Aon PLC

Information concerning risk factors that could cause such differences are described in the press release covering our fourth quarter 2024 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 Aon PLC.

Good morning, everyone, and welcome to our fourth quarter and full year conference call. I'm joined by Edmund Reese, our CFO, and Eric Anderson, our president. As in previous quarters, we posted a detailed financial presentation on our website, which Edmund will reference in his remarks. We want to begin by extending our deepest sympathy to our colleagues, clients, and all those impacted by recent disasters, and in particular, the devastating wildfires in Southern California. The destruction and loss of life are tragic events, and all of us at Aon are committed to supporting our clients, colleagues, and partners during the response and recovery. Now turning to Aon. We're excited to be here this morning to discuss our strong performance in 2024. We had great execution in year one of our 3x3 plan, with all credit to our colleagues around the globe, which I will cover in more detail at the close of my comments. That execution is translating into winning more clients, expanding our relationships, and keeping clients longer through improved retention. And it shows in our financial results. For the full year 2024, we grew organic revenue 6%, total revenue 17%. We delivered strong margins and grew our operating income 17%, driving 10% adjusted earnings per share growth and continued strong free cash flow. These results are a strong start to our 3x3 plan. And as we go into 2025, year two, we remain well positioned to continue to deliver mid-single-digit or greater organic revenue growth, continued margin expansion in line with our historic performance, strong adjusted EPS growth, double-digit free cash flow growth, and disciplined capital allocation. As we move forward, it's important to understand the environment in which our clients are operating and the external factors shaping client demand. Every day our clients tell us that increasing volatility and complexity make decisions regarding risk and people issues more difficult. The challenges businesses face reflect a series of profound transitions across the megatrends of trade, technology, weather, and workforce, which we saw reinforced by events throughout 2024 and which are firmly in place as we move into 2025. These four megatrends are causing significant challenges across every sector and every type of business. At the same time, leaders worry that their organizations aren't moving quickly enough to address these risks. Our 3x3 plan is anchored in meeting these intensifying client requirements, better serving our clients with the unique content, servicing capability, and expertise needed to respond to these challenges. In this environment, For Aon, 2024 was a year of tremendous progress across all three pillars of our 3x3 plan, risk capital and human capital, Aon client leadership, and Aon business services. Three commitments were delivering over a three-year period. First, we committed to leveraging our distinctive risk capital and human capital structure to unlock new solutions that address the evolving client demand discussed earlier. In 2024, we created and delivered innovative solutions that integrate reinsurance and commercial risk data and analytics. Solutions using this connected capability are enabling clients to access capital more efficiently and make better decisions. Our work in the fourth quarter to help source $715 million of alternative reinsurance capacity for a major underwriter and the record 30% increase in Aon client treaty capacity are just two examples of the power of risk capital. Similarly, in human capital, a global company with over 100,000 employees in more than 100 countries awarded us the mandate for their global benefits program. Our global team brought together regional data and insights from Intellectuals to deliver a comprehensive, globally consistent, and compliant benefits offering. What was originally just a small Aon relationship in one jurisdiction is now an international relationship across every region they operate to support their colleagues in enterprise strategy. And this is just one example that demonstrates the unique value of our globally connected firm and differentiated data-driven advice and solutions. For risk capital, we also want to note and officially welcome John Neal to Aon. We announced earlier this month that John will join us from Lloyd's as our Global CEO of Reinsurance and Global Chairman of Climate Solutions upon the completion of his commitments to Lloyd's. Not only will John's arrival bring an iconic industry leader to help focus on delivering our integrated risk capital capabilities to clients, but his addition also represents another strong testament to the power of our risk capital and human capital strategy. Our second commitment is to embed the Aon client leadership model across our enterprise client, large and middle market segments to strengthen and expand client relationships. In 2024, we capitalized on our globally connected approach covering nearly 1,000 of our most critically important global clients within our enterprise client group. These clients grew new business five points above the Aon average in 2024 as we increased penetration across solution lines and geographies. Third, we committed to and are accelerating Aon business services to establish a new standard for service delivery and innovation at scale. And we made progress and great strides in 2024, giving clients real-time insights that help them make better decisions. From advanced analytics to customized dashboards, the tools that we launched this year are redefining client experiences and outcomes. In May, we debuted a new suite of risk analyzer tools, enabling our North American clients to receive exposure data, quantify loss potential, and make better decisions based on total cost of risk. And we've seen great early traction with our analyzers, which continue to open doors, broaden discussions with our clients, and increase win rates. Let me highlight just a few of many examples. Early in 2024, we released our property risk analyzer. Through exposure profiles and data models, the tool simulates the impact of insurance policy options to determine which risks should be retained versus transferred. In the fourth quarter, we launched the cyber risk analyzer, enabling risk managers and brokers to better evaluate cyber risk and maximize insurance value. We also launched our health risk analyzer, a solution that leverages predictive modeling, risk optimization, and ongoing monitoring to help clients identify and manage costs and plan for predictable risk accordingly. At the same time, ABS retired nearly 300 applications and continues to drive greater efficiencies, which are foundational to our sustained margin expansion, which Edmund will describe. The result of meeting these milestones in 2024 is the delivery of highly distinctive capabilities and expertise that has created sustainable momentum for AOM. We also want to highlight the progress we're making with NFP. Eight months in, the business is performing very well, just as expected. Integration is right on track, producer retention is strong, and the acquisition is driving top-line growth as we build on NFP's strong client relationships by bringing additional content, capabilities, and tools to the team. Clients have responded well to the potential for NFP under the Aon umbrella. giving us even more confidence in our ability to achieve our sales and cost synergy goals in 2025 and 2026. And against this operating backdrop, Aon closed the year with a strong fourth quarter that drove another year of financial performance aligned with our objectives. As we begin year two of the 3x3 plan, we enter 2025 with momentum and have a strong foundation to build upon. The progress achieved in 2024 demonstrated the potential of our strategy and now we will advance each component to drive further success. Looking ahead, as we onboard recent hires, we'll continue to invest to support top-line growth, particularly client-facing talent in prioritized growth areas and in innovative new technology-driven solutions enabled through Aon Business Services. In addition, the efficiencies we gain through Aon Business Services continue to support margin expansion. As a result, we expect to deliver another year of mid-single-digit or greater organic growth continued margin expansion, strong adjusted EPS growth, and double-digit free cash flow growth for 2025. To summarize, and before I hand the call to Edmund for more detailed review of our financials and outlook, we want to reinforce how excited our leadership team is for the opportunity ahead. We're executing against our strategy through the 3x3 plan. Our solutions are helping clients as they face increasing volatility and complexity in their businesses. We're delivering results, including mid-single-digit organic revenue growth, margin expansion, and free cash flow growth in line with our long-term financial model in 2024. NFP is right on track. And finally, the significant progress we made in 2024 positions Aon for another strong year in 2025 to deliver on our client, colleague, and financial objectives. Of course, none of this would be possible without Aon's global team. And on behalf of Edmund, Eric, and me, I will conclude my comments by first, reinforcing our foundational commitment to our team to ensure that Aon fosters a culture and work environment strengthened by the power of inclusion, built to attract, develop, and retain the best talent in the world from all backgrounds. And second, to shout out a huge thank you to our 60,000 colleagues around the world for serving our clients with distinction and for making 2024 a tremendous year. Let me now turn to Edmund to walk through the financials and provide additional insight around our expectations for 2025. Edmund? Thank you, Greg, and good morning, everyone.

I'm excited to be here discussing the results from yet another strong quarter that caps strong full-year 2024 performance and positions us to achieve our 2024 to 2026 3x3 plan financial objectives. Before jumping into these results and providing 2025 guidance, I want to take a moment to highlight some critical milestones achieved in 2024 that demonstrate the strong progress that we've made toward our commitments. First, our full year performance is right in line with our objectives and guidance for mid single-digit or greater organic revenue growth, adjusted operating margin, and free cash flow. In particular, Organic revenue growth reached 6% for the year, giving us confidence in our three-by-three plans and our investments in hiring client-facing talent, developing client-facing ABS capabilities, and expanding our enterprise client group will support mid-single-digit or greater organic revenue growth. Second, we completed the acquisition of NFP. which expanded our presence in the $31 billion in fast-growing middle market. In 2024, we saw strong producer retention, better than 2023, accretive top-line financial results, and $36 million in middle market-acquired EBITDA with a robust Q125 pipeline, all in line with our expectations. Third, we paid down $2.1 billion in debt, and returned $1.6 billion in capital to shareholders through the dividend and share repurchases, lowering our leverage in line with our objectives and continuing our balanced capital allocation discipline. We are executing our plan. And these milestones emphasize that with year one of our three by three plan complete, we have momentum. And continued execution gives us a high level of confidence in delivering on our three-by-three financial objectives, including a double-digit three-year CAGR and free cash flow from 2023 to 2026. You can see from the financial summary on slide six that full-year total revenue increased 17 percent to $16 billion, and we delivered 6 percent organic revenue growth. Adjusted operating income increased 17 percent, and adjusted operating margin was 31.5 percent. up 90 basis points relative to a 23 baseline that includes NFP. Adjusted EPS was up 10% to $15.60. And finally, we generated $2.8 billion of free cash flow, reflecting strong adjusted operating income growth and continued working capital improvements. Turning to the fourth quarter, organic revenue growth was also 6%. marking a third consecutive quarter of growth at 6% or greater. Adjusted operating margin was 33.3%, expanding 140 basis points relative to the 23 baseline that includes NFP, and adjusted EPS was up 14% to $4.42. Let's get into the detail of these results, starting with organic revenue growth on slide eight. In Q4, organic revenue growth of 6% was right on track and in line with our mid-single digit or greater guidance range. In commercial risk, organic revenue growth was 6% in Q4 and was broad-based, reflecting strength in our North American core P&C business, continued strong contribution from our international businesses, and an uptick in construction as we're beginning to see the impact from specialty hires. We also benefited from double-digit growth in M&A services as increased transaction activity continued to be a modest tailwind. Reinsurance organic revenue reached 6% in Q4 24, growing over an elevated Q4 23 on the back of continued strength in our strategy and technology group, strong treaty placements with existing clients, and increased insurance-linked securities. Specifically, interest in catastrophe bonds continued to grow as investors seek unique asset classes with uncorrelated returns. And Aon is the leading industry provider in cap bond placements. Health Solutions grew 5% in Q4 24, also against a high Q4 23 comparable. Growth in core health and benefits, as well as in NFP executive benefits and pharmacy benefits, was partially offset by lower revenue and talent solutions. Finally, Well Solutions delivered 8% organic revenue growth in Q4, driven by continued strong demand for pension risk transfer consultant, regulatory work from policy changes across the UK and EMEA, and new clients and market performance in NFP. Our Q4 organic revenue growth was powered by new business. which contributed 12 points from both existing and new clients, as well as a modest contribution from M&A services, as I mentioned earlier. And with continued high retention in the mid-'90s, supported by the increasing deployment of our ABS capabilities, as Greg mentioned, net new business drove the six points of organic revenue growth. The net market impact from growth and exposures in rates was flat, Reinsurance did have a modestly negative rate impact in the fourth quarter, consistent with early views of 1-1 renewals as capital capacity, up 7% for the year, outstripped demand. We saw the lower rates in reinsurance offset with modest rate benefit across commercial, health, and wealth. For the full year, each of the solution lines across risk capital and human capital were well within or above our mid-single-digit or greater growth objective, with commercial risk at 5% and all other solution lines growing at or above 6%. And I'll add that if measured separately, NFP and AON are both generating mid-single-digit organic revenue growth. Turning now to margins on slide 10. Adjusted operating margin for Q4 was 33.3%. expanding 140 basis points from our combined baseline within FP. On a full year basis, adjusted operating margin was 31.5% and we delivered 90 basis points of margin expansion relative to our combined baseline within FP. We continue to drive adjusted operating margin expansion through the scale in our business, particularly through Aon Business Services. Our continued portfolio management in the shift and mix to higher margin businesses as well as ongoing expense discipline. And importantly, the benefit from our restructuring initiative to accelerate our three by three plan. We ended the year 10 million ahead of our restructuring plan objective. The savings in the fourth quarter were 40 million, resulting in 110 million of savings for full year 24. Restructuring savings contributed approximately 100 basis points in Q4 and approximately 70 basis points to full year margin expansion. Looking ahead, we continue to expect an incremental $150 million of savings in 2025 and are well on track to achieve our stated objective of $350 million of run rate savings in 2026. Our strong organic growth and the actions that we are taking through ABS to standardize our operations and integrate our platforms are setting the foundation for ongoing margin expansion through operating leverage in our business. Moving to interest, other income and taxes on slide 11. Interest expense of $206 million in the quarter was up $82 million versus last year, primarily reflecting the issuance of $7 billion in debt to fund the NFP acquisition. We expect approximately $205 million of interest expense in Q125. Other income expense was a $60 million benefit year-over-year, primarily due to the favorable net impact of gains from balance sheet currency exposures in our hedging program. And finally, the Q4 tax rate was 17%, bringing the full-year rate to 20%. With the year-over-year increase driven by growth in higher tax geographies, the unfavorable impact of discrete items and policy changes across the globe. Let's now discuss free cash flow and capital allocation on slide 12. We generated $2.8 billion of free cash flow in 2024, reflecting strong operating income growth and continued working capital improvements driven by the continued progress on our goal to improve days sales outstanding. While free cash flow was impacted in 2024 by extraordinary items, all of which we've previously communicated, including the NFP transaction and integration costs, restructuring, and legal settlement expenses, we remain confident in underlying free cash flow growth. We continue to expect free cash flow to grow at a double-digit three-year CAGR from 2023 to 2026. Our strong free cash flow allowed us to pay down $2.1 billion of debt in 2024, and coupled with earnings growth, lowered our debt to EBITDA leverage from 4.1 times to 3.4 times. So we are right on track to achieve a 2.8 times to 3 times leverage ratio in Q4 2025, consistent with the objective that we set when we announced the NFP acquisition. Additionally, we remained active in M&A, continuing our targeted tuck-in acquisitions across priority areas including continued middle market acquisitions through NFP, which acquired $36 million in EBITDA in 2024 and has a healthy pipeline of expected closings in Q125. Our independent and connected strategy is resonating in the marketplace, and we continue to expect to acquire $45 to $60 million of EBITDA through NFP middle market acquisition in 2025. Finally, In 2024, we returned $1.6 billion in capital to shareholders, including $1 billion of share repurchases. Our performance in 2024 is a great demonstration of our disciplined capital allocation model, beginning with strong free cash flow generation and capital allocation that balances high return investments for growth with capital return to shareholders. I'll wrap up on slide 13 with our 2025 guidance and a few concluding thoughts. In summary, our full year 2025 guidance is mid-single-digit or greater organic revenue growth, adjusted margin expansion, strong adjusted EPS growth, and double-digit free cash flow growth. Let me highlight the drivers of each guidance point, starting first with organic revenue growth. We expect mid-single-digit or greater organic revenue growth driven primarily from winning recurring new business from both new logos and existing clients, continued high retention, and zero to two points from the net market impact rate and exposure. I'll note that our increased talent acquisition of revenue-generating roles in specialty areas and enterprise client group hires, up 4% in 2024, is expected to contribute to organic revenue growth. Additionally, organic revenue growth is benefiting from our progress driving revenue synergies in NFP, and we remain committed to 80 million in NFP revenue synergies in 2025. Moving to adjusted operating margin, we expect to deliver continued margin expansion in 2025. And as we model the drivers of margin expansion, there are four components to consider. First, the net impact of four additional months of NFP given late April 2024 closing and achieving 30 million in OPEX synergies will dilute margins by 20 basis points. I'll note that the impact of four additional months of NFP will primarily be a Q1 impact with the remaining impact in April 2025. The interest rate impact on investment income from fiduciary balances is expected to dilute margins by 20 basis points. Third, and as I mentioned earlier, we expect an incremental $150 million in restructuring savings, which would drive approximately 85 basis points of margin expansion. Finally, we expect 35 to 45 basis points of margin expansion from the operating leverage in our business. given the progress that we've made in ABS to drive scale in our ongoing disciplined expense management. The net impact of these four items allows us to fund ongoing growth investments while still driving continued margin expansion in line with our historical performance. Given our outlook for mid single digit or greater organic revenue growth, adjusted margin expansion, and accretive NFP performance, we expect to deliver strong adjusted EPS growth in 2025. This guidance reflects our continued strong operating performance, partially offset by an approximately 32-cent or two-point EPS headwind from FX rates, based on today's FX rates remaining stable. It's also important to note that in Q125, we estimated an approximately 110 million FX impact on total revenue and an approximately 16-cent or three-point EPS headline. Also embedded in this guidance is an expected tax rate of 19.5% to 20.5%, excluding any extraordinary discrete items. This tax rate considers the geographic mix of our growth and policy changes in the geographies where we are located. Additionally, we expect non-tax pension and OIE to be $88 million compared to $48 million in 2024. This performance positions us for double digit free cash flow growth in 2025, including over $300 million from NFP, driven by adjusted operating income growth and working capital improvements. Additionally, we expect to continue to return capital to shareholders in 2025, including $1 billion and share repurchases. Our 2025 guidance demonstrates the strength of our business and financial model and prioritizes investments that support sustainable organic revenue growth. Our execution in ABS is supporting both top line growth and creating investment capacity through margin expansion. As a result, we expect to deliver strong adjusted earnings per share growth and to generate double digit free cash flow growth. And finally, we continue to have balanced capital allocation, investing in growth and returning capital to shareholders. And before closing, one logistical note. Effective this quarter, we will disclose adjusted operating income and adjusted operating margin for two operating segments, risk capital and human capital. Risk capital includes commercial risk and reinsurance and human capital includes health and wealth. These changes align our external reporting to our 3x3 plan and how we go to market to serve clients. And they provide increased transparency to our investors on our ability to drive margin expansion across the enterprise. The changes do not impact Aon's reported revenue or consolidated results. And we will also provide recasted financials for the past three years in our 10-K, which will be filed and posted on our website in the coming weeks. I will close with four messages. First, Aon delivered strong Q4 financial results to close out a strong 2024 in line with our financial guidance. Second, we're executing on our three by three plan, including our investments in client facing capabilities in Aon business services, middle market expansion, and priority hiring to drive continued strong performance. Third, With our 2025 guidance, we are well positioned to continue Aon's long track record of delivering mid-single-digit or greater organic revenue growth, adjusted margin expansion, strong adjusted EPS growth, and double-digit free cash flow growth. Finally, we continue to have balanced capital allocation priorities, investing in growth while returning capital to shareholders. So with that, let's jump into your questions. Rob, I'll turn it back to you.