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Operator
Good morning and thank you for holding. Welcome to Aon PLC's fourth quarter and full year 2022 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 like to also remind 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 risks and uncertainties that could cause actual results to differ materially from historic 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 2022 results, as well as having been posted on our website. It is now my pleasure to turn the call over to Greg Case, CEO of Aon PLC.
Greg Case
Good morning, everyone. Welcome to our fourth quarter conference call. I'm joined by Krista Davies, our CFO, and Eric Anderson, our president. As in previous quarters, for your reference, we posted a detailed financial presentation on our website. We begin today by thanking Aon colleagues around the world. Our strong performance in the fourth quarter through 2022 and our strong momentum as we start 2023 continues to reflect tremendous dedication by our colleagues and the power of our A&United strategy to support clients, both in their demands of today and if they plan to address their needs of tomorrow. 2022 was a year in which we continue to see clients focus on both the challenges and opportunities from increasing global risk, and the opportunities to engage clients continues to grow. In commercial risk, our latest weather, climate, and catastrophe insight report sized global economic losses from natural catastrophes at $313 billion, 4% over the 21st century average, and with only 42% covered by insurance, $190 billion protection gap. In wealth solutions, equity and fixed income market volatility in the back half of the year created demand for our wealth solutions colleagues to help organizations reassess retirement readiness and financial well-being. And in health solutions, which includes our human capital business, The continuation of broad trends around a changing workforce, encompassing health, culture, wellness, engagement, and inclusion, are growing in focus and importance across the C-suite, and the stakes have never been higher. In this environment of increasing risk and complexity across so many fronts, our colleagues are increasingly relying on A&United. It's what enables them to bring the full force of our firm, including core offerings and innovative solutions at scale, to address evolving client demands. Turning to financial performance, in the fourth quarter, we delivered organic revenue growth of 5%, highlighted by 9% growth in reinsurance, 7% growth in health solutions, and 6% growth in wealth solutions. In reinsurance, our teams were able to deliver strategic advice and data-driven analytics very early on in the renewal process to help clients navigate difficult market dynamics. This market leadership benefited our clients greatly in a challenging 1-1 renewal and reflects our strong performance. In Health Solutions, we saw strength in our core H&B and in human capital, both of which benefited from enhancements to our offerings, tools, and platforms, and increased client focus on employee health, rewards, engagement, and well-being. In Wealth Solutions, our team delivered the strongest quarterly organic revenue growth in over five years, as our teams worked tirelessly to respond to client demand resulting from market and interest rate volatility, particularly in the UK, and continued to help clients execute on pension risk transfer, strategic pension management, and respond to regulatory changes. And finally, commercial risk grew 4% in the quarter and 6% for the year. We delivered double-digit organic revenue growth in Canada and Latin America and strong growth in Europe, the UK, and Asia Pacific. In the U.S., otherwise strong results continue to reflect the impact of the external M&A and IPO environment on M&A services. This impact reduced quarterly organic growth by 5% and annual growth by 2.5%. And while this short-term pressure may continue into Q1, over the long term, we are very well positioned in this highly attractive business that has significant opportunities to contribute to long-term top and bottom line growth. For the full year, our organic revenue growth of 6% is a direct result of our A&United strategy and is a key driver of strong top and bottom line results for the full year. Noting, adjusted operating margins expanded 70 basis points to 30.8%. Adjusted earnings per share grew 12% to $13.39, overcoming a 3% or 44% FX headwind. Free cash flow exceeded $3 billion, with free cash flow margins of 24.2%. Both are highest ever. And we completed $3.2 billion of share buyback, demonstrating our confidence in the long-term value of the firm. Our team's performance positions us exceptionally well to deliver in 2023 and over the long term. Looking back since 2010, we've reported 4% average organic revenue growth, over 1,100 basis points of margin expansion, or about 90 basis points per year, while adjusted EPS and free cash flow increased to the compound annual growth rates of 12% and 13%, respectively. More important, we view the go-forward opportunity and momentum higher now than any time in our history. Looking ahead, we continue to expect mid-single-digit or greater organic revenue growth for the firm, margin improvement, and double-digit free cash flow growth for the full year 2023 and over the long term. Reflecting on the year, we would offer a few observations on how A&United continues to deliver for clients. The steps we've taken over the past decade, including our single brand and single P&L, put us in an exceptionally strong position to deliver for clients and have significant impact on some of the greatest opportunities and challenges they face. These ideas are not new. They're a continuation of over a decade of progress, on the areas highlighted in our AMUnited Blueprint, clients, colleagues, innovation at scale, and AI business services that are increasingly interconnected and mutually reinforcing. On delivering innovation at scale, the platform we've built not only enables innovation of new concepts, as we've demonstrated in areas like intellectual property solutions and climate, but increasingly enables us to bring together our analytics and expertise for new solution development, both from within solution lines and connected across our business. For example, our health solution scheme has developed an Aon Health Analytics platform supported by hundreds of data scientists and credentialed health actuaries, as well as experts from Human Capital and Aon Business Services. It's designed to help clients assess and improve their employees' health, which in turn helps deliver well-being, productivity, and lower cost. Within this offering, driven by proprietary analytics, we can assess data around employee health information, insurance and claims, workplace safety, absence engagement data, and external data on health trends and solutions, which together form a robust view of employee physical well-being. With this insight, our teams can recommend individualized solutions, including better insurance offerings and targeted programs. As an example, one manufacturing client wanted to improve employee physical well-being and reduce costs. Together, we designed a comprehensive long-term well-being strategy and a customized health program that included 12 vendors. and targeted specific health and well-being programs for employees based on individual factors correlated to success. The results were impressive. In our target group, as compared to non-participants, we saw meaningful improvement in selected health metrics at 24% lower cost per person. Further, the platform allows for rapid scale and distribution of solutions that help our clients drive workforce health, wealth, and productivity. Equally important, our colleagues love having this kind of impact, which is an important driver of our very high Aon colleague engagement. And we see examples like this across the firm every day as we help our clients manage risk and support their people. And this demonstrates the opportunity to continue delivering innovative solutions at scale to address our clients' biggest challenges across the backdrop of rapid change and ongoing volatility. To summarize, we begin 2023 in a position of strength. Our firm is more connected than ever before. to deliver better solutions for clients and to better support our colleagues. A.N. United will continue to deliver results now and over the long term for our clients, colleagues, and shareholders, and is reflected in our progress to achieve key financial objectives. Now I'd like to turn the call over to Krista for her thoughts on our financial progress in Q4 in 2022 and our long-term outlook. Krista?
Eric Anderson
Thanks so much, Greg, and good morning, everyone. As Greg highlighted, we delivered another strong quarter of performance across our key metrics to finish the year. In the quarter, we translated 5% organic revenue growth into 40 basis points of adjusted margin expansion and strong growth in adjusted earnings per share. For the full year 2022, organic revenue growth was 6%. Adjusted operating margins increased 70 basis points to 30.8%, and we generated over $3 billion in free cash flow, an all-time high. We look forward to building on this momentum as we head into 2023. As I reflect on results, as Greg noted, organic revenue growth was 5% in the fourth quarter and 6% for the full year. We continue to expect mid-single digital greater organic revenue growth for the full year 2023 and over the long term. I would also note that reported revenue growth of 2% in both Q4 and the full year includes an unfavorable impact from changes in FX of 4% in both periods. primarily driven by a stronger U.S. dollar versus most currencies. I'd also highlight that fiduciary investment income, which is not included in our organic revenue growth, was $41 million in Q4 and $76 million for the full year, or 1% in both periods. Moving to operating performance, we delivered strong operational improvement in Q4 with adjusted operating margins of 33.2%, an increase of 40 basis points. driven by organic revenue growth and efficiencies from our business services, overcoming expense growth, including investments in colleagues and technology to drive long-term growth, and some ongoing resumption of T&E. For the full year, adjusted operating margins of 30.8% reflect margin expansion of 70 basis points year over year. And I note over the past 12 years, we've delivered 90 basis points of margin expansion a year. Looking forward, we expect to deliver margin expansion in 2023 and over the long term as we continue our track record of cost discipline and managing investments in long-term growth on an ROIC basis. As we previously communicated, we think about margins over the course of a full year, driven by three areas. The first is top-line revenue growth. The second is portfolio mix shift to higher margin businesses as we invest disproportionately in areas of increasing client demand. supported by data-driven solutions to deliver the insights and advice that help our clients protect and grow their organizations. And the third area is increased operating leverage from ongoing productivity improvements from our Aon Business Services platform. I'd highlight that Aon Business Services continues to be a key contributor to margin expansion and represents a competitive advantage, especially in a high inflationary market. Our Aon Business Services platform continues to drive efficiency gains, improved quality and service, and increased innovation at scale. During 2022, we continue to make progress on IAM business services and driving efficiencies and enhanced services, particularly through process improvement, automation, and the use of artificial intelligence. For instance, our captive business has clients with hundreds of legal entities who each require multiple policies. Previously, the process of checking policies was manual and inefficient. We've now moved to a digital solution that can identify differences quickly and accurately, and deliver these to clients much more quickly. Similarly, the use of AI is increasingly enabling us to deliver better solutions to clients. For example, we delivered a new solution for our human capital clients using an AI-powered search engine that provides them with insights on technology talent globally, including geography-based pay differentials. This is essential for finding the best technology talent and optimizing within the client's existing workforce, a key area of growth for many firms. As we've said before, these improvements not only improve accuracy and client service delivery, they also help free up our colleagues' time for more valuable client activities and drive better outcomes for our clients. Organic growth and margin expansion translated into adjusted EPS of 5% in Q4 and double-digit growth of 12% for the full year. As noted in our earnings materials, FX translation was an unfavorable impact to approximately $0.09 per share in Q4 and 44 cents per share for the full year 2022. If currency remained stable at today's rate, we would expect an unfavorable impact of approximately 13 cents per share in the first quarter of 2023 and 12 cents per share for the full year 2023. Turning to free cash flow and capital allocation. We generated over 3 billion in free cash flow in 2022. contributing to our long-term track record of growing free cash flow at 13% CAGR since 2010. Our outlook for free cash flow in 2023 and beyond remains strong, and we continue to expect to deliver double-digit free cash flow growth for the full year and over the long term, driven by operating income growth and working capital improvements. I'd note CapEx returned to a more normalized level in 2022 as we made ongoing investments in ADS-enabled platforms, and technology to drive long-term growth. As we've said before, we manage CapEx like all of our investments on a disciplined return on capital basis. Given our strong outlook for free cash flow growth in 2023 and beyond, we expect share of purchase to continue to remain our highest ROIC opportunity for capital allocation. We believe we're significantly undervalued in the market today, highlighted by the approximately $675 million of share of purchase in the quarter and $3.2 billion of share of purchase for the full year. We also expect to continue to invest organically and inorganically in content and capabilities that we can scale to address unmet client needs. We've invested in expertise and content to help meet our clients' needs, such as our Q4 acquisition of ERM, a Mexico-based leader in risk assessment modeling, which expands our catastrophe modeling and consulting capabilities in reinsurance. Our M&A pipeline continues to be focused on our highest priority areas that will bring scalable solutions to our clients' growing and evolving challenges. We'll continue to actively manage the portfolio and assess all capital allocation decisions on an ROIC basis. We ended 2022 with an ROIC of 30.6%, an increase of nearly 1,900 basis points over the last 12 years. Now turning to our balance sheet and debt capacity. We remain confident in the strength of our balance sheet and manage liquidity risk through a well-laddered debt maturity profile. We expect to add incremental debt as EBITDA grows over the long term while maintaining our current investment-grade credit ratings. With respect to interest rates, I'd note our term debt is all fixed rate with a weighted average interest rate of approximately 4% and a weighted average maturity of approximately 12 years. I'd note our pension liability improves as interest rates increase. As a continuation of our pension de-risking efforts, I'd highlight that we completed an annuity settlement transaction in the fourth quarter, resulting in approximately $300 million reduction in our pension benefit obligation. This continues to be an incredibly attractive environment for our clients to do pension risk transfers, and we continue to see very strong demand from clients. We've done substantial numbers of pension risk transfers in the US and the UK, and they're a leader in the space. In summary, 2022 was another year of strong top and bottom line performance, driven by the strength of our Aon United strategy and Aon Business Services. We returned over 3.6 billion shareholders through share of purchase and dividends. The success we achieved this year continues to provide momentum as we head into 2023. While we're seeing signs of economic uncertainty, we remain confident in the strength of our firm and our financial guidance for 2023. Overall, our business is resilient, and our AM United strategy gives us confidence in our ability to deliver results in any economic scenario. With that, I'll turn the call back over to the operator, and we'd be delighted to take your questions.
Operator
Thank you. At this time, I'll be conducting a question and answer session. If you'd like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Elise Greenspan with Wells Fargo. Please proceed with your question.
Elise Greenspan
Hi, thanks. Good morning. My first question is on your margins. So if we look in the quarter, it seems like your margin declined, excluding the benefit of fiduciary investment income. So I'm just trying to get a sense of the drivers and outlook you see for your margin, excluding the NII benefit in 2023.
Eric Anderson
Yeah, thanks so much for the question, Elise. That is correct. We saw 40 basis points of margin expansion. and 90 basis points of impact from fiduciary investment income. And I would note, we really think about margins over the course of a full year, so 70 basis points of margin expansion in the full year, of which 40 basis points came from fiduciary investment income. And we really think about margin expansion over the long term. Our margin growth has been 1,120 basis points over the last 12 years, or 90 basis points a year for 12 years. And it's really driven by revenue growth, the portfolio mix shift to higher margin areas, and the productivity benefit we're getting from Aon Business Services. And so we're extremely confident with that track record, Elise, for our financial guidance, which is mid-single digital, greater organic revenue growth, margin expansion for the full year 2023, and double-digit free cash flow growth for the full year 2023.
Elise Greenspan
So assuming we continue to get a tailwind from producer investment income, I guess in 23, you'll probably, you know, balance letting that all fall to the bottom line and making some of the investments similar to what you did in the fourth quarter.
Eric Anderson
I think that's fair. We are continuing to drive margin expansion each and every year, overcoming investments we're making in the business, because you saw in Q4 that We substantially invested in IT, so our IT expenses up. We're investing in platforms and technology to drive innovative solutions for clients. And we'll continue to invest in our colleagues, and we'll continue to invest in M&A, and we'll continue to invest in a lot of areas to drive long-term growth. But we really think about this over the course of a full year, which is really what matters to us.
Elise Greenspan
Thanks. And then my second question, you know, we've heard a lot about a lot of strong pricing coming out of the January one reinsurance renewals. Can you give us a sense of the outlook for your reinsurance business? I'm not sure if you've highlighted in the past what the concentration is in to property lines, but can you give us a sense of just how you think that business should perform on, you know, in an environment where we're seeing, you know, as robust catastrophe, reinsurance price increases that we saw January 1?
Andrew
Thanks, Elise. This is Eric Anderson. Why don't I take that one to kick us off? It's great to be with you this morning. Listen, the reinsurance business continues to be a very strong performer for us as we go through the year. And I would say certainly a lot of attention spent on PropertyCat for good reason. Certainly the losses, the interest rate moves, the restructuring of the programs that were happening throughout the season I would say property tech continues to be a dominant part of the business, but it's not the whole business. Certainly casualty, specialty, and others continue to be a big part of it. So I would say as I think through the future of what's going to happen over the next 12 months, we continue to see a very robust opportunity for the team. They're spending a lot of time with data analytics, better insight to help our primary clients figure out their positioning and But the end game, I think, when you think through the 1-1 renewals, is that there's more risk, more volatility has been pushed to the primary insurers. And the outcome of that for them will be either risk appetite. They're going to have to be very disciplined on the risk that they assume in the property space in particular. They'll use other methods like facultative reinsurance. They'll probably do selective buying throughout the year. And so I would say the 1-1 season, a little different than years past, which I think is what you're alluding to, And ultimately, they're going to continue to manage their portfolio as the year progresses.
Greg Case
And I might just add to that, at least, the team was exceptional. I'll tell you, the one-one renewals had a unique market dynamic and taking the analytics and capability we have in place and what we're able to do and how we delivered to the market well before anyone else was truly unique and helped our clients tremendously as they navigated through the marketplace. And as Eric highlighted, more risk is really more opportunity to demonstrate value added.
Operator
Thank you. Thank you. Our next question comes from Andrew Kligerman with Credit Suisse. Please proceed with your question.
Andrew Kligerman
Hey, thank you. In your slides, you describe the impact on organic revenues from the market as modest, positive, impact in both commercial risk and reinsurance. Can you give a little more color on that market impact and maybe discuss the issue of commissions versus fees and whether, you know, your fees were kind of level year over year or whether commissions were driven down in each of those two segments?
Greg Case
Happy to, Andrew. Maybe I'll start, and Eric, you can chime in as well here. First, Andrew, we always come back to the idea when we talk about market impact. This is a function of price, as you're highlighting, but also insured values over time. Obviously, a lot's happening on the insured value front. And this is really broadly beyond this property, but really think about on the employee side and all aspects of what's driven by changes in those values. And that actually has much more impact than just price per se. As we've highlighted, you step back, it really is modest impact. uh you know over over time we saw that in this quarter we think we'll see that throughout the year uh and it really for us is about value we deliver value for clients uh and we you know we get benefit from that uh because they get benefit and we're very very clear about that and uh as eric highlighted on elise's question in an environment with greater risk the opportunity to provide greater value is real and meaningful and we're doing it and and we're benefiting from it so that's what you're seeing overall but eric maybe you want to dive a bit more into them
Andrew
specific pricing piece. Sure, Greg. Listen, I think on the market perspective, certainly property is getting a lot of attention and you continue to see that market be challenging for primary clients. It is worth noting, though, that clients use a lot of different tools to manage that market dynamic. They use captives, they use retention, they use limits purchase. So it's not a direct line from what a carrier would say about a property market rate versus what a client actually assumes. So there's a lot of tools that they have, and we spend an awful lot of time, as Greg was saying, trying to add additional value for them using financial modeling and techniques to try and limit that exposure. The other products, casualty, cyber, financial products, et cetera, around the globe, I would say are more stable. We're a good three and a half, four years into a market cycle, and I think those products are coming more to an equilibrium And the last thing I would say about your question on commission's fees and ties back to what Greg said, is one of the benefits of being a fully transparent broker where we engage our clients in what we get paid for the value that we provide, we don't really care whether it's a commission or whether it's a fee. What we really are driven by is are we providing value to clients and are we being paid fairly for that value? And so whether the cycle is up or down, it doesn't really matter to us. We engage in those conversations in a fully transparent way and And I think we have great relationships with our clients because of it.
Andrew Kligerman
Okay, so maybe just so I can interpret it that the 4% plus revenue growth in commercial risk, the 9 plus in reinsurance, both of them were more a function of what Aon was delivering as opposed to inflationary impacts on exposures and kind of a very firm pricing environment. I should think about it as more Aon-centric and very little of these market issues played through. Is that the right answer?
Andrew
If you think about it, I'll just use reinsurance as an example. It's historically our smallest quarter, and it's not treaty-driven. It's driven around facultative placements, banking, our technology consulting group. So not really market-driven issues, but more value issues in terms of usage of those tools to help clients manage their exposures.
Andrew Kligerman
Okay, and then just a quick one on the tax rate at 9%. Is that a sustainable tax rate, or should we be thinking about it kind of drifting up a little bit toward, say, 12 last year in the quarter?
Eric Anderson
So what we would say is we don't give forward guidance on tax, but as I look back historically, exclusive of the impact of discrete items, which can be positive and negative in any one quarter, our historical underlying rate for the last five years was 18%. And that's the result of us being a global company domiciled in Ireland with a global cash management structure and a global capital structure. And so we're really confident about where we are.
Jimmy
Confident.
Andrew Kligerman
So should I be thinking more toward the 18%?
Eric Anderson
Again, we don't give guidance going forward on tax rate, but I can tell you that as we look back historically, our historical underlying rate for the last five years was 18%. Okay.
Andrew Kligerman
All right. Thanks a lot.
Operator
Thank you. Our next question comes from the line of Jimmy Buehler with J.P. Morgan. Please proceed with your question.
Jimmy Buehler
Hey, good morning. So first, I just had a question on some of your comments on the reinsurance market. You mentioned a challenging environment for your clients, especially in property reinsurance. Are you expecting a similar trend for mid-year renewals as well, or do you expect any sort of shifts in capacity entering the market?
Andrew
So, Jimmy, right now we have not seen a lot of new capacity enter the marketplace, although there is certainly a lot of whispers and discussion about whether there's opportunity for additional capital to enter. So I would say as we go into the April 1 property renewals, which are dominated by Japan, and then June, which is dominated by Florida, I think as we sit here today, you would have to think that those market dynamics would continue.
Jimmy Buehler
Okay. And then just similarly on commercial lines, obviously pricing has been pretty good for a while. It seems like it's softening a little bit given the results that some of the carriers have reported. Are you seeing something similar in the market too?
Andrew
I would say it depends where you are. It depends on the segment. It depends on the industry. I think we like to say there's a million little markets out there depending on each individual client and the business they're in and the type of exposures that are being covered. On a macro basis, certainly property continues to be the firmest as The primary carriers now deal with the effects of higher retained risk that they were traditionally passing on to reinsurers. But whether it's the casualty lines, general liability, cyber, financial lines, D&O, professional, that type of thing, we're definitely seeing a stabilizing of that market as more capital has come into those areas and clients are being given more choices in what they're doing. And I would also say that the insurers are four years into remediating their portfolios. And so they're much more specific as to the areas that they choose to compete in and the kind of business that they want to write, which does give clients sort of a more targeted choice of potential insurer partners.
Greg Case
Jimmy, in the context of this, if you step back and think about the implications for insurers, Eric's highlighted very well kind of in a product-by-product basis. As I described in my comments and Chris amplified very well, this is really about a client leadership approach for us And fundamental demand is going up. The opportunity to talk to clients about risk out there in the world and how it's connected is going up. So irrespective of sort of the individual pricing environment, which Eric described well, the opportunity for us to engage clients and help them how to protect their business and grow is actually continuing to increase. Okay, thanks.
Jimmy Buehler
And just lastly for Krista, On taxes, do you see anything in terms of a minimum global tax or something based on what's out there right now? Do you have any views on how it would impact your financials?
Eric Anderson
Jimmy, we don't comment on any future legislation. We run a global tax structure, and we've had an underlying rate of 18% for the last five years, and we feel really good about where we are.
Jimmy
Okay. Thank you.
Operator
Thank you. Our next question comes from the line of Rob Cox with Goldman Sachs. Please proceed with your question.
Rob Cox
Hey, thanks. And first maybe just a longer term question. I think in the past you've talked about getting margins up into the 40% plus area. I know you don't disclose margins by segment, but curious if you could give us some color on which of your businesses have some of the most opportunity there and if commercial risk could ever get to that level.
Greg Case
Rob, just to step back for a second, as we've talked about, it really is about greater organic growth, improving margins over time, and really driving double-digit free cash flow growth for the firm. And all aspects contribute. And as you're hearing in our commentary, more and more are connected. The solutions we're providing, some of the most innovative solutions we're providing, really are a function of how our commercial risk business, our reinsurance business, health, wealth, and talent businesses come together. And so we're confident about continuing to drive margin improvement, as we've described, organic revenue growth, mid-single-digit or greater, and free cash flow growth, double-digit. That's how we want you to think about it. That engine is really what's coming together, and we're confident we can achieve that on our clients' behalf.
Rob Cox
Okay, got it. And maybe just switching to the wealth segment, obviously strong growth in the quarter. I was wondering if that was, you know, more driven by the pension risk transfers or some of the regulatory changes we're seeing, particularly in Europe, and if your outlook considers a continued tailwind from these areas.
Greg Case
I just would start overall, and Eric, you know, loved that idea, you know, some additional color here. Look, the team's done a phenomenal job. There's a lot going on out there for our clients in this arena, a lot of complexity, as we've described before, and whether it's on the interest rate side of the overall general state of the overall economy and what's happening with insurance transfers, as you've described. So the team's just done an exceptional job, really, on a global basis, helping our clients sort of navigate across very, very challenging marketplaces. And you saw it show up in the year. You certainly saw it show up in the quarter. Eric, what else would you add to that?
Andrew
Listen, I think the regulatory changes with the global minimum pensions is such a big part of the business in the retirement side. So we saw a lot of growth there, especially out of the UK, but also decent growth in the US as well. There were some headwinds with the investment business because of AUM being down with the market. But overall, we're really well positioned. And I think, Krista, you mentioned in your opening comments about the pension risk transfer piece. Also, I think we're an industry leader in that space and really have a great team to do it.
Eric Anderson
And look, I just finished with what we're doing on the Aon side. We're following the same advice we give clients. And over the last 15 years, we've reduced the risk in our pension substantially through steps to close the plans, new entrants, freeze benefit accrual, match up to liabilities and purchase annuities to settle a portion of the pension liabilities. And it's resulted in much less economic risk and much reduced cash contributions. And so our remaining plans are well-funded and hedged. And we're really managing this on a cash basis. And you can see that our cash contributions have come down substantially over time. With only $65 million we're contributing in 2023 in cash, a continued downward trend in cash. And so we're really excited about the progress we continue to make on our own plans in de-risking, as you saw in Q4, with the $300 million of pension benefit obligation coming off the balance sheet, and in the decreased cash contributions.
Jimmy
Great. Thanks for the call. Thank you. Our next question comes from the line of Weston Bloomer with UBS. Please proceed with your question. Mr. Bloomer, your line is live.
Bloomer
Sorry about that. I was on mute. My first question is on the margin. I was hoping you could kind of expand on your margin outlook away from fiduciary income. I guess, would you be able to still expand margins in the core business away from the fiduciary income benefit in 2023? And then where could we potentially see that margin improvement? I would assume lower real estate would be a component of that.
Eric Anderson
So, Weston, thanks so much for the question. As we think about margin expansion, we think about it holistically over the course of a year at the Aon level. And we've grown margins, as I mentioned, 1,120 basis points over the last 12 years or 90 basis points a year for 12 years. And it's driven by revenue growth. A portfolio makes a shift as we disproportionately invest in higher revenue growth, higher margin businesses, organically and inorganically, and productivity benefits from ABS. So we don't look at it separately from investment income or, frankly, the underlying investments we're making in the business each and every year to drive long-term growth and innovation for our clients.
Bloomer
Great, thank you. My second question, I know you highlighted that you were seeing some signs of economic uncertainty in your prepared remarks. Can you just expand on kind of where you're seeing those signs of weakness and then what economic backdrop does your guidance assume?
Greg Case
Excellent question. Appreciate the question. We are seeing uncertainty or complexity or interconnectivity, however you want to describe it, really everywhere around the world. We do want to emphasize, though, this is not just risk, it's opportunity. It's an opportunity to engage clients in ways to help them understand these risks more effectively. And candidly, our clients want to get on the offensive. They want to understand that risk and then actually deal with how they can actually grow their businesses in the context of it. So for us, this is about more connectivity around a changing environment. But we're seeing it really wherever around the globe, the impacts of interest rate changes, inflation, geopolitical challenges, really the fundamental issues I described in the opening comments around Things like health and wealth and talent. The evolution from just engagement is now wellness and all things that come with that, all aspects of that. How you think about managing that, sort of using reinsurance analytics and commercial risk analytics in the context of people. All these things are coming together to create opportunity for us, and we're really seeing it everywhere in addition to the challenges you described.
Bloomer
Great, thank you. And then my last one, a follow-up on tax. I believe you had a tax holiday in Singapore that ran through September of 2022. Was that extended going forward?
Eric Anderson
Look, our operations in Singapore, including our investment center and local business, are an essential part of our operations today, and we expect they'll remain an important part of our global strategy going forward. We did finalize our negotiations with the Economic Development Board in Singapore, and we'll provide an updated disclosure in our 10-year arrangement in our 10-K.
Bloomer
Great. Thank you for taking my questions.
Operator
Thank you. Our next question comes from the line of David Motemaden with Evercore ISI. Please proceed with your question.
David Motemaden
Hi. Thanks. Good morning. I had a question on commercial risk. Greg, you mentioned there was a five-point drag from the lower transaction volume. in the quarter's organic growth. I guess I'm wondering, is that going to be a similar size drag as we think about first quarter? Or is it going to be lower or higher? I guess, how should we think about that as we progress through the 3-23?
Greg Case
Yeah, and David, thanks for the question. Really, we were underlying, our commercial risk colleagues, you know, working across the firm has done a tremendous job and drove growth, as I described, everywhere around the world, including in the U.S., with the exception of the external M&A and IPO environment, which created the headwind that we described. But even in the context of that, just done a magnificent job. As you know, that's an amazing business, and we are incredibly well positioned in the context of it. And we'll see how it plays out, you know. We highlighted, you know, maybe it drags into the first quarter. We'll see what happens on the M&A services front. But overall, it's an exceptionally strong performance in terms of what we've done overall. And this is just one piece. And as we described before, this is really about overall global Aon and what we can do to grow the firm. And we're very excited and confident about how that's going to proceed in 23.
David Motemaden
Got it. Okay. Thank you. And then I think you guys usually give an update on the colleague count at the end of every year. So I think it was 50,000 at the end of 2021. Where did that stand at the end of 2022? Did that grow at all?
Greg Case
Listen, I'm not sure how much we disclose on a specific people because it isn't about the individuals for us from the standpoint of how we help them become more effective, more capable, greater ability to deliver the firm. And I would tell you, as we look at that, we've been incredibly pleased with the progress when you think about overall AN United and all the aspects around it and great progress. But, you know, I would say we continue to invest tremendously in our colleagues and bringing colleagues on. And you saw that in 22. You'll see it again in 23 and 24.
David Motemaden
Got it. Thanks. And I guess just to follow up on that, Greg. You mentioned, I guess it sounded like just productivity enhancement of your existing employee base. Are there any metrics that you guys track that you can help us think about that?
Greg Case
You know, David, there are lots of metrics. We have them. We don't disclose them. You know, I do think it's worth, you know, on this point in particular, you know, understanding and maybe taking a minute to step back and say, listen, when you think about our ability to drive organic growth, to drive margin improvement, to drive free cash flow improvement, You know, fundamentally, Chris and I both highlighted the role the United strategy plays in that. And it is fundamental. And I think it's worth a couple of minutes here, David, your question. If you think about it, we've been at this for 10 years plus. You know, we saw back then client need was changing. We saw that, you know, we need to help them make better decisions to protect and grow their business. We saw, you know, frankly, this occurred across all aspects of risk, not just commercial risk, all aspects of what we're doing, workforce, health, talent, etc., We also saw we had great capability, but like everyone around the world, it wasn't joined up and it wasn't driving innovation at scale. And we saw that loud and clear, David, in terms of where we are. We also saw, however, there were pieces and pockets when our colleagues worked together. We win more clients, we do more with them, we retain them longer, and we also deliver better and faster innovation at scale across the firm. And this fundamental truth 10 years ago for us created a great deal of excitement, but it also created a real challenge, which was Okay, that sounds great. Everybody talks about this. How do you do it? How do you accomplish that? And that's the Aon United strategy. And this is back to your critical question, how do we maintain performance and drive it over time? It is Aon United. The challenge has been, as we've evolved it, and the opportunity is, this required a fundamental design of organization around serving clients, changing training, learning, how we think about leadership development. Aon Business Services, fundamental to that. and some real, frankly, price of admission to really do this, single brand, single P&L, single leadership team, et cetera. And we are really bringing that online. And what you heard from both Chris and I and in Eric's comments as well is what we've done with Aon United is fundamentally to put us in a position to not just serve clients by solution line, but really cutting across solution lines to bring better capability to them. And in the current environment, The more difficult it becomes for clients, the more opportunity we have to bring value. And that's frankly what you're seeing, which is why we are confident in our ability to frankly not just make progress over the last decade, as Krista highlighted, but why we are so excited about to go forward.
Andrew
Hey, Greg, maybe I can give a little bit of color with regard to a client example just to bring it to life, because I can't stress how important this is for us and what we do for our clients. We were recently engaged by a global firm in a specialized industry who was looking for just better risk advisory services around the world for their risk strategy, both globally and as well as locally. And to do this, we use resources from all of our solution lines in multiple spots. And on the surface, I would say this is the kind of work that we love to do for clients. But just thinking about what you were just saying, Greg, when I think back, to what we used to do, right? When we were operating under these sub-brands of Aon Reservices, Aon Benfield, Aon Hewitt, and the others, it would have been a pretty disjointed process for us. There would have been, you know, all sorts of internal barriers within the firm that would have distracted us from the focus on the client. We would have had internal P&L issues, like resource allocation, revenue sharing, incentive discussions. I think you all get the point. But today, with the Aon United structure, we have five region leaders, four global solution line leaders, who are focused solely on delivering for that client under the Aon brand, with one P&L operating around the world. And it is powered by the Aon Business Services model, which allows us to actually deliver that capability in a uniform way globally.
Eric Anderson
And Eric, I would just say that Aon United sets the stage for Aon Business Services to be successful. I agree with everything you both said. And I would add three things. The first is innovation at scale is an essential part of our ability to deliver results for clients as we continue to find applications and solutions developed in one area and then scale it to clients globally. We can't do that without Aon Business Services enabling seamless connectivity across the globe. Second, Aon United is not a feel-good story. It's designed to enable our colleagues in every way to deliver better results for clients, which translates into stronger top and bottom line performance. And ultimately, that translates into free cash flow growth, as evidenced by our billion in free cash flow and 24% free cash flow margin, as we put our highest and best use of the capital, which we believe will continue to drive long-term value creation for shareholders. Translating revenue into free cash flow is a scaled operational outcome, and it's done at scale globally in over 100 countries, tracking by day, by country, with great accuracy. This is not possible without Aon United, and the detailed operating model we've got powered by AM Business Services. It makes us all really excited about the 2023 go-forward momentum and how we scale this operation to deliver innovation for our clients.
Greg Case
So, David, that was way more than you asked for on the initial piece, but you asked a very important specific question. What we're trying to convey is that the answer to that is key, but it really is fundamental to sort of how the integrated approach happens and how it drives performance. and how we're not complete with the journey. There's a lot more opportunity ahead of us. And it also connects with our colleagues because they love driving the solutions Eric described. It creates engagement. It creates excitement around. If you can wow a client, you've done something that is truly kind of makes the week and the month. So it's a huge, huge opportunity. And we stress it here because it's so fundamental to our success with our clients and obviously with all of our investors as partners as well. So hopefully that's helpful.
David Motemaden
No, that is. Thanks so much for the thorough answer. I really appreciate it.
Operator
Thank you. Our next question comes from Michael Ward with Citi. Please proceed with your question.
Michael Ward
Hey, guys. This is Charlie on for Mike. I guess first, in human capital, organic growth has been really strong for many quarters now. Wondering what the pipeline looks there amid macro uncertainty and comps being challenging. And you mentioned tech talent in your opening remarks. Is that business benefiting from some of the job market dislocation in tech?
Andrew
So why don't I take the first one? Certainly, human capital has been a very robust business for us over the last 24 months. And we still see it. The data sales, the information around comp, the competitive talent engagement assessment, all still very critical to the agendas of our clients. We feel really good about that business and what it's done over the last 24 months. They're confident about it literally over the next 12 to 24 months as well. And on the tech talent side, go ahead, please.
Eric Anderson
Sorry. On the tech talent, we've got one of the most fabulous brands in the tech space, Radford. And that was the example I gave on the opening remarks around using AI to actually be able to match and find the optimal tech talent at the right price anywhere around the world, and then to be able to also figure out where your tech talent is within your existing organization to be able to optimize your workforce. And so we do see the tech dislocations being a fabulous time to utilize this AI technology to make sure that our clients get access to the best talent and optimize it in the right way.
Michael Ward
Got it. Thank you. And then you mentioned cyber pricing kind of being more in equilibrium now, wondering how
Andrew
And role in the marketplace has evolved over time as that market has grown a lot over the last several years Listen, I think the cyber market is continuing to evolve and will continue to do so as the threat actors change over time I would say we're a leading provider of both risk management when you think about data security and the strategy to prevent cyber attacks certainly with our straws free bird client brand and very strong in terms of its its work with clients and then obviously the risk transfer aspect i would say when you think about the cyber market today and where it's going i would say the insurers have actually gone back to basics the way the quality of the underwriting the in-depth understanding of what the real cyber exposures are have allowed them to price it better to understand the real risk and frankly it's allowed us to distinguish and differentiate our clients and the work that they're doing around cyber protection to be able to bring them to market in a way that gives them individual views. But it's become quite a market in terms of size, probably approaching about $10 billion of premium. And both from an insurance and a reinsurance side, I consider ANA a market leader in the space.
Jimmy
Thanks for the call.
Operator
Thank you. Our next question comes from Derek Hahn with KBW. Please proceed with your question.
Derek Hahn
Good morning. Thanks. So my first question is on buybacks. It looks like buybacks float a little bit in the fourth quarter. Was there anything unusual driving that? I was a little surprised just given the strong operating cash flows.
Eric Anderson
No, we would just say that we continue to see across the firm that we deploy cash based on the highest return on capital opportunity. Buyback is top of the list. even at today's prices, Derek. And so that's why we bought $3.2 billion back in calendar year 2022. And we expect buyback to remain the highest return on capital opportunity going forward.
Derek Hahn
Got it. That's helpful. And then my second question is on M&A. We've heard chatter about the M&A market kind of cooling a little bit. Are you kind of seeing that in the market? And how does that impact your M&A appetite for this year?
Greg Case
Now, from our standpoint, we see tremendous opportunity around the marketplace overall, and as there's been some market stress, it even creates more opportunity. As Krista described, our decisions are made around literally with the cash pool. It's a return on capital, cash on cash return, and we see lots of opportunity out there. We also see lots of opportunity to invest organically in our business, and we've been doing that with great success. And the pipeline we see is as strong as ever before, but as Krista described, It's got to really add value. For us, it's about content we can scale effectively, and that really drives sort of an outside of outcomes that are very powerful. We see a lot of opportunities there. Krista, anything else you'd add to that?
Eric Anderson
Yeah, and look, I would just add we found some terrific companies and invested in those this year. I mean, Tyche, fantastic capability in the capital modeling and analytics space. and ERN in the modeling space in Mexico. And so we continue to invest in areas of high growth and client need, which we're really excited about.
Jimmy
Okay. Thank you.
Operator
Thank you. Our final question this morning comes from the line of Mike Zuramski with BMO Capital Markets. Please proceed with your question.
Mike Zuramski
Hey, good morning. Great. Just a follow-up on... the M&A landscape. Can you remind us, you know, we know that Ann has moved in some of the M&A with Cover Wallet into the small commercial marketplace. Any ambitions to get into kind of the main street U.S. retail marketplace? I know you just mentioned there were some market stresses. I believe there's some market stresses for some of the private equity roll-ups there. Just curious if that's any ambitions to get into kind of main street retail small-mid commercial.
Greg Case
Listen, as we step back, I want to make sure I understand the market segments as you're thinking about them. We love the segments we operate in, which is really the large market, the middle-sized marketplace, and the small commercial market. And you're absolutely right. The bringing in CoverWallet has been phenomenal. It is a capability, much like many, that we can scale. And scale not just in the small commercial market, but if you think about B2B2C, in large companies with bringing that capability in the context of that. Think about kind of distributed businesses, franchises, things like that, phenomenal set of opportunities. So we love the space. We've got great capability in it. We're going to continue to grow it, and we've seen great success with it. So that's how we think about overall small commercial. I want to make sure that answers your question.
Mike Zuramski
Yeah, I just wanted to confirm that there is no strategic initiative that kind of operates more kind of in the – you know, where, I guess, where Marshall County Agency or, you know, Brown and Brown, AG Gallagher, the sandbox that they're competing in, the smaller-sized businesses versus the kind of Fortune 5000? You know, we're looking a little bigger than CoverWallet. Thanks.
Greg Case
Yeah, we're absolutely active across the board. The question is how, and how with content capability that lets us scale in those arenas. And we've been, you know, very successful across all of those segment pieces. not necessarily in the roll-up because of that size as opposed to more capability. But it really has been, we love the segments, see great opportunity in the segments and cover while it was a great addition to the Aon world. Eric, anything else you'd add to that?
Andrew
Yeah, Greg, I would say in our affinity businesses, we serve specialized groups of small. So we're very active in the small space, but really where we can bring distinct value, whether it's in the travel space or, you know museums that type of thing where we actually have a product of capability where we're able to provide distinct value to the clients i would also say with our office you know our 500 offices around the world we engage with clients across all segments i mean there are only 500 fortune 500 clients we do an awful lot in the middle market and the small commercial our strategy is to bring product solutions using the expertise that we have across all of our capabilities and package them and deliver them in a way where we're providing the real value of using AOM as your advisor. So you get that product expertise, but delivered in a way where it's efficient and cost effective for them to be able to use our capabilities.
Mike Zuramski
Okay, that's interesting and helpful. My last follow-up was on fiduciary investment income. And I know there's some nuances that make it not, you know, it's tough for us to model, you know, exactly. But should we be expecting a quarterly step up, a material step up into 23 based on where the interest rates are now across the globe?
Eric Anderson
Yes. So what I would tell you is what we saw in 2022 was an interest rate stepped up in Q3 and Q4 of 2022. And so if interest rates stay where they are today, you'll see a similar impact Q4 in Q1 and Q2. And so we would expect, you know, that increase if interest rates stay where they are. And then for modeling going forward, every 100 basis point increase in interest rates is approximately $65 million in fiduciary investment income. And there's no delay between interest rate increases and it impacting our fiduciary investment income.
Jimmy
Thank you.
Operator
Thank you. Ladies and gentlemen, this concludes our question and answer session. I'll turn this over back to Mr. Case for any final comments.
Greg Case
I just want to say thanks to everybody for joining us today. We appreciate it and look forward to the next call.
Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.
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