Today's Viewpoint: A MarshBerry Publication

Aon PLC (NYSE: AON) reported third quarter adjusted Earnings Per Share (EPS) today of $1.74 on revenue of $2.7 billion. This is above consensus estimates of $1.70 on revenue of $2.6 billion. AON reported its “strongest growth in over a decade for two quarters in a row driven by mid-single-digit or greater organic revenue growth from every solution line, highlighted by particular strength in health and commercial risk at 16% and 30%.”

Here are notable highlights from the earnings report:

  • AON reported 3Q21 organic growth of 12% vs 2Q21’s 11%. The company noted particular strength in health and commercial risk. Year-to-date, AON noted that its 9% organic revenue growth reflects mid-single-digit or higher organic growth in three out of four solution lines, driven by new business generation and continued strong retention.
  • AON continues to project mid-single-digit or higher organic revenue growth and margin expansion in the full year 2021, 2022 and over the long-term.
  • Post AON and Willis Towers Watson’s mutually agreed termination of their merger last quarter, the company was asked about any employee retention issues resulting from this. President Eric Andersen commented: “We’re also focusing to make sure we’ve got the depth of service teams as we do and have been building our bench over many years to make sure we can do that…But having the Aon Business Services (ABS) platform is a game changer for us, because it actually allows us to scale our innovation, provide the level of service that our clients need and target our investments in talent into areas where we can make an outsized client impact.”
  • AON has invested in ABS over the past five years, which works across the firm. ABS will continue to improve margins by driving efficiencies across all solution lines, assisting with better client service delivery and innovation, and driving higher organic growth.
  • AON’s largest business segment, Commercial Risk Solutions, posted organic growth of 13% in the third quarter, reflecting growth across all geographies and strength in business generation, retention and management of the renewal book portfolio. AON had 14% organic growth in the second quarter of 2021. Retail brokerage also performed well, with double-digit growth in the U.S., Latin America, and Asia and the Pacific. Globally, AON continued to see pricing as modestly positive, a continuation of the trend from the prior quarter.
  • Reinsurance Solutions and Health Solutions reported organic growth of 8% and 16% respectively in the third quarter compared to the prior second quarter’s 9% and 14%. AON noted that most revenue in its treaty portfolio is recurring in nature and is recorded in connection with the major renewal periods that take place in the first half of the year. The second half is largely driven by facultative placements and capital markets that are more transactional.
  • During the third quarter, the Health Solutions and Commercial Risk Solutions groups saw double-digit growth discretionary areas, including Human Capital, driven by both rewards and assessments solutions. Health Solutions experienced strong retention and management of the renewal book portfolio, and in primarily voluntary benefits and project-related work. The segment also benefited from timing of certain revenue.
  • In terms of future uses of cash, AON continues to see share repurchase as the highest return on capital opportunity. In the third quarter, the company repurchased approximately 4.4 million shares or $1.3 billion. The company also noted a commitment to invest organically and inorganically in capabilities to meet client needs. CFO Christa Davies said of the merger & acquisition (M&A) strategy: “Our M&A pipeline, centered around the four areas that CEO Gregory Case described (AON United, ABS, innovative solutions, and people), is focused on bringing innovative solutions to our clients’ biggest challenges, delivered by the connectivity of Aon United.”
  • AON’s Aon United Blueprint aims to develop new sources of value for clients, improve client service, drive innovation, and bolster effective colleague satisfaction. In the third quarter, AON established its AON United growth ownership plan, a one-time, stock-based reward for all employees to share in the growth and success of the company.

In sum, AON turned in a strong quarter, assisted by improving macroeconomic conditions, new business, and retention. While the company is confident in its execution going forward, it is aware that the potential impacts of new variants, government stimulus, and shifts in GDP growth could have an impact on its business and clients.

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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.