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Today's Viewpoint: A MarshBerry Publication

Highlights from the AON earnings release and analyst call

Aon plc (“AON”) reported adjusted Earnings Per Share (“EPS”) for 3Q20 of $1.53 compared to consensus estimates of $1.48. Revenue was slightly better than expected and overall operating margins were up 40bps vs. the prior year. Highlights from their call with the investment community are below:

  • Organic growth for AON in total was flat. Similar to other firms that have reported, discretionary areas of the business have seen the most revenue pressure. Organic growth results by division were as follows:
    • Commercial Risk up 2% with pressure from discretionary lines, transaction liability (lower merger & acquisition) and construction offset by strong retention and modestly positive exposures and pricing (globally).
    • Reinsurance solutions up 13% due to strong new business generation.
    • Retirement Solutions down 5% due to lower discretionary project spend, particularly from clients in financial services.
    • Health Solutions up 1% due to some international strength slightly offset by lower domestic unemployment levels.
    • Data & Analytic Services down 7% driven by declines in the travel & events practice.
  • AON’s CoverWallet platform is a digital insurance solution for commercial customers. The company noted that it believes the pandemic accelerated digital adoption of this type of solution and noted that premiums placed through the platform are up more than 3x year-to-date (“YTD”) when compared to YTD last year.
  • On March 9, 2020, AON announced its plans to acquire/merge with Willis Towers Watson Public Limited Company (“WLTW”). At the time, AON gave guidance for the earnings impact throughout the first three years of integration. The company is withdrawing (not reissuing or confirming) that guidance today given the macro economic environment, but it remains confident that total synergies expected ($800M), will be realized. The deal remains on track to close in the first half of 2021.
  • While AON expanded operating margins across the business by 40bps in the third quarter expectations in the fourth quarter assume that expense will be more in line with the prior year.
  • AON expects the most significant pressure on revenues in the fourth quarter as that is seasonally the strongest quarter for discretionary projects (approximately 20% of its total revenue base), which are seeing the most pressure in the current environment. However, it sees this as a temporary issue.

Like other insurance distributors that have reported earnings this week, AON emphasized strong underlying fundamentals in several of its business units. However significant uncertainty in the outlook persists, especially in its divisions that are weighted towards discretionary project spending which remain under pressure.

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This earnings summary has been prepared by Marsh, Berry & Co., Inc. and is not intended to provide investment recommendations on any company. It is not a research report, as such term is defined by applicable laws and regulations, and it does not contain sufficient information upon which to make an investment decision. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any securities, financial instruments or to participate in any particular trading strategy. These materials are based solely on information contained in publicly available documents and Marsh, Berry & Co., Inc. has not independently attempted to investigate or to verify such information.

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