the dissolution of the Aon/Willis Towers Watson merger would impact organic growth at the company.
- AON’s largest business segment, Commercial Risk Solutions, had organic growth of 12% in the fourth quarter vs. organic growth of 13% in the third quarter. The performance in 4Q2021 reflects growth across all geographies and strength in business generation, retention and management of the renewal book portfolio. Retail brokerage had double digit growth in the U.S., Asia, EMEA, and Latin America. This is a result of double-digit growth in core Property & Casualty business, transaction solutions and project-related work. The company noted that “exposures and pricing were modestly positive.”
- Reinsurance Solutions and Health Solutions reported organic growth of 13% and 7%, respectively in 4Q2021 compared to the prior third quarter’s 8% and 16%. Reinsurance reported 4Q2021 double-digit growth in treaty driven by continued net new business and strong retention. Facultative placements and capital markets transactions also had solid growth.
- The Health Solutions segment saw good growth in the U.S. with double-digit growth in both core health and benefits brokerage and in voluntary benefits and enrollment solutions in 4Q2021. Human capital results benefited from rewards and assessments solutions. There was also a negative impact from the timing of certain revenue.
Related to the Aon United model, CEO Gregory Case noted on the earnings call: “we continue to accelerate our innovation strategy by using our Aon United operating model to replicate successful solutions and applying those capabilities to new client bases, paving the way for innovation at scale. We’re incorporating our data, analytics and insight to direct existing capabilities to previously unmet client needs. This allows us to serve existing clients in new and customized ways, bring existing solutions to new clients and expand our addressable market.”
In terms of future uses of cash, AON continues to see share repurchase as the highest return on capital opportunity, consistent with the prior third quarter. During the fourth quarter and full year 2021, AON repurchased $2 billion of shares and $3.5 billion of shares, respectively. In terms of CapEx in 2022, the company sees a return to normalized levels, or about $180 million – $200 million. CFO Christa Davies said of the merger & acquisition (M&A) strategy: “Our M&A pipeline is focused on our highest priority areas that will bring scalable solutions to our clients’ growing and evolving challenges. We continue to assess all capital allocation decisions and manage our portfolio on a return on capital basis.”
Looking forward, AON continues to see mid-single digit or higher organic revenue growth, margin improvement and double-digit free cash flow growth, in-line with prior 3Q21’s general guidance.
Overall, AON turned in a strong fourth quarter that was assisted by economic trends resulting in new opportunities for AON’s clients, as well as continued strength in new business and retention. While the company is positive in its performance going forward, AON continues to monitor the potential impacts of wage inflation, interest rates, asset values, employment trends, new variants, government stimulus, and shifts in GDP growth and how these factors could affect both its business and clients.
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This earnings summary has been prepared by Marsh, Berry & Co., LLC. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., LLC has not independently attempted to investigate or to verify such information.
