Aon PLC

Good morning and thank you for holding. Welcome to Aon PLC's third quarter 2025 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 risks and uncertainties that can cause actual results to differ materially from historical results or those anticipated. For information concerning these risk factors, please refer to our earnings release for this quarter and to our most recent quarterly or annual SEC filings, all of which are available on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon PLC.

Thank you and good morning and welcome to our third quarter earnings call. I'm joined today by Edmund Reese, our CFO. The financial presentation, which Edmund will reference in his remarks, is posted on our website. To begin today, we want to recognize the great trauma and suffering resulting from Hurricane Melissa. We're thinking about everyone affected by this terrible catastrophe, and we feel very, very humble and hopeful. But the work Aon undertook with the World Bank to arrange a cap on for the government of Jamaica will help accelerate and support recovery. Turning now to Aon. Our third quarter results reflect another quarter defined by continued acceleration of our Aon United strategy, great progress executing our three-by-three plan and financial model, and ongoing momentum as we head into the final months of the year. Our focus on execution is translating into value delivery to our clients, while at the same time producing results for our firm and strong financial performance. We're winning more in the core by deepening relationships with existing clients through data-led solutions, capturing demand in existing markets by developing new capabilities for emerging risks, and creating demand in new categories by innovating unique capital solutions. And we're strengthening our clients' insurance programs to ensure they're positioned well for the future with enhanced coverage and limits. Let's start with a look at our third quarter highlights. We've delivered another strong quarter of financial results, highlighted by 7% organic revenue growth, a 26.3% adjusted operating margin, and 12% adjusted EPS growth, which keeps us on track to achieve our full year objectives. Our continued success in winning new business and deepening client relationships reflects the strength of our risk capital and human capital capabilities powered by ABS. Simply put, our analytic capabilities enable smarter and faster decisions for clients, which when coupled with our advisory expertise, helps clients capture greater opportunity. And while any firm can point to client wins, two highlights from this quarter truly demonstrate the impact of our differentiated strategy. The first example demonstrates how our advanced analytic capabilities were critical in securing our appointment as the captive insurance partner for a leading global logistics company, replacing a competitive relationship that spanned decades. Our ability to deliver global expertise with local leadership provided the client with relevant insights into captive management and the risk capital structure, making Aon the clear choice. In the second example, by demonstrating our distinctive client service and enterprise mindset to the enterprise client group, we not only retained but expanded our benefits work with a longstanding financial services client in an intensely competitive process. We leveraged deep industry knowledge in governance, risk management, and employee experience. And this resulted in securing global benefits across new and existing geographies, US, H&B, and total benefits administration. Our proactive approach, combining innovation, analytics, and advisory, continues to deliver measurable impact and position us for sustained success as our solutions have never been more relevant for clients. Our latest 2025 global risk management survey revealed a significant shift in the risk landscape and how decision makers are thinking about risk. Trade and geopolitical volatility entered the top 10 global risks for the first time in nearly two decades, reflecting growing global uncertainty. At the same time, climate risk and natural disasters also reached their highest ever rankings, underscoring the need for resilience in a world where severe weather events are driving up costs. And workforce-related risks continue to have a growing impact on how employers manage affordability, access, and productivity. In addition, advancements in AI are surging demand for cloud infrastructure and are fueling unprecedented investment in data center construction, with CapEx estimated to exceed $2 trillion globally over the next several years. These technological developments are not only reshaping physical infrastructure, but also amplifying cyber and operational risk. Active risk management in this area has become a strategic necessity, and traditional approaches alone aren't sufficient to cover this risk. With connected risk capital and human capital capabilities, we're truly uniquely positioned to guide clients through a complex environment, access capital, unlock value, and build resilience. As we review our performance this quarter, several strategic milestones demonstrate progress on our three-by-three plan. These achievements are the direct result of our team's dedication, collaboration, and focus on advancing priorities. First, talent remains a significant driver of sustained growth, and the competitive environment for attracting and retaining top performance is as intense as ever. No company is immune, which makes it essential to stay focused and deliberate in our approach. In this environment, our platform is a unique advantage in attracting talent and helping client-facing talent win more business and retain clients. especially in priority areas like construction, energy, and health. Revenue generating talent is up 6% net year to date, reflecting our strong position and differentiated capabilities. We have a great team, and we remain focused on continuing to strengthen it. Second, our enhanced capital strength gives us greater flexibility to execute our capital allocation strategy with discipline and precision. We divested the NFT wealth business, an asset better suited to an owner prepared to make the capital investment required for long-term growth. At the same time, we remain highly committed to our core wealth and retirement offerings, which represent key components of our human capital value proposition. Also during the quarter, NFP closed more than $10 million in acquired EBITDA as part of programmatic M&A. We have a great pipeline of high-return middle market opportunities, and our improved capital position reinforces our commitment for long-term strategic investment and shareholder returns. And finally, equipped with better data and analytics built from years of investment, we're mobilizing capital into the industry, particularly to address the rapid expansion of data center construction driven by AI and cloud infrastructure adoption. As highlighted earlier, the opportunity here is monumental. Data center CapEx increased 50% in 2024 and is expected to increase significantly over the next several years as trillions of dollars of CapEx go into the construction of these facilities. Near term, we estimate data center demand could generate over 10 billion in new premium volume in 2026 alone. Our globally aligned risk capital and human capital teams are helping clients navigate this transformation and support stakeholders across the value chain, from technology companies to contractors and operators to capital providers, each with unique insurance needs given their role in the data center development. While still early days, we're excited by the specific accomplishments that showcase our ability to help clients navigate this transformational opportunity. We recently became the risk partner for a leading global engineering-focused insurer with a mission to work with them to build significantly greater level of insurance capacity. This work complements the launch of our data center lifecycle insurance program, a proprietary multi-line insurance facility that consolidates coverage for construction, cargo, cyber, and operational exposures, and offers clients end-to-end risk management and insurance solutions. We're also working to support resilient design and engineering from the outset of these projects to optimize the industry's ability to provide the limits necessary for hyperscaler data center development and management of accumulation risk. Another example of our global distribution analytics and expertise in both traditional and alternative risk transfers already delivering results is a recent client win replaced nearly 30 billion in coverage for a top global hyperscaler data center developer for operational data centers and data centers under construction and this is just the beginning overall we accomplished a lot this quarter and there's a lot to be energized by going forward our results and the momentum we have going into the final months of the year give us confidence in reaffirming our 2025 guidance let me conclude with two points first Our A&E United strategy accelerated through the three by three plan and the strength of our financial model are generating strong results today and building momentum for future success. Our unique capabilities and integrated solutions have never been more relevant to clients as we help them reduce volatility, protect their assets and grow their businesses. We're attracting exceptional talent to strengthen our great team, delivering innovative new solutions with unmatched data and insights and building and deepening client relationships. And we're winning more in core markets, capturing new demand in existing markets and creating new demand in new categories. And finally, and most important, to our over 60,000 colleagues around the world, thank you. Thank you for your commitment to our clients, to each other, and to our Aon United strategy. Your dedication is the driving force of our firm. Now let me turn the call over to Edmund for his reflections on the quarter and outlook for the year. Edmund?

Thank you, Greg, and good morning, everyone. I'm excited to be here to discuss our third quarter results, which mark another quarter of disciplined execution on our three by three plan and financial model. To frame our discussion, let me highlight the most important factors shaping our third quarter performance. First, our Q3 performance demonstrates continued momentum across the key drivers of sustainable top line growth. Our investment in revenue generating talent enhanced by ABS and our continued expansion in the middle market is translating into strong organic growth. Organic revenue growth of 7% in Q3 serves as another proof point in our ability to execute on each of these drivers, keeping us in line with or ahead of industry performance. Second, we continue to deliver scale improvements in operating leverage through ABS, while also investing in talent and capabilities that deepen client engagement and drive new business. We again delivered in Q3, expanding margins over 100 basis points and increasing our revenue generating hires by 6%. Third, our enhanced earnings power. disciplined portfolio management, and strong free cash flow generation, up 13% in the quarter, have strengthened our capital position. Through three quarters in 2025, we have reduced debt and remain on track to achieve our leverage objectives, closed $32 million in EBITDA for middle market acquisition, and returned $1.2 billion in capital to shareholders through dividends and share repurchases. Our strong capital position empowers us to pursue high return inorganic investments, further accelerating and supplementing our organic growth momentum. Collectively, these three components, momentum on the growth drivers, accelerated scale benefits through ABS, and a robust capital position are delivering growth today and setting the foundation for future performance. We continue to invest in capabilities and innovate capital solutions that create even greater value for our clients. And this gives us confidence, not only in achieving our 2025 guidance, but also in the upside potential of sustaining top-line growth and delivering double-digit free cash flow beyond 2025. Turning to the quarter's results, organic revenue growth was 7% and total revenue increased 7% year-over-year to $4 billion. Adjusted operating margin expanded by 170 basis points over last year and reached 26.3%. Adjusted EPS was $3.05. And finally, free cash flow increased 13%. Let's get into the details of these results, starting with organic revenue growth on slide six. Organic revenue growth was 7% in the quarter in line with our mid single digit or greater guidance range growth was broad based five percent or better in each solution line with two of our solution lines delivering seven percent or greater a strong result achieved despite pricing pressure in certain products and geographies underscoring the contribution from new business and continued high retention in commercial risk seven percent organic revenue growth reflected strong performance in our core P&C business globally, including double-digit growth in the U.S. with meaningful contributions from the middle market through NFP and continued strength in EMEA. M&A services continued to grow at a double-digit level, and this contribution provided an incremental lift. Construction also delivered double-digit growth. driven by demand from large-scale global infrastructure projects, including data center builds for major tech companies. Reinforcing this category is a strategic priority. Reinsurance delivered 8% growth driven by treaty placements and double-digit growth in facultative placements and the strategy and technology group. Insurance-linked securities also had significant growth but off a smaller baseline. While July 1 treaty property renewal rates were softer, this was balanced by higher limits and ongoing strength in international facultative markets, especially in EMEA. Demand for STG analytics remained high, underscoring our platform's increasing importance in supporting clients as they navigate volatility and match capital to risk. Health Solutions grew 6% this quarter, benefiting from data analytics-driven sales in our talent business and new business in our core health and benefits offerings across the US and EMEA. As Greg mentioned, we continue to leverage our analytics and advisory capabilities to support employers as they navigate rising healthcare costs and achieve better outcomes for their workforces. And finally, wealth generated 5% growth. The performance reflects strength in advisory work in the UK and EMEA related to ongoing regulatory change, partially offset by softer advisory demand in the US. Additionally, the NFP contribution was meaningful, driven by asset inflows and market performance. Importantly, for modeling purposes, I will add that we expect wealth growth in Q4 to be 1 to 2%, impacted by delays in U.S. advisory work and the sale of the faster-growing NFP wealth business, which closed yesterday. Let me take a moment to walk through the key components of our Q3 organic revenue growth on slide 7. In Q3, we extended our consistent track record of strong new business generation to drive organic growth. For the second consecutive quarter, new business contributed 11 points to organic revenue growth with balanced contributions from both expansion with existing clients and new client wins. Our investments in revenue-generating talent particularly in high growth sectors like construction and energy, continue to deliver measurable impact. We remain proactive and on the front foot in attracting top talent. Our revenue generating hires are up 6% year to date. Importantly, we're already seeing these new colleagues make contributions to new business growth. As the 2024 hiring cohort continues to ramp, we are confident this group will contribute 30 to 35 basis points to full year organic revenue growth, leveraging advanced analytics and client engagement tools through Aon Business Services. The 11 point contribution from new business this quarter underscores the effectiveness of our investment in client facing talent. And we expect continued momentum as the 2024 cohort seasons and the 2025 hires continue to onboard. Q3 2025 retention remains strong year over year, reflecting the continued strength and stability of our client relationships, supported by investments in enhanced service delivery, innovative capabilities, and Aon client leadership. Net new business contributed five points to organic revenue growth in the quarter. Net market impact, which captures the impact of rate and exposure, contributed just over one point to organic revenue growth, consistent with our zero to two point estimated range. Rate pressure on property within commercial risk was offset with limit and coverage increases across cyber and other financial lines. Reinsurance net market impact was flat as rate declines and higher retentions were mitigated by increased limits and facultative growth. Health Solutions continued to benefit from our ability to support clients managing rising healthcare costs, providing a significant contribution to net market impact. And one final point on revenue, third quarter fiduciary investment income was 75 million, down 12% versus the prior year. While average balances increased lower interest rates more than offset that benefit. On slide eight, adjusted operating income increased 15% to $1.1 billion and adjusted operating margin expanded 170 basis points to 26.3%. These results reflect strong top line growth and the operating leverage in our business powered by ABS. giving us capacity to fund growth investments and clients facing talent and middle market while still expanding margins. When we provided four-year guidance, we highlighted four components that would impact 2025 margin expansion. NFP, fiduciary investment income, restructuring, and operating leverage. All four remain fully in line with our expectations. We have now fully lapped the headwind on margin from NFP, and we are on track to meet our 30 million OPEX synergies target, resulting in a net 20 basis point headwind from NFP for the year. While the outlook for U.S. interest rate cuts has shifted from two at the start of the year to three in the latest dot plot, the delayed timing in the first rate cut from June to September effectively offsets the additional reduction. and the margin impact from fiduciary investment income remains unchanged at 20 basis points. Restructuring savings totaled $35 million in the quarter, contributing approximately 90 basis points to adjusted operating margin. We remain firmly on track to deliver $150 million in restructuring saves for the full year and advancing toward our 350 million run rate savings target by 2026. With ABS-driven scale improvements and strong execution year-to-date, we remain confident in delivering full-year margin expansion of 80 to 90 basis points aligned with our long-term financial model. Moving to interest, other income, and taxes on slide nine, Interest income was negligible in the third quarter and $4 million lower than last year. Interest expense came in at $206 million, $7 million lower than last year, primarily due to lower average debt balances. We expect Q4 interest expense to be approximately $200 million. Other expense was $13 million versus a $33 million benefit in Q3-24, which included gains from the divestment of non-for-personal lines and real estate advisory assets, partially offset by the re-measurement of balance sheet items and non-functional currencies. We estimate Q4 25 other expense to range between 25 million and 30 million. And finally, the Q3 tax rate was 19.2%. Our full year tax outlook remains unchanged at 19.5 to 20.5%. Turning now to free cash flow and capital allocations on slide 10. We generated $1.1 billion of free cash flow in the third quarter. In year to date, free cash flow of $1.9 billion is up 13% year over year. As we complete the NFP integration, we continue to expect strong adjusted operating income, including contributions from NFP, and ongoing working capital improvements to drive double-digit free cash flow growth in 2025, and turning the capital on the right-hand side of the page. I noted earlier that we closed the sale of NFP Wealth, and with over $2 billion in proceeds, the transaction significantly strengthens our capital position, and we approach the final months of the year in an even greater position of capital strength with enhanced flexibility. Importantly, we remain disciplined in allocating capital, balancing opportunities that meet our strategic and financial growth priorities with capital return to shareholders. This discipline reinforces our commitment to creating long-term shareholder value. And we continue to execute our capital allocation model in Q3 25. We reduced our leverage ratio to 3.2 times in Q3, remaining on track to reach 2.8 times, 3.0 times by the fourth quarter of 2025, consistent with our stated objective. We continued our programmatic tuck-in acquisitions, including middle market deals through NFP. Through nine months, NFP has closed $32 million of EBITDA. Following the NFP wealth sale, we expect to close 35 to 40 million in acquired EBITDA by year end. The pipeline remains strong, primarily composed of US P&C opportunities. And finally, we returned 411 million to shareholders in the quarter, including 250 million in share repurchases. With 750 million repurchased year to date, we remain on track for $1 billion in capital return through share repurchases for full year 2025. Enabled by our high free cash flow generation, these actions demonstrate our disciplined capital allocation, reducing leverage, investing in high return growth opportunities, and delivering meaningful capital return to shareholders. I will conclude my prepared remarks on slide 11 with our 2025 guidance and some forward-looking perspective on our growth objectives. We are reaffirming our full-year 2025 guidance, including organic revenue growth, mid-single digit or greater, capturing the impact of our growth investments. Second, margin expansion, 80 to 90 basis points, including $260 million in cumulative annual savings from our Aon United restructuring initiative. Next, strong earnings growth supported by the scale improvements from ABS. I'll also note two additional points related to earnings. First, the sale of NFP wealth is expected to have an immaterial impact on 2025 earnings growth. Second, we continue to expect an effective tax rate of 19.5% to 20.5% for the full year. For modeling purposes, we are estimating 7% to 9% adjusted EPS growth in Q4 2025. Finally, free cash flow, double-digit growth in 2025, demonstrating our ability to consistently convert our strong earnings into capital for investment and shareholder return. We enter the final stretch of the year with strong momentum, executing our three-by-three plan and financial model to deliver results today. At the same time, scale improvements enabled by ABS, the cumulative impact of our growth investments and our capital capacity are strengthening the foundation for future performance. positioning us for sustainable top-line growth and consistently strong earnings growth. This powerful combination gives us high conviction in our ability to create long-term value for shareholders. So with that, let's open the line for questions. Daryl, I'll turn it back to you.