Aon PLC

Good morning and thank you for holding. Welcome to AONPLC's fourth quarter and full year 2018 earnings conference call. At this time, all parties will be in a listen only mode until the question and answer portion of today's call. I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature, as defined by the Private Securities Reform Act of 1995. Such statements are subject to certain risk and uncertainties that could cause actual results to differ materially from historical results or those anticipated. Information concerning risk factors that could cause such differences are described in the press release covering our fourth quarter and full year 2018 results, as well as having been posted on our website. Now it is my pleasure to turn the call over to Greg Case, CEO of AONPLC.

Thanks very much and good morning everyone. Welcome to our fourth quarter and full year 2018 conference call. Joining me today is our CFO, Krista Davies. In addition, we have our two co-presidents, Eric Anderson and Mike O'Connor, joining the discussion again this quarter to help lead our Q&A session with their frontline perspective of AON United at work. Like last quarter, we posted a detailed financial presentation on our website as we increasingly focus our time on these quarterly calls to provide you more insight into the longer term view for the firm. I'd like to start today by acknowledging the tremendous work of my AON colleagues around the world. Their collective efforts drove a strong Q4 and finished the year with positive performance across each of our key metrics in the fourth quarter, including 6% organic revenue growth, despite a strong comparable in the prior year quarter, substantial margin expansion of 280 basis points, 16% operating income growth and 19% growth in EPS and a similar performance across key metrics for the full year highlighted by organic revenue growth of 5% for the overall portfolio, our strongest level of organic growth since 2006 and EPS at 816 for the year, delivering on our near term target to exceed 797 in earnings per share, a target set nearly two years ago with the divestiture of our outsourcing business and the acceleration of our AON United journey. Our strong results in 2018 are a direct reflection of initial success from the strategic actions we've progressively taken to drive AON United. As we discussed previously, we've been laying the foundation for AON United for over a decade, evolving our portfolio, investing in new content capability and addressing client demand, all focused on increasing our relevance and strengthening our ability to serve clients more effectively. In 2018, we took additional major steps to reinforce and amplify this progress through structural changes that break down barriers and make it easier to deliver the best of the total firm to clients, a single leadership team, a single P&L, a single brand, a single operating model and most compelling, a more united global professional services firm. We also organized focused teams of leaders to dedicate more time to value creation with the formation of our new Ventures Group to accelerate industry-leading innovation and identify ways to better scale internal capabilities with greater speed to market. And our Enterprise Client Group to lead AON United efforts with our largest clients to identify superior, tailor-made solutions that address their specific business objectives, both of which are unlocking significant value for clients and creating new solutions that can be applied more broadly and faster with similar clients or across industries. As we now look ahead to 2019, we truly enter the era of AON United. These actions taken together have already translated into accelerated revenue growth to date. As you can see from the improved trend of 3% in 2014 and 2015 to 4% in 2016 and 2017 and now 5% in 2018. And it will continue to be a driving factor toward our goal of -single-digit organic revenue growth or greater over the long-term. We're excited about the improved growth outlook for the firm, which is really driven by three key areas. First, as a baseline, we operate in core markets with attractive long-term growth globally. Risk continues to increase around the world, both in magnitude and complexity. Healthcare has significant cost inflation in most geographies with deteriorating wellness. And many of the world's pension plans are underfunded with employees unprepared for retirement. Our core businesses across these areas are characterized by high recurring revenue of approximately 85% in primarily non-discretionary markets, with strong client retention rates of approximately 95% on average across the portfolio. And as the world increasingly faces political and regulatory changes or economic pressure, we find our clients needing our advice and core competencies even more as they navigate challenges and uncertainty across the topics of risk, retirement, and health. Second, we continue to strengthen our business mix. Our strategic focus was reinforced by the divestiture of our outsourcing business in 2017 with proceeds from the transaction directed toward high growth areas of client need. In 2018, we delivered a record level of organic growth across the portfolio. In fact, we generated approximately 500 million of organic-related revenue, drawn from many areas where we continue to invest heavily, delivering double-digit growth, including cybersecurity, transaction liability, delegated investment management, and voluntary benefits, just to name a few, while other areas of the business are just beginning to emerge, such as intangible assets and data analytics applications. And third, we are creating new opportunities with clients under A.N. United. With a business partner approach, we're working more effectively across geographies and solution lines to help clients in ways that improve their growth profile, reduce volatility, or strengthen their balance sheet. One example of this work in 2018 was when our data analytics team joined forces with our reinsurance and commercial risk colleagues to develop a new solution for an existing client. Having already worked with Fannie Mae and Freddie Mac to develop the U.S. mortgage market for single-family homes, which created 10 billion in new capacity and now accounts for 20% of the single-family mortgage market, our A.N. United team brought their shared capabilities into the multi-family home market. This is a truly great example of colleagues coming together to create new solutions for clients and create new markets for A.N. And here's how this unique solution was developed. Our reinsurance team worked with our data analytics colleagues to develop proprietary analytics that translate the complex multi-family exposures into risk that the reinsurance market could price, effectively creating the standard and making a new market. Our commercial risk team then made the transaction possible by creating a financial vehicle that translated the reinsurance capacity into a primary insurance policy that could be purchased. And that's the power of A.N. United, creating new solutions for clients brought together by collaboration of colleagues from across A.N., all driven by the insight from industry-leading data analytics capabilities. In summary, 2018 was another year of delivering on our commitments and meaningful progress. We took several substantial steps to strengthen our firm, all while delivering strong financial results and increased value to our clients. As we begin 2019, our team is excited about the future outlook for our firm, which is amplified by the considerable momentum we have built together. With that, I'd like to turn the call over to Krista for her thoughts on our progress this year and long-term outlook for continued shuttle evaluation. Krista.

Thanks so much, Greg, and good morning, everyone. As Greg highlighted, we delivered a strong operational and financial performance in Q4 to finish the year. Q4 results were highlighted by strong organic revenue growth that translated into substantial operational improvements. Core operational performance contributed 10% of the 16% operating income growth and 100 basis points of the 280 basis point increase in operating margin. Turning to the full year, I'd like to start by discussing the achievement of our near-term EPS target of exceeding 797 per share for the full year. I'm pleased to report that we delivered 816 of EPS for the year, far exceeding the 797 threshold. As Greg noted, we set expectations two years ago at the time we announced the divestiture of our outsourcing business to hold shareholders neutral from a dilution standpoint. Over the course of the last two years, we've had some items move in our favor, noting a positive impact from FX translation and a tax rate a bit better than when we set the target. And some items move against us, noting unfavorable impacts from FX balance sheet revaluation and the implementation of new revenue recognition standards. Strong organic revenue growth, core operational improvement, successful execution against our restructuring initiatives and effective capital management have enabled us to exceed the target while also enabling a significant amount of investment to position the firm for future growth. As I reflect further on full year results, organic revenue growth accelerated to 5%, continued improvement compared to our historical trend as we deliver on our goal of mid-single digit or greater organic revenue growth over the long term. In addition to accelerating organic growth, M&A is continuing to contribute, both improving the mix and driving total revenue growth of 8% for the full year. We delivered substantial operational improvement with operating income growth of 18% and operating margin expansion of 220 basis points. Core operational improvement contributed 10% or more than half of the operating income growth year over year and 60 basis points of operating margin expansion, noting that this includes the absorption of near term investments to support the long term growth initiatives that Greg mentioned. We also continued to successfully execute against our restructuring initiatives that not only drive expense savings through a three year program, but more importantly, create greater scalability, productivity and operating leverage beyond 2019. I would highlight that we provided an update to the restructuring program this quarter as we are now in the final year of the program. Total estimated savings increased by $50 million to $500 million in 2019, with $150 million increase in cash spend and an additional $50 million increase in non-cash charges. We do not expect any further adjustments to the total estimated program costs or annualized savings through the remainder of the program, which will be completed in Q4 of 2019. Looking beyond 2019, ongoing productivity improvements combined with accelerating revenue growth and a portfolio mix shift to higher margin businesses are expected to drive continued long term core margin expansion. We have delivered 70 to 80 basis points of operating margin improvement on average per year over the last decade. Reported free cash flow increased substantially year over year to 1.45 billion, reminding you that the prior year included cash tax payments related to the divestiture. Strong operational improvement combined with working capital improvements in both receivables and payables contributed to year over year growth, partially offset by 80 million of discretionary pension contributions and certain costs related to our restructuring program. I would note that 2018 was the peak year of restructuring related cash usage. As we think about cash generation going forward, we are focused on maximizing the translation of accelerating revenue growth into the highest level of free cash flow through three ways, operating income growth, continued progress on working capital initiatives and structural uses of cash winding down. As I noted previously, 2018 was the peak year for cash usage as showed in our presentation slides as it was the peak year for restructuring cash outlays and certain discretionary pension contributions. The finding uses of cash for restructuring, capex and pensions collectively are expected to free up roughly 620 million of free cash flow by the end of 2020. This adds significant upside to a base of 1.45 billion of free cash flow in 2018, resulting in 2.1 billion of free cash flow prior to any operational income growth or working capital improvements. Together, these three inputs give us confidence in our ability to deliver on our goal of double digits annual growth in free cash flow over the long term. We have opportunity for substantial incremental debt as restructuring expenses wind down and pension liability improves, providing significant financial flexibility over the coming years to further invest in value creation or return capital to shareholders. We are diligent about maximizing return on invested capital and make all capital allocation decisions on this basis. This is highlighted by the 1.4 billion of share approaches in 2018, which remains the highest return on capital investment given our free cash flow valuation. I would highlight return on invested capital continues to improve as we shape the portfolio with a 380 basis point increase year over year to .6% in 2018. Driven by operating income growth and a reduction in capital. In summary, we delivered on our full year commitments to shareholders while making significant investments to strengthen the outlook of our firm going forward and returning over 1.4 billion, 1.8 billion directly to shareholders through share repurchase and dividends in 2018. The success we achieved this year provides momentum as we head into 2019 and supports our expectation to continue to unlock significant shareholder value creation over the long term. With that, I'll turn the call back over to the operator and we'd be happy to take your questions.

Thank you. Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star followed by the number one. Please unmute your phone and record your name clearly when prompted. Your name is required to introduce your question. To withdraw

your request, please press star followed by the number two. One moment please for the first question.

Our first question will come from the line of Dave Stieblo from Jeffreys. Your line is now open.

Thanks and good morning. Hi Dave. First question just would be thinking ahead just to 2019 and appreciate the additional color on the cost savings. Those were obviously tracking ahead. So maybe not a total surprise that you guys increased it, but the incremental 140 million for 2019, how should we think about that gross amount? How much of that might drop to the bottom line as you guys look at investments? Or have you made already a lot of large investments that you had planned on doing in the business already?

Dave, as we think about the restructuring program overall and the 500 million of savings we'll deliver in total in 2019, we are absolutely reinvesting a portion of those savings as we think about return on capital as the metric we use to allocate all forms of capital usage. And so we haven't given specific guidance about the amount of the 500 million we reinvest, but you should expect us to reinvest given the substantial opportunities we have for organic investment. Across our portfolio. And really the way you can track that is you should expect us to continue to expand your operating margins long term based on the investments we're making.

Okay, yeah, you guys had made the comments of what you've done over the last decade. As the margins have increased over time, is it getting to a point where it's harder to replicate that same level of margin expansion or you guys continue to look at the business for accelerating organic growth and these operating efficiencies and productivity, is margin expansion along those lines sustainable?

Yes, and Dave, we actually think we have substantial room for further margin expansion over the coming years, really driven by three key elements. The first is accelerating organic revenue growth. The second is portfolio mix shift. We've done a huge amount of work on the portfolio to actually continue to invest in higher revenue growth, higher margin businesses. And the third is the work we're doing on the Aon operating model overall, which of course is delivering the 500 million of savings in 2019, but much more important than that, Dave, it's actually driving productivity improvements in each year after that. And so we feel really good about the opportunity to continue to drive margin expansion going forward.

And when you think about it, Dave, when we describe Aon United and the impact it's having on our firm, we principally talk about this as it relates to client facing capability, which is we think exceptional and strengthening. And I gave one example in my comments, so we can talk about more today, but it's helpful. But as Krista described, this is not only external in our client facing world, but also internal in how we think about how we go to market, how we actually create effectiveness, benefit going to market, but also efficiency in the context of doing that. And ABS is really an opportunity to take a look at our firm in a way we've never ever done before and actually create this opportunity. So it really is, it's new news when you think about productivity and operational leverage that it's started to already show a benefit and continue to play out. Mike, you want to give an example of what ABS is about and how you see it show up in the marketplace?

Sure, Greg. Maybe, and there's countless examples, but maybe one that's very easy to relate to is our call centers. We're touching clients every day. And in the past, each of our solution lines across any geography would actually do that, do it exceptionally well. The reality is with Aon United, we looked across the geography. And during 2018, we took our North American call centers and basically said, listen, if we actually think about this in an integrated way, if we think about it across solution lines, what's possible? And the reality is we started to integrate those capabilities across the geography. And I think as we come out of 2018, we have two things. We have an improvement in effectiveness, which we can track. And secondly, we reduced our total cost by almost a quarter. So for us, it's just one example, and we can obviously take down the road around the world, but that's an example of where we're bringing Aon United to life, increasing the effectiveness, improving the client experience, and ultimately driving productivity and efficiency.

Great, thanks. The last one I just had was, Greg, one of the biggest pushbacks I get or questions from investors is the goal of that single digits are higher. Can you maybe try to unwrap that a little bit more as you go forward over the next several years and talk about those drivers, how you do that in an environment where GDP is materially lower than that. And obviously there are these new opportunities in cyber and flood and so forth, but they still seem pretty small relative to how they might contribute to the overall top line. So can you help maybe investors and us understand a little bit more how you could possibly reach the higher end of the target there?

Yeah, and Dave, this is a terrific question. I really appreciate you raising this. This is really at the heart of Aon and what we're about in Aon United and what we're so excited about. If you step back and set a sort of what's the basic foundation for this progress? And again, if you look back over the last number of years, you've seen the progression, right? Against sort of good markets and lesser markets, good economies, lesser economies, 3% growth, 3% growth, 4%, 4%, now 5%. And fundamentally it's based on market share gain in the core business. And you're seeing that all around the world, all across our solution lines. You're seeing as Krista described the portfolio mix, which is stored faster growth areas. So literally as we think about reinvesting the substantial capital we generate, it's in higher growth areas fundamentally. And you're seeing that play out in areas of client demand, data analytics solutions, et cetera. And then frankly, the exciting piece is net new opportunities across the system. And that combination is what gives us confidence to say, kind of irrespective of kind of economic changes, we are committed to and excited about continuing to progress toward mid-single digital or greater. And maybe again, sort of these are interesting, maybe at the top line, but if you kind of dig in a little bit, the example I gave on net new with Freddie and Fannie, maybe Eric, talk a little bit about sort of how that played out. And that literally created net new capability and a net new marketplace for us.

Sure, let me go a little bit deeper on the mortgage market then. As you said, we're working with our clients and capital providers to make a new market. What we did was we took unique data sets about the mortgage industry, its risk factors, and then we played the role using our data and analytics capability to be the bridge that actually creates the risk construct that the insurers and reinsurers can put their capital against. It creates an alternative funding source for our clients, and it creates a new risk pool that the insurers and reinsurers can invest. But the reality is it all started with pulling the team together across reinsurance, across commercial risk and all the various capabilities, using those cutting edge analytics and structuring expertise to be able to build that new risk area, and it really is a new market.

So, maybe a

very specific example in terms of sort of where we are. I mean, again, this is such an important area. We want you to have confidence in our ability to kind of change the way we go to market and evolve that. You know, I think ACT is another example that might be worth just talking about for a second in terms of sort of how that's fundamentally different and how that's evolved.

Sure, and you're talking, Greg, about Aon Client Treaty. And for us, this is a groundbreaking solution, and we've mentioned it before, where we created a new solution in Lloyds, and 20% of any eligible order there, we can actually match capital there on -in-class terms and conditions, pricing, and follow-on claims. So, truly a distinctive client value proposition. That doesn't come about without us being able to integrate the capabilities, the data analytics, and the proprietary data that existed both in our commercial risk and our reinsurance teams. And you bring those two teams together, and we had to do more. We actually went out and collected distinctive data on over 6,000 different risks. That's exposure, loss of information, risk attributes, and being able to bring that together, integrate it, and actually digest it, and then actually be able to present that to capital providers, to our carrier partners. That's how we got capacity behind this solution. And it's been absolutely terrific for our clients. We look back, it's been in place for three years, and if you look at 2018 alone, we saw over 20% growth in the clients who took this solution up to use. And it allows us to fundamentally think about different solutions. So we're excited about continuing to use this to help clients. We're in the market today, binding risks. And I think more broadly for us, we step back and say from that experience, from those capabilities, from the combination and integration of capabilities across commercial risk and reinsurance, we're gonna continue to work on bringing those capabilities to new markets and try to innovate with carrier providers to new solutions and new geographies.

So not to pound it too much, David, you get the idea. This is both market share gain, it's portfolio mix, and then it's these net new opportunities. And I think it's worth exploring them in terms of sort of what it could mean for us. It's not to be all to end all, but these net new areas are pretty exciting, pretty fundamental.

Helpful, thanks for those examples.

Thank you, our next question is from Greg Peters of Raymond Chains, your line's now open.

Good morning, thank you for taking my questions. First, I was looking at the results in your data and analytics segment. And obviously strong organic in the fourth quarter, but for the year only up 3%. I'm wondering if endpoint is housed in that segment, and I'm just curious, of all the segments, that's one area where I would anticipate growth would be accelerating, and it doesn't seem to have borne out at least for the full year.

Yeah, great question, Greg. Listen, we talked in the first couple of quarters about a challenge sort of in the first half to sort of influence the overall results for the year, sort of in the flood business and a contract, sort of that was transitioned, and we actually exited that part of the overall business. So that's really influencing the numbers you're seeing. If you look at the last half of the year, and particularly the last quarter, you're starting to see the momentum that's there. In point is in fact in this arena, by the way, in the back of the deck we posted this morning, it sort of breaks all that out. But the transition to the second half and what you're seeing is really kind of where the power is. And there's just a tremendous amount here. We're very, very optimistic about sort of the efforts in data analytics, and I would highlight again, data analytics for us, this is standalone data analytics that we sort of bring to the market, separate from what we do in the business, but in the business, there's a tremendous amount that goes on across the firm. Again, maybe picking on Mike and Eric for a second, not only do we have client examples, we just talked about Aon client treaty and what we did with Freddie and Fannie in the multifamily mortgage market, we also have fundamental platforms that are emerging here that are very different. And I've just, a couple come to mind, maybe start with RISQ just for a second in terms of sort of what that looks like as a platform in the future.

Sure, Greg, and when we think about our health business and our commercial risk business, we are really focused on institutionalizing data and analytics across our network. And we think about making that come to life every day, there's two things that have to happen. First is we've got to capture global transaction level data and ingest that into our innovation centers. And we've been doing that for years and we think we have truly a distinctive data set on which we can draw upon to support our colleagues and support our clients. And the second part of that, as you highlighted, is we've got to build a platform that actually hosts the data analytical tools we have and allows our colleagues to be able to access that data set in our innovation centers. And we've rolled out a solution for our health business, which is our total benefit solutions. And we've got one for our commercial risk business, which we call RISQ. And if you just look at the progress we're making and you look at 2018 as just one example and you take RISQ as an example, we had over 6,000 active users as we exited 2018. And we view an active user as someone who's touching the data every day, who's actually using the tools we have available to solve client needs. We had over 100,000 different solutions actually provided to clients through 2018. And when we think about the momentum we have in our colleagues and our clients using this platform, we're growing at almost 250%. So we're excited about what we're doing for clients and supporting our colleagues today. We're even more excited about the future.

And just to pick up, Mike, I would say on the reinsurance solution line of the business, there's also a global platform that organizes all types of client data, reinsured data, placement data, that actually provides our brokers with more insight and our clients with more insight to be able to make better choices between RISQ and capital. I would also say that that information, tying back to the question around endpoint, that information actually feeds and works with our endpoint teams to provide the front end business consulting that our clients are looking for around their own strategies to grow, to build into new markets, et cetera. So it really does

all tie together. So again, Greg, back to your question, we are very, very excited, fully shown sort of on the solution line sort of how it evolves over time. Again, the one transaction I described sort of influences the results for the year, but we were very excited about the momentum going forward as you suggested.

Thank you for those thoughtful answers. I'd be remiss if I didn't try and get Krista into the conversation. You know, the IRS issued a bunch of new regs towards the end of last year, and you know, you've had a very effective tax management strategy. I was wondering if you could update us on what your views on tax are on a consolidated basis for 19 and 20 in the context of the new regs that were issued.

Thanks so much, Greg. I really appreciate you thinking of me. So in terms of obviously in December 2017, US tax reform legislation was enacted. As we noted then, we expected additional clarifications as you described, Greg. Sorry, yeah, as you described. And in November and December in 2018, there were specific proposed regulations in five key areas, guilty, beat, anti-hybrid, inter-seductibility, and foreign currency gains and losses on certain repatriated earnings. We are a UK domiciled company. We do run a global capital pool, and if we look at the proposed regulatory changes, we feel good about where we are. We previously gave guidance of 18% for 2018. Given the impact of favorable discrete items primarily in Q3 2018, the full year 2018 tax rate was below 18 coming in at 15.6. As I look back historically exclusively with the impact of discrete items, which can be positive or negative and are really difficult to predict, our historical underlying rate over the last three years has been approximately 18%, and we're not gonna give guidance going forward. So I hope that helps answer your questions, Greg.

It does. I was wondering if you could just follow on with a comment around share repurchase and your views towards that versus investment in your business.

Yeah, so as we think about share repurchase, we start with a cash base of 1.45 billion. If you add the declining use of cash between now and the end of next year of 620, you really got a kind of $2.1 billion sort of starting point before you grow operating income and working capital. So huge cash generation capability plus increased debt. As we think about restructuring expenses and pension coming down, so good cash flow and opportunity for incremental debt. Then the use of cash we really allocate on a return on capital basis, and share repurchase remains our highest return on capital opportunity across Aon given the DCF valuation we have of Aon today, which values are substantially above where we're trading. Having said that, Greg, what I would say is we have real opportunities to invest organically in the firm and a lot of data analytic capabilities you've heard described from Mike and Eric and Greg today. And we've got a significant M&A pipeline, actually the biggest M&A pipeline we've had in our history. And so, you know, we'll continue to actively manage return on capital in terms of share repurchase versus M&A versus organic investment and optimize those on a return on capital basis. And you can see the progress we've made on return on capital. The growth we've had on return on capital this year, 21.7%, which is our return on capital for 2018, is the highest we've had in Aon's history. So, you know, we are managing that very actively.

Thank you for your answers.

Thank you. Our next question is from Mike Zurenski of Credit Smith. Your line is now open.

Hey, good morning. Thanks. Just one question, but it has two parts. I was hoping you could offer some insights about what data points investors can think about to help size up the long-term growth opportunity for two business segments. The first is delegated investment solutions. You know, for example, I've been asked many times by investors if that business growth opportunity is tied more to capital markets levels or perhaps, you know, you have a low-level market share and you're using your relationships in the defined benefit space to grow. And the second area I was hoping you could offer some context is the overall data analytics services segment. Investors have asked me if that growth rate is most correlated with commercial property and -the-insurance demand. That's my question. Thanks.

Sure. So, Mike, I might take the delegated question and Greg will do data analytics. So, on delegated, it is one of our highest growth, highest margin, you know, highest free cash flow opportunities across the firm, and you've seen us invest organically significantly in that business and inorganically in fantastic acquisitions like Townsend, which, you know, is integrating really well into the firm and driving substantial opportunity for us going forward. As we think about the growth rate of that business, it's absolutely a double-digit growth rate business. And the reason we say that, Greg, is because... Sorry, Mike, is because we, you know, we look at the opportunity for a whole bunch of clients who are currently managing this themselves, and they have, you know, two or three people managing their investments. They're substantially smaller in scale, if you think about the $150 billion of assets we have under management. And so, you know, we can really manage that opportunity much more effectively for them. We understand the liability side of their balance sheet already, and we can match assets to get to pension outcomes for clients around pension expense, pension unfunded liability, and pension cash contributions. And so, whether it's the effectiveness of the return on assets we get because we have much greater scale and we can get them into better opportunities, or whether it's the asset plus liability matching to get to pension outcomes for clients, we see substantial opportunity for continued market share gains there. And we love that segment.

And if you think about it, this is really fundamentally driven on the delegated side by... For a segment of clients out there, a large segment, we have a better solution. That solution actually works irrespective of kind of market conditions in terms of where it is. It's actually a great thing to sort of see that evolve, and it's really been a terrific part of sort of what we've done over time. Coming to the data analytics piece, it's really important, again, back to sort of how we see this growing over time. And it really... Your question around, is it connected to the commercial risk marketplace in particular? And we would really encourage you to separate them. This is fundamentally content and capability that helps us work with our clients to improve operating performance, strengthen their balance sheet, reduce volatility in their business. Sometimes we use a certain solution, sometimes we don't. This is not about insurance, not about the cycle. In fact, our firm becomes more and more separated from the cycle over time. We just look at our history and what we've been able to do. So for us, the whole data analytics effort, almost irrespective of the solution line it sort of moves into, and we've talked about the applications and commercial risk, we've talked about the applications sort of in reinsurance and how they came together in data analytics. And it really cuts across all the solution lines. It's equally true in health, it's equally true in retirement investment, and maybe I'll ask Eric to pick one example sort of on the retirement investment side since you raised it in terms of sort of that solution line. But it really, data analytics is really an engine that actually enhances our existing businesses substantially, but also creates net, literally net new opportunity in terms of sort of what we can do in the marketplace. So maybe Eric, pick an example in retirement investment. Sure. It's

almost a... It's a great A on United story as well. In reinsurance, there is a technology platform called Remetrica that we use. It actually helps the insurers understand their capital requirements as they are underwriting business. That same system is useful to our investment consulting team as they try and build the right type of portfolio for the insurance company client base. So it's just a good example where we're able to use existing capabilities to help other solution lines drive new capability and new client demand and new client sort of satisfaction. So, I mean, there's a couple of them out there, but just to stick with that one, it's just, I think, a

great example. I mean, so if you think about it, Mike, this is literally our investment consulting colleagues sort of knowing their clients more and more over time, their challenges, their demands over time, looking across global A on and seeing solutions that they can actually then apply sort of in their backyard. And then what data analytics is really doing is really looking across the firm and pulling together at our innovation centers content and capability. A, we have never applied across the firm, and B, we never actually brought in additional content to supplement it. So, you know, we've got an engine that literally kind of in the idea of sort of what's net new at A on these days, you know, and net new at A on is the application of data analytics in an A on United environment. Those are fundamentally different. And as we said before, that has applicability externally and the client stuff we talked about, and ironically, also powerfully internally. And we talked about A on business services and sort of how it played out there. So that's really, you know, for us, the power of data analytics and why we talk about the data analytics solutions solution line so much.

You know, that's helpful. I just had one follow up on the same on your answer. So for the data analytics services segment, would your competitors be the, you know, the other large brokers or would these be other firms? Or how do you view that your competitors set in that segment?

Yeah, we again, we certainly respect everybody who's out there, you know, traditional and non-traditional in every way, shape or form. Ours is really not the focus on them. The beauty and the evolution of this has really been about fundamental client need. What's going on with our clients? What's happening in terms of their performance? You know, overall income performance, you know, balance sheet performance, volatility, what's driving change in their business they're concerned about? And what can we bring to bear? And that literally is what's driven their data analytics engine. So A on client treaty, as Mike described, was driven out of the fact that clients came to us and said, we go to London and place our business and we create all these kinds of risks because the syndicates don't actually always play together all the time. Is there a way to actually think about particularly the tail risk? The last 10 percent of the syndicates? And the answer is a data analytics solution actually address that. And so this is really driven out of client needs. You'll see us and we're investing 400 million plus a year on content capability and data analytics. You'll see us continue to drive that across our solution lines across the firm. And that really is the engine that we really want to try to get better and better at. Hold us accountable to the question of how are you helping clients succeed through data analytics? That's really what we want to address.

Very helpful. Thank you.

Thank you. Our next question will be from Adam Klobber of William Blair. Your line is now open.

Good morning. Thanks. Could we talk a bit about alternative capital and been a leader of bringing alternative capital into the reinsurance business over the last number of years? I guess I'm interested in what's new and what's evolving. If you give us an example of what are maybe some of the newer structures you're saying in alternative capital, number one. Number two, are you saying alternative capital more move into primary markets? And overall, is that a business that continues to grow rapidly over the next five years?

Adam, start. But I think Eric and I can both provide a really interesting color here. Look, our world is, you know, people describe different categories of it. We don't. We describe matching capital with risk to the extent our clients see it really across the board. And as you've highlighted, alternative capital sort of in the reinsurance world with 600 billion, you know, give or take in capital and close to kind of a hundred of it, give or take sort of alternative capital. And I think Eric will describe a pretty substantial increase sort of over time is important here to stay at an important part of matching capital with risk. So, you know, we see applicability on the reinsurance side continue to evolve and grow and on the primary side. But Eric, thoughts on sort of the overall direction of where you see this going?

Yeah, it's a great question. I would say a couple of thoughts. One is alternative capital is essentially just a different pool of capital, right? So we call it alternative because it didn't emanate from the insurance space in particular. It is continuing to drive closer and closer to the original client risk as opposed to where it had started, which is in the retro-sessional market. It continues to be innovative, continues to be creative to try and drive new solutions in areas where we've historically not been able to create client solutions sort of solving with existing capital bases, whether it's in pandemic areas or other sort of large exposures. So they've proven to be very good partners and thought partners to how to innovate. And I know just maybe looking over to Mike, the solutions that it is trying to drive into the commercial risk market as it tries to get closer to the front end customer, certainly something that we see continuing in the future.

Sure, Eric. And Adam, what Eric was highlighting is exactly what we're seeing every day all around the world, which is that kind of capital is trying to get closer to the client and it's looking at and starting to think about can it be applied against emerging risks like cyber and IP and others, but also traditional risks. And I think one of the things we've done with some of the structural moves we've made internally at Aon is we're better integrated today. You know, we think about matching client need with capital and that's across insurance and reinsurance. And you know, you'll see us continue to try to find ways to innovate and find the right capital to meet our clients' needs. And alternative capital will be part of the solution.

Thank you. And just to follow up, does that revenue typically fall into reinsurance brokerage or is that spread out depending on where the transaction happens?

Really, at the end of the day, again, we're matching capital with risk and it will show up where the transaction ends up happening. But again, what you're hearing us describe, Adam, is more than just a transaction. You know, there's advice wrapped around it. This is really more of a solution, part of a broader solution, often ends up being a transaction as part of it, but it's not the only piece. And the one thing we would come back to is, remember, we're talking about Aon United. We're talking about a single P&L. You know, we want to spend less time about where the money goes and more time around how we help the client or not. And so for us, you'll see it more, you know, in the early days emanate sort of in the reinsurance solutions world, but frankly, over time, it's going to be across the firm.

Thank you very much.

Thank you. Our next question is from Elise Greenspan of Wells Fargo. Your line is now open.

Hi, good morning. My first question, going back to some of your remarks, you guys have spoken of late about the goal of getting to this -single-digit organic growth or greater over the long term. You know, if we can try to get some commentary to tie that back to how you see 2019 shaping up. Obviously, you guys made the point of really strong 5% organic in 2018. So how do you see your businesses, you know, running from a growth perspective in terms of, you know, could we see an uplift from that 5% towards that long-term goal in 2019?

Elise, as we've described, you know, our objective as we've laid it out is -single-digit or greater over time. And so, you know, you can calibrate -single-digit and calibrate or greater. But we see achieving that. And what I described before a little bit was why is it out there and why are we excited about the ability to achieve it? And you describe kind of, you know, what we've done in market share gains, what we've done in the portfolio mix shift, as Krista described, and don't underestimate that. We're essentially putting capital in places and categories that are just fundamentally growing faster. That's a big opportunity, a big tailwind for us. And then this idea, and we've spent a little more time on the call today, we know, around a little more granularity on net new, because anybody can say that. We're trying to give you some very specific examples of what that looks like. But if you think about these categories of net new, you know, things like cyber, you know, we literally all talk about cyber, but, you know, it's only a $3 billion to $4 billion premium market, you know, against a $450 billion, you know, connected insured loss in the U.S. alone. It doesn't include anything in Europe. Over time, you know, with GDPR, you know, the data protection laws in Europe, you know, the entire connected cyber loss may approach a trillion dollars, and yet we're in the insurance marketplace at $3 to $4 billion in premium, obviously inadequate. So for us, we see real opportunity in the global environment. And, you know, again, it's not just market share gain and portfolio mix. It's sort of the idea of net new. Mike talked about intellectual property and how that's evolved over time. I mean, fundamentally, you know, 75% of the S&P 500 market cap is derived from intangible assets. That's, you know, that's massively increased since 1975. So fundamentally, you know, we've got, we believe opportunities out there because our clients have needs out there and they continue to go up over time. And the other piece that sort of ties into this for us is the whole idea of sort of talent rewards and how that fits in the overall equation because people, you know, talent is so fundamental to success for our clients over time. I mean, you know, these things start to really tie together and the work we're doing in retirement investment and in talent really fits it in the equation, the work we're doing in health fits into the equation. Again, not to, you know, just pile on, but if you think about sort of the work we do in health and retirement investment, you know, we said before on these calls there's a fundamental truth in the world, which is our clients' employees are overspending on health and underspending on retirement. And it really is tragic when you think about it, sort of the impact over the life of a family. If we can modify that by 1% or 2%, have them be smarter about how they think about their health spend and smarter about how they think about their retirement spend, you've actually impacted a family over a 10 or 20 year period. Pretty cool stuff. And so for us, we look at the world and say, my God, there's so much demand out there that we need to understand better and then be able to effectively address. And in doing so, that's what brings us back to kind of mid-single digit or greater. And again, at least easy to say, which you've seen over the last few years is progress. 3, 3, 4, 4, 5. And we feel good about progress in 19 and 20 and 21.

Okay, great. And then my next question is on the margin outlook. So you guys saw about 60 basis points of progress. And that's the core margin expansion kind of away from the saves during the year, during 18. Is that about the right level that you would envision in 19 or are there, you know, some headwinds or tailwinds that, you know, might drive that either higher or lower this coming year?

First thing I'd say, Elise, is, you know, as we think about total margin expansion for 2018, it's 220 basis points, so substantial margin expansion. Included in the 60 basis points of core margin expansion for the year, we're absorbing investments we're making in future growth. So core margin expansion is really higher than the 60, if you know what I mean, because you're absorbing the investments. And so as you think about, you know, our margin expansion over the last 10 years, we've on average increased margins by 70 to 80 basis points each year for the last 10 years. We're not giving specific guidance on margin expansion going forward, but we did say that there are really three big drivers of margin expansion going forward. The first is accelerating top line revenue growth, as we just talked about, mid-single, digital, greater. The second is the portfolio mix shift towards higher revenue growth, higher margin businesses. And the third is the operating leverage from the productivity we're getting from the AEM and United operating model. So we do have real confidence in margin expansion, you know, for 19, 20, and 21.

Okay, great. And then my last question, in terms of free cash flow with the restructuring charges lower in 19 than 18, I know that double-digit growth is a long-term target, but I would envision, given that tailwind to free cash flow, that you would hit the, expect to hit the double-digit growth in 2019, or is there, you know, something I'm missing when thinking about that?

Again, the double-digit free cash flow growth is a long-term target. We're not giving cash flow guidance for 2019. If you start with the 1.45 billion of cash in 2018, we're going to, just through, you know, reduction in use of cash, free up 620 million by the end of next year. And then you add on top of that, Elise, operating income growth, working capital, and additional debt. And so you've got some significant financial flexibility. And then we'll use return on invested capital to drive allocation with buyback being the highest return on capital across the firm.

Okay, thank you very much for the color.

Thank you. Our next question is from Kai Pan of Morgan Stanley. Your line is now open.

Thank you, and good morning. So I want to focus on the commercial risk. The organic growth, 4% for the quarter. It's lower than previous two quarters, but for the full year, you still achieve like 6%. Is that because the -over-year comparison is tougher than the prior quarters? And then stepping back, can you just comment on general pricing environment as well as exposure growth, in particular in the London market?

Yeah, Kai, thanks for the question. Listen, if we think about overall progress, and really this is, you know, cuts across the firm. Again, we posted 5% across the firm, which is the highest since 2006. We feel good about that momentum. We feel very good about the continued momentum on the commercial risk side. And I just, I'll add a couple things that I want to just sort of align you to, if I could. One is, first of all, as we said before, this isn't about quarter to quarter. It's kind of about year to year in terms of progress. Now, if you look at commercial risk, I think, you know, we do 6% in 18 and 2% in 17. So if you sort of think about the overall momentum, feeling pretty good about sort of where that is. We did have an exceptionally strong fourth quarter in 17. And on top of that, another strong quarter in Q4 of 18. And we highlighted a number of different places where that emanated from. So it's an exceptional, exceptional performance and leadership on behalf of our Aon colleagues around the world. And the second piece I would just highlight is you think about sort of what drives this going forward. This is not about pricing. And as we've talked about before, we'd really encourage you not to sort of, you know, connect us to pricing per se. This is really, if you want to market impact overall, which is a function of We're looking at how we can actually have a better understanding of what's going on in terms of insurance and insured values and pricing and insured values actually have more impact in terms of sort of what's going on in the context of this. And then again, as you think about growth, remember, we're talking about taking share, which we've been doing. Also, when we describe kind of investing in areas, you know, higher growth, higher margin, that's in the commercial risk arena. A number of different examples in that, as we talked about before. And then this idea of net new and how that plays out. So we feel very good about the momentum of commercial risk and feel like the performance of the year really demonstrated that.

Any change in the London market?

Say a little bit more. What are you thinking about in the London market? What are you concerned about?

No, just like there was a review about the facility in the London market, I just wonder is there and also you saw quite a big change in the Lois market in terms of both pricing and some syndicate putting out the capacities. So what kind of road does A. M. play here and where do you see opportunities?

Yeah, so for us again, remember our world is matching capital with risk. In the context of matching capital risk, Lois happens to be one piece of that. It's actually on a relative basis against institutions we work with around the world. It's a fraction of our global revenue. So that's not obviously going to be a major impact either way. For us it is how we work with Lois to see them strengthen over time and be better able and capable of serving our clients. So in essence we're matching capital with risk and Lois will play out over time. But I wouldn't overestimate the fact that we're working with Lois. So we're going to be able to over-focus on that sort of in the context of sort of what we're going to do in commercial risk.

Okay, that's very clear. Then Christa, you mentioned your M&A pipeline is very strong. So what would be your preference? Are you looking more in the traditional brokerage areas or in these new emerging areas you're looking for higher growth?

Yeah, so Kai, if you look at the M&A we've done over the last couple of years, that's probably the best example of what we're going to do in the next couple of years. And we've really done a huge amount of work on a return on capital basis to identify the highest revenue growth, highest margin, highest free cash flow opportunity areas. And they're things like health and elective benefits, our affinity area, delegated investment management, data analytics. And so, and of course you can see some, you know, brokerage areas because they're very important to our business. But what we're continuing to focus on is higher revenue growth, higher margin, higher return on capital opportunity areas.

Okay, great. Last one, you mentioned M&A. I'm just curious because you mentioned a lot of examples of collaboration among your colleagues. How are they incentivized, including compensation, to drive that best behavior?

Well, one of the things Kai, you come back to, and this is sort of, you know, more than compensation, it's the heart of AN United and the work we've done over the last decade to bring our firm together. And you ask a fundamental question. If we work more effectively together, are we serving clients more effectively? Are we winning more? Yes or no. Are we doing more with clients? Yes or no. Are we able to understand them better in a way in which we can actually bring them net new solutions they haven't seen before? When was the last time we wowed a client? That is the energy that underpins AN United. That's, you know, that either works or it doesn't. If it works, it's incredible. And we can scale and drive it around the firm, and that's hard to duplicate. If it doesn't, then you're kind of back to what have you done for me lately as a personal sort of mission. And that's not, that's not our focus. That's not what we're trying to do. And so we've taken a number of steps to reinforce the power of what I just described, certainly with compensation. Our top 200 leaders, 65 percent of their bonus, for example, is tied on overall performance. What we do from a long-term compensation standpoint is truly tied around performance of the firm, the performance shares of the firm. So we've done a number of things on comp, but we wouldn't want you to take away from this, this is a, you know, this is a trick in a comp plan. This is, this is an absolute maniacal focus around how we can help clients be more effective. And it turns out working together and united is a fundamental lever weapon in terms of being able to do that. And that's what's driving the energy here. And that's why it's taken a while to do this, right? This builds over time, builds momentum over time. We're starting to see it play out more and more effectively. But that's really the energy behind it. And of course, alignment with comp along the way.

Thank you so much for all the insight and good luck in 2019.

Thank you very much, Kai.

Thank you. Our next question is from Yaron Kinar of Goldman Sachs. Your line is now open.

Hi, good morning. Two questions. So first, on platform investments that are fueling future growth, I'm assuming that you took advantage of the economic and then P&C rate tailwinds to reach some of that growth in 2018. Is that correct? And if so, would you slow platform investments of these tailwinds anticipate or would you need to continue to invest at this level in order to achieve the long-term growth targets?

So, Yaron, one of the things I would say is as you look at the restructuring program, the core of the restructuring program for us is investing in the Aon United operating model. It's allowing us to actually, you know, bring the firm together. We used to have two segments, Risk Solutions and HR Solutions. We now have one segment called Aon. And we're bringing together the operations of Aon under an Aon United banner, and we've invested substantially in Aon-level platforms, as Mike O'Connor described with the, you know, call center example, but equally on the platform examples you've said. And so a lot of what you've seen in the restructuring program has been investments in platforms and bringing together disparate capabilities that used to be in each of the solution lines into one Aon platform. So that's absolutely what we've been doing in 2017, 18, and now 19. And it is forming the foundation for accelerated revenue growth in the coming years.

And maybe on top of that, Yaron, I'm just going to, I want to make sure, I might have read between the lines a little bit on sort of what you described, but I think you said sort of given the PNC year, you know, we had more to invest and will that change over time? I do want to, you know, come back and just fully build on Krista's point and disconnect that. You know, we were making $400-plus million investments in content capability, you know, for the last number of years. And our firm is not the cycle, right? It is really not the pricing cycle at all. Our view is we're more and more disconnected from that and we're more connected to how we're helping clients, you know, improve their business and succeed in their business. And so our investment in the platforms that Mike and Eric described, we're seeing real benefit from. And we're going to continue to drive that. And the beauty of it is, to Krista's point, we fully have the capacity to do that irrespective of whatever happens on the pricing side. Because as I said before, it's much more around market impact, insured values than it is about pricing. So hopefully you're comfortable, you know, that level of investment we're going to continue to make. And again, you know, the check on that investment is return on invested capital. If it helps clients succeed, we win more clients. We get a return on the capital. We invest more. That cycle is literally that discipline is what we've got set up as we drive these platform investments in data analytics.

That's helpful. And my second question, you've talked about targeting growth in high margin businesses with a strong growth profile. Do you also consider the cyclical or non-cyclical profile of these businesses as you're constructing the portfolio? And maybe can you give us some examples of how you're trying to balance that portfolio from a cyclical perspective?

So we're really, again, we've come back to less about trying to do timing and really more around client need. This is fundamentally what are we trying to get accomplished on behalf of clients? So I come back to what is intellectual property? It doesn't exist at this point in time. Clients don't really understand sort of what's possible. So the investment we're making there are really trying to help them understand what is their intangible asset base worth? How is it evolving over time? How do we help them protect that? We see long-term potential that's substantial. By the way, that's going to be true regardless of the cycle. And so for us, this isn't about trying to time it. It's basically fundamentally what helps clients improve operating performance, strengthen balance sheet, reduce volatility. And more and more of our clients are really trying to understand the cost of volatility and how they factor in their overall performance. And so for us, it's about that long-term impact, and that's what's driving our investment. And again, what I would highlight is the beauty of this is this doesn't have to be a short-term agenda. This is over time, what are we going to accomplish? And in the context of still doing that, you see us produce the results we just played down for 2018, which was substantial margin improvement and substantial growth.

Thank you.

Thank you. Our next question is from Paul Newsome of Sandler O'Neill. Your line is now open.

Good morning. My first question is, I was wondering if you could talk a little bit about the old rule of thumb of the relationship between margin and organic growth. The thought is that you need to have 3% or better margin or organic growth in a typical brokerage operation to get margin expansion. I was wondering if that relationship in your view is changing with the new AON.

The first thing I'd say is we understand where that comes from because you basically say the largest expense base we have is people, and you have a 2%, or maybe 3% inflationary push on your people expense base. One of the things we would say is as we look at the investments we're making in the AON operating model and we're driving productivity, we are increasingly able to get margin expansion at lower levels of growth. I would note that we've been expanding margins for 10 plus years at all levels of growth. The best example of that is in 2008, 2009 in the midst of an economic recession, we reported minus 1% revenue growth and expanded margins 260 basis points over those two years, 2008 and 2009. I'm not sure actually for the last 12 years for us that there's been that relationship in place at all.

If you add to that, think about AON. AON, again, just as we've sort of pushed, don't confuse what we do with the insurance price and just completely disconnected. This is not about just pure commercial risk. The power of retirement investments and what we do there and how that's evolved over time, what we've done in delegated, very, very powerful. The power of what we have in the health solutions area, really exceptional and growing, big opportunity over time. What you see us doing in commercial risk and reinsurance solutions is not only in their categories, but as Eric's Mike described, they're cutting across all the categories. For us, this creates real operating leverage in the business and we are, as we said before, committed to improved performance and you've seen us, as Krista described, able to do it year in and year out.

My follow-up question is on M&A, kind of a follow-up to M&A, the earlier questions. Last night, A.J. Gallagher had some data that suggested at the smaller end of the market, valuations for acquisitions have gone up quite a bit, going from 68 times EBITDA to 8 to 8.5 times EBITDA. My question is, is that relationship similar in the types of markets that you are looking at? I realize they're not necessarily the same always, but do you think a similar dynamic is happening with the overall market that you're looking at?

Paul, I think you're raising a very good point. We're actually, I think, in some quite different areas in terms of our M&A pipeline. We're very much focused on content and capability and we're approaching this from a return on capital perspective. As we look at our M&A pipeline, it is 100% aligned with the highest revenue growth, highest margin, highest return on capital opportunity areas across our entire portfolio. Our general approach is to really map out on a return on capital segment, high return on capital segment, what are the companies that are most attractive, get to know them early, and then really build a relationship to understand and make sure that the cultural integration will work. We've been successful in that. We've actually brought in some amazing content and capability, whether that's the 6-1 West team that Greg described with intellectual property or it's the Johnson team and Delegated or it's the Strauss capability in cyber, it's been absolutely phenomenal. So for us, it's much more focused on content and capability and return on capital and we're seeing very attractive return on capital outcomes from our M&A portfolio.

Great. Congratulations on the quarter. Thank you.

Thank you. Our next question is from Mayor Shields of KBWE. Your line is now open.

Thanks. One short-term and one long-term question. The short-term question is that we're clearly seeing, I think, a better focus on pricing discipline at Lloyd's and Kai mentioned this, but I'm wondering if you could talk about the opportunities and risks as Lloyd's starts to focus on its unsustainable expense ratio.

So one of the things that we've been doing, we've come back to concept. We're matching capital with risk. Lloyd's is a source of capital. We love to see them continue to innovate, get better, bring new solutions, new ideas, new perspectives. A lot of capital out there, right? Three and a half trillion, Lloyd's is a fraction of that. So we want to see them in that game. We want to see them sort of effective in that game. We want to see them become more efficient, more effective, all the things that come with that. But there's many, many, many solutions out there that we access on behalf of our clients. By the way, just for reference, again, the 3.5 trillion sort of represents all the balance sheets that the insurance companies added up. The world that we plan in retirement investments on the pension side touches 31 trillion, which a fraction has sort of come into the insurance world, the 100 billion that Eric talked about before. And so net-net, it really is, it really looks like how Lloyd's is going to evolve over time. So for us, we want to be supportive of our market partners as always. But for us, we're not too concerned about sort of evolution. We have high expectations for them and want to support them. But we are very comfortable we can bring client solutions that involve capital.

And, Greg, just to pick up on it, I think it's certainly Lloyd's is getting a lot of attention and a lot of coverage in terms of its move towards creating more profitable underwriting platforms through the syndicate. I think it's also worth noting and maybe not as well covered that insurers all over the world are looking at their bottom 10% of their portfolios and trying to reposition their business. It's just not as well publicized, but certainly that move is going on everywhere where people are looking at business, where they're not getting an adequate rate of return and either raising price, changing terms, or exiting the solution line. Great point.

No, that's helpful. Thank you so much. And then longer term, I think this is a question for Krista. Does the ratio of investment spend to revenue change? Does it decline over time?

Sorry, can you just say more about the question,

Ma? Yeah, I'm just wondering whether as we look forward, I don't know, three, five years and revenues grow organically through acquisitions, does the required level of future-focused growth spend, does that decline relative to a higher absolute rate of revenue?

So, look, I guess I would answer it based on return on capital, Maia. What I would say is as you think about the investments we're making, a lot of them are scalable, which I think is a point you're really getting towards. So if you think about data analytics, for example, we've invested $400 million a year for the last 10 years in data analytics. And so there is absolute scale in that platform and series of investments. And you can see that because our return on invested capital is at 21.7%. It grew, I think, 370 or 380 basis points year over year. And it's the highest it's ever been. And so we continue to manage return on capital to get to these outcomes. And is there operating leverage in our business model? For sure, there is.

Okay, fantastic. And this may be near term. Can you give us a sense of to the maximum level of debt that you'd be comfortable with?

Yeah, so as we think about leverage, we really think about our investment grade rating. It's incredibly important to us for financial flexibility purposes and as we, you know, sell into global large corporates. And, you know, we're committed to our current investment grade rating. As we think about debt to EBITDA, it's really two to two and a half times on a gap basis, which is really three to three and a half times on a Moody's basis. And, you know, as restructuring charges decrease and pension contributions decrease, you can expect us to add debt one for one to keep the debt to EBITDA ratio the same. And as I mentioned in my opening script, we do have opportunity to increase debt over the coming years. And you see those, you know, uses of cash decline particularly over the next two years.

Okay, fantastic. Thank you so much.

Thank you. And the next question is from Ryan Tunish of Autonomous Research. Your line is now open.

Hey, thanks for the question. So I guess what I'm trying to get comfortable with, the growth story here is clearly great, better organic growth than any of the big brokers last year, which is phenomenal. But there's an awful lot of cash being spent on this restructuring. And I'm just trying to get comfortable that that number actually does go down substantially in 2020. And in particular, I'm trying to understand what exactly is in that, the other associated costs, bucket for restructuring costs.

Sure. So Ryan, certainly I can say that the restructuring program finishes at the end of 2019. And as we think about the 1.35 billion of total cash generating 500 million of annual return, we think that's a terrific return on capital for shareholders. And so, you know, we're really excited about the program and we're very confident about delivering the 500 million in savings this year. And more importantly, having productivity flow through in 2019, 20 and 21, which will drive improved operating leverage in future years. As we think about the other bucket, your question, there's really kind of, you know, three things in there. The first is the separation costs related to our outsourcing business, which are obviously substantial as you're dividing up Aon and, you know, a substantial portion of our business. The second was termination of contracts, you know, as again, you're splitting Aon and our outsourcing business. And the third is professional services to actually, you know, execute the restructuring program. And so, again, we feel really good about the return on capital of the overall program and confident about delivering the savings and improved productivity going forward.

And remember, Ryan, we undertook this restructuring. This is not your, you know, average vanilla restructuring to sort of take out costs. This is really, when we sold the outsourcing business, it was a chance to look at our firm in a fundamentally different way. This is net new news for us. And so Aon Business Services really does sort of take a look at our firm, the restructuring goes through this perspective really top down. And really, this is kind of the non-sourced incentive of benefit costs we can look at differently, $2.5 plus billion in sort of spend. And this is fundamentally what we're able to look at in technology, in real estate. You want to, you know, go to our New York office, for example, sort of footprint. It's very, very different, much more open, much more client focused and client centric, much more technology capability. You'll see that around the world. So for us, this was an opportunity to strengthen the firm through the restructuring. And as Mike talked about before, it's showing up in terms of quality in what we do with our clients in the marketplace, but also rest assured in cost saves and efficiency that, you know, had to meet the return on capital test that we do with everything else. So we feel good about the return and most important, feel good about what it might and will mean for Aon going forward.

Understood. I was just trying to get a feel for why that number has been creeping up relative to the original estimate. Because of the separation costs associated with the admin deal, I would have thought you would have known that earlier on.

So I guess what I would say overall, Ryan, is as we, you know, finalize the program going into 2019, we've added some additional projects which have a terrific return on capital and therefore we increased the total program estimates to 1.35 billion in cash and 500 million in savings. And again, the return on capital we think is terrific.

All right, thanks for the question.

Thank you. I would now like to turn the call back over to Greg Case for closing remarks.

Just wanted to say thanks very much everybody for joining the call. I look forward to our discussion next quarter. Thanks very much.

Thank you and that concludes today's conference. Thank you all for participating. You may now disconnect.