Aon PLC

Good morning and thank you for holding. Welcome to Aon PLC's third quarter 2026 conference call. At this time, all participants will be in a listen only mode until the question and answer portion of today's call. To join the question queue, please press star one on your touch tone keypad. A confirmation tone will indicate your line is in the question queue. 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 could 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 annually 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. Please go ahead.

Good morning and thank you for attending our third quarter earnings call. I'm joined today by Nadin Virani, Interim CFO, Andy Marcell, Deputy CEO with responsibility for risk capital and human capital, and Ann Corona, CEO of North America. The presentation, which Nadin will reference during his remarks, is available on our website. Our outstanding third quarter results reflect continued momentum across the firm and reinforce high confidence in our Aon United strategy. We delivered 6% overall organic growth with 7% risk capital and 5% human capital, demonstrating broad-based strength across our solution lines. As we progress through the final year of our 3x3 plan, our execution and ongoing investments in talent and technology are delivering differentiated value for clients, expanding our opportunity set, and creating long-term value for our shareholders. Today, we want to emphasize three important drivers of our performance this past quarter and as we look to the future. First, the forces shaping client demand. Second, Our Aon United operating structure with integrated risk capital and human capital capabilities. And third, our recently announced pending acquisition of USI, which together with NFP and Aon establishes the premier U.S. middle market platform for clients. Let's start with the landscape for business decision makers and what we're hearing from clients. Today's macroeconomic environment continues to be defined by volatility and complexity. Geopolitical uncertainty remains elevated. Economic conditions are uneven, and cyber threats continue to evolve. All while rapid technology innovation is creating new opportunities, reshaping business models and workforce strategies. These forces don't exist in isolation. They're deeply interconnected, making it more complicated than ever for businesses to understand their risks, build resilience, and grow. In uncertain and challenging times, clients turn to AOM as a trusted partner. to help them diagnose risk and people issues, design bespoke programs, and access capital solutions. And with rapid technology change, the catalyst to deliver sustained client impact and greater value over the long term will be at the intersection of human expertise, proprietary data, and technology. Cassettes will not accrue solely to AI models or to individuals, but rather to organizations with the technology and talent to build trusted, lasting client relationships. This is exactly where Aon is positioned, and it links directly to my second topic, how Aon continues to strengthen our capabilities to help clients make better decisions for their businesses and employees. Our Aon United strategy remains the foundation upon which we capture these opportunities. By bringing together risk capital and human capital supported by Aon Business Services, we connect data, analytics, expertise, and access to capital across our firm. This integrated approach is a key differentiator, allowing us to address client needs more comprehensively and deliver better advice and superior solutions. And our strategy is further accelerated by AI as our analyzers and diagnostics lead to better insights that help us win more business, retain more clients and create new revenue opportunities. We're also capturing productivity gains as we leverage our shared services platform. and domain expertise to deliver faster, more relevant, and more actionable insights for clients. Importantly, this work continues to reinforce our Aon United advantage, which translates into stronger client results. A few examples highlight how this advantage is powering our momentum. During the quarter, we were appointed as the lead broker for the reinsurance program of a new natural catastrophe program introduced by the Thai government. to reduce the protection gap for natural disasters, particularly flood, a significant peril in Thailand. The program is executed by a consortium of local insurers through the Thailand General Insurance Association and provides broad risk coverage including flood, earthquake, and windstorm to 30 million households in Thailand, the vast majority of which currently have no insurance. This work and impact demonstrates the relevance and strength of risk capital, connecting insurance and reinsurance, along with the national government to reduce the production gap in a region where natural perils have profound impact for millions of people. Another example highlights our ability to broaden capital access and attract new capital pools. Our partnership with a leading alternative asset manager shows how Aon combines proprietary data, analytics, and structuring expertise to deliver innovative capital solutions. Traditional insurance capital remains critically important. but the scale of emerging client needs increasingly requires us to connect risk with capital beyond the traditional insurance market. We have spoken previously about the $250 trillion of capital globally, and this is a clear, tangible example of our work to selectively bring these sources of capital to bear on behalf of clients. Our ability to quantify risk exposure and provide investors with the insight required to deploy capital with confidence will create additional capacity for clients and expand the universe of insurable risks. which brings me to the third driver of our performance, especially as we look to the future, USI and the US middle market opportunity. Post close, we could not be more excited about the opportunity to bring together USI team members and our colleagues at NFP and Aon to set a new standard of capability, expertise, and client service for the middle market. This important growing segment includes more than 200,000 companies and 48 million employees. represented an addressable market of more than $40 billion across commercial risk, health, and wealth. These businesses face the same interconnected forces as our largest clients, and they need full access to analytics, insights, and capital solutions required to protect and build their companies. Against this backdrop, our acquisition of USI, which we expect to close in the fourth quarter of 2026, represents an important step in the development of our global middle market strategy that builds directly on the successful foundation we established with NFP. USI also gives us direct access to the fast-growing E&S market, expanding our ability to match capital with client need and provide greater capital access across all markets. And with the addition of approximately $11 billion of P&C premium flow, we continue to enhance our middle market data footprint, further improving our Aon United advantage. Together, Aon, NFP, and USI will create the premier 6.5 billion US middle market platform combining deep local relationships and distribution with the full capabilities of USI, NFP, and Aon. Fundamentally, this strategy is all about being better and giving our colleagues greater content, capability, and market access to serve clients with increasing levels of distinction. In addition, we also outline key initiatives that will capture 395 million of expected synergies, including connecting producers and client leaders to broader content and capability, optimizing premium placement for clients, expanding market access, and simplifying technology and operations. Since the acquisition announcement, planning is well underway for the implementation of these initiatives, with integration planning teams in place and Clear Workstreams to bring USI, NFP and Aon together at closing as one connected middle market platform. We look forward to welcoming Mike Sicard and the incredible team at USI to Aon as we build out this terrific growth opportunity. Overall, we have emphasized a few points. Taken together, our Q3 results and the progress we continue to make across our firm reinforce our confidence in the trajectory of our business, and our ability to deliver on our strategic and financial commitments and prior standalone guidance. As the environment continues to evolve and the underlying drivers of client demand remain strong, organizations need better insights into interconnected risk and people challenges. They need broader and more innovative access to capital, and they need trusted partners who can combine data, analytics, capabilities, and frontline expertise across markets and geographies. AI United positions us to meet these needs. Our alignment across risk capital and human capital enabled by ABS is creating greater value for clients and accelerating momentum across the firm. Our investments in technology and AI are amplifying our expertise and strengthening how we serve clients, and the announced acquisition of USI advances important growth pillars across the middle market and E&S. As we progress through the final year of the 3x3 plan, we remain focused on discipline execution and our overall growth agenda. to our more than 60,000 colleagues around the world. Thank you. Thank you for your continued commitment to our clients, each other, and our Aon United strategy. Your dedication drives our momentum and gives us confidence to continue to deliver for our clients, colleagues, and shareholders. Now let me turn the call over to Nadin. Nadin?

Thank you, Greg, and good morning, everyone. Our third quarter results, once again, demonstrate the strength and durability of a business built to deliver through the cycle. We achieved our highest organic revenue growth of the year so far, continued strong adjusted margining expansion, and drove double-digit adjusted EPS growth. Clear evidence of broad-based momentum across our solution lines and disciplined execution of our long-term strategy. Our client-centric organizational structure, Aon United, combined with continued investments in talent, data, analytics, and AI, position us well to create more value, innovate for our clients, and deliver strong growth, despite what might be described as a challenging pricing environment. That consistency is most evident in new business, which has contributed 9 to 11 points of growth, now for 10 consecutive quarters. As we've announced, we plan to extend the Aon United Advantage to the premier middle market platform that we're establishing with the pending acquisition of USI and building on the success of NFP. This acquisition leverages the operating model behind our strong performance and enhances our ability to serve the growing middle market segment with broader capabilities, deeper client relationships and greater distribution reach. With that framing, let's turn to the financials. Starting with our third quarter results on slide five, organic revenue growth was 6%. Total revenue increased 3% to 4.1 billion, Adjusted operating income increased 5% to $1.1 billion. Adjusted operating margin expanded by 70 basis points to 27%. And adjusted EPS grew 10% to $3.36. Finally, we generated $1.1 billion in free cash flow. Let's get into the details of these results, starting with organic revenue growth on slide six. Organic revenue growth was 6% in the quarter. Growth was broad-based with all four solution lines delivering mid-single digits or greater organic revenue growth, reflecting the strength of our diversified business mix. In commercial risk, organic revenue growth accelerated to 7%, driven by meaningful contributions across North America and EMEA, and reflects continued strength in our core P&C business. M&A activity accelerated during the quarter, demonstrating double-digit growth, and provided an incremental lift to our results. Strong client demand for specialized underwriting solutions also continued to support growth across our MGA and MGU platforms. Finally, growth in construction was fueled by our record pipeline of data center projects. Reinsurance delivered 7% organic revenue growth on top of 8% in Q3 last year. The strength of the reinsurance business and a number of others. Despite soft market conditions, reflects the differentiated value we deliver through risk capital and our ability to innovate and broaden access to capital. Strength in the quarter was driven by treaty growth, reflecting continued strong new business activity and client retention, which together more than offset lower rates. Looking ahead to Q4, we continue to expect strong organic growth, driven by strong demand for our strategy and technology group solutions. and momentum in international facultative placements. Health solutions grew 6% in the quarter, driven by continued strength in our core health and benefits business internationally, as we help employers navigate rising healthcare costs and benefits complexity. Growth also benefited from data analytics driven sales in our talent business as we continue to leverage analytics and advisory to address evolving workforce needs. Finally, wealth generated 4% organic revenue growth, reflecting sustained demand for regulatory and valuation-related work across the UK and EMEA. Growth also came from our core retirement business, as well as NFB's asset-based revenues. Turning to the components of our Q3 organic revenue growth on slide 7, in Q3, new business contributed 11 points to organic revenue growth. supported by a balanced mix of new client wins and the expansion of our wallet share with existing clients. Our investments in revenue generating talent continues to be a meaningful driver of growth. The 2024 and 2025 cohorts contributed approximately 115 basis points to organic revenue growth in the quarter and we expect their impact to continue to increase as productivity ramps Revenue generating headcount is up 4% year-to-date, and we remain on track to expand the population of priority growth hives by 4% to 8% this year. Retention remains strong in the mid-90s, supported by increased engagement from our enterprise client group, as well as enhanced delivery of analytics and advisory powered by ADS. Net market impact, which captures both rates and exposure, was slightly positive, and within our expected zero to two point range despite a softer pricing environment in P&C and reinsurance. Importantly, these results reflect the durability and differentiation of our business model across market cycles with organic growth continuing to be driven by business investments and client demands. As a final point on revenue, third quarter fiduciary investment income was 69 million dollars. Down 8% from prior year as higher average balances were more than offset by lower interest rates. On slide 8, Q3 adjusted operating income increased 5% to $1.1 billion. An adjusted operating margin expanded 70 basis points to 27%. Adjusted margins expanded This was offset by the benefit from the AAU restructuring program and, most importantly, continued operating leverage enabled by our scalable ABS platform. ABS continues to generate scale benefits through disciplined expense management and AI-enabled productivity gains, thereby lowering unit costs and creating operating leverage that funds growth investments and enables margin expansion. Restructuring savings for $20 million and we remain on track to deliver 100 million of savings in 2026 advancing towards our goal of 450 million program savings with 2026 representing the final year of our restructuring investment. Moving to interest, other income and taxes on slide nine. Interest income of 24 million in the third quarter driven by interest earned on the proceeds from debt raised to fund the pending USI acquisition. Interest expense of $206 million was flat versus prior year and $27 million higher than Q2, primarily due to a partial quarter of interest expense on debt raised to fund the pending USI acquisition. We expect Q4 interest expense to be approximately $410 million driven by higher USI-related debt. Adjusted Other Expense was $2 million higher than last year driven by re-measurements of balance sheet currency exposures. We estimate Q4 Other Expense to range between $12 million and $15 million. Our Q3 Adjusted Effective Tax Rate was 20.2% and we continue to expect a full year Adjusted Effective Tax Rate between 19.5% to 20.5%. Finally, Adjusted EPS grew 10% year-over-year to $3.36. Turning now to free cash flow and capital allocation of slide 10. We generated $1.1 billion of free cash flow in the third quarter, up 2% year over year, with growth partially offset by working capital movements and USI-related transaction costs. Q4 is historically a seasonally higher quarter of free cash flow growth, excluding the impact of USI-related cash expenses. We continue to expect double-digit free cash flow growth on a standalone basis for 2026. As a reminder, the pending USI acquisition is expected to result in approximately $160 million of transaction costs, largely recognized in the third and fourth quarters of 2026. Turning to capital allocation on the right-hand side of the page, the principles of our balanced capital allocation model remain the same. Deleveraging our balance sheet, funding a stable and growing dividend, followed by balancing investments for growth with the return of excess capital to our shareholders. I'll conclude my prepared remarks with a few thoughts on our full year 26 financial objectives. The underlying drivers of our growth are evident in another quarter of differentiated results. We are generating sustainable, organic revenue growth through consistent new business generation and high retention, translating that growth into strong earnings through operating leverage and converting those earnings into free cash flow. On a standalone basis, excluding cash and other transaction expenses from the impact of the USI acquisition, we remain confident in our ability to deliver our previously communicated full year 26 guidance across organic revenue, margin expansion, EPS and Free Cash Flow Growth. We continue to make progress towards the close of the USI acquisition in the fourth quarter and will provide more details on the combined financials after closing. As Greg mentioned, integration planning is well underway with the establishment of the integration management office with myself, the executive sponsor and alongside leaders from Aon, NFP and USI. We are focused on planning for the next generation client experience Building on a unified culture, maintaining clear accountability, and driving value creation objectives. Before we move to Q&A, let me underscore the Aon United Advantage, brought to life through risk capital, human capital, Aon client leadership, and ABS. This strategy is delivering strong results today and positions us well for sustainable growth in the future. creating differentiated value for our clients, colleagues, and shareholders. So with that, let's open the line for questions.