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Like many peers, Aon P.L.C. faces challenges in growing in today's market, but the brokerage plans to address them by servicing its clients innovatively.
In 2015, the London-based company's brokerage revenue dropped 3.0% to $11.66 billion, making it No. 2 in Business Insurance's 2016 ranking of the world's largest insurance brokers.
Aon's gross revenue also dropped 3.0%, to $11.68 billion.
“The biggest issue for Aon, like most of the big brokers, is trying to squeeze out further profit margin expansion,” said J. Paul Newsome, managing director at Sandler O'Neill & Partners L.P. in Chicago.
“They and others are near a record high in terms of their profit margin and intend to get them even higher. But as you can imagine, as you get those profit margins higher and higher, it typically makes it more difficult to make that happen,” Mr. Newsome said.
“Unless you see a change in the insurance market,” top-line growth is largely tied to, and will be in line with, global gross national product growth, he said.
Over the past couple of years, Aon's financial results focus “has been more about financial engineering benefits,” which has been accomplished through measures including changing its domicile to the United Kingdom and significantly lowering employee pension costs. That “means they've been able to buy back a lot more shares,” a focus expected to continue for the next couple of years, Mr. Newsome said.
Aon is “already in just about every business in the insurance brokerage world. I would expect them to make small, incremental transactions to enter into incrementally smaller markets,” he said.
Aon reported a 2015 organic growth rate of 3.0%, no surprise to analysts.
“Organic growth is going to largely be determined by pricing, which remains negative,” said Quentin McMillan, New York-based director of equity research at Keefe, Bruyette & Woods Inc. in New York. “We believe that Aon, as well as the rest of the brokers, can continue to show 3% to 4% organic growth going forward.”
Michael J. O'Connor, Chicago-based CEO of Aon Risk Solutions, said the company has faced a “pretty stiff foreign exchange headwind” that its results have reflected.
However, customer service remains a key focus to growing the business.
“Aon is united in one goal — enabling our clients to make better business decisions in a dynamic and complex market. Around the world, we are utilizing our collective intellectual capital and harnessing data and analytics to recognize patterns, drive new insights and create value on behalf of our clients,” Aon President and CEO Gregory C. Case said in an email. “We see tremendous opportunity to deploy our innovative solutions and expertise in the areas of risk, retirement, health and talent to help our clients navigate this changing landscape.”
Mr. O'Connor noted that over the past year, Aon, which changed its domicile from Chicago to London in 2012, moved into a new London headquarters dubbed the “cheese grater” because of its resemblance to the kitchen tool.
The vast majority of Aon's London team has moved from other locations into the building, which creates an opportunity for Aon to bring its team together and offers an environment where people can work together effectively, Mr. O'Connor said.
Worldwide, Aon had 69,000 brokerage employees in 2015, the same as the previous year.
The United Kingdom's vote to leave the European Union will not affect this process, Mr. O'Connor said.
“We don't expect that to have any impact in terms of approach, philosophy and how we move forward,” he said.
In March, Aon announced that Bryon Ehrhart, previously Chicago-based CEO of Aon Benfield Americas, was promoted to global head of growth and development, a move that is intended to boost growth.
The company said Mr. Ehrhart, who joined Aon in 2004 and reports directly to Mr. Case, will explore ways to accelerate Aon's growth initiatives.
“We've got an extremely talented leadership team and a deep bench, and part of what we want to continue to do is to basically develop our people, give them opportunities to lead and to innovate, both within our firm and also with our partners,” Mr. O'Connor said.
Mr. Ehrhart is a “great example of that talented leader,” Mr. O'Connor added.
Private equity-backed buyers again dominated the insurance brokerage merger and acquisition landscape during the first half of 2016, but their share declined slightly amid increased activity by privately held and bank-owned brokers.