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The past year has seen Aon P.L.C. record strong results in its core brokerage business while beginning to reap the benefits of years of investments in ancillary businesses and its decision to redomicile abroad.
London-based Aon tallied 2013 brokerage revenue of $11.79 billion, a 2.7% increase over the previous year, leading to its No. 2 ranking on Business Insurance's 2014 list of the world's largest insurance brokers.
Adam Klauber, Chicago-based analyst at investment banking and asset management firm William Blair & Co. L.L.C., said Aon is “firing on all cylinders” as it completes a decade of repositioning, which includes its 2010 acquisition of Hewitt Associates and its 2012 decision to move its headquarters to London.
The decision to redomicile helped Aon lower its tax rate as well as improve its cash flow, which should help future growth initiatives, Mr. Klauber said.
“We are already seeing the move pay dividends,” he said.
Mr. Klauber also credited Aon's decision to invest significant upfront capital in its Aon Hewitt Corporate Health Ex-change as early as 2010, giving it a head start over other broker exchanges.
While the $197 million in revenue the exchange generated in 2013 is nominal, Mr. Klauber said it will be increasingly lucrative for Aon in the years ahead as more clients join the exchange.
Aon President and CEO Gregory C. Case said he expects exchange enrollment to grow as more clients look to bend the health care cost curve and eliminate the volatility previously associated with their self-insured plans, noting that the exchange currently has over 600,000 covered lives.
“With our own survey showing that 33% of employers expect to move into private exchanges in the next three to five years, we will continue to invest in this area and we are excited about the market and our long-term growth opportunity,” Mr. Case said.
The health care exchange and other major capital-intensive investments such Aon's Global Risk Insight Platform, a global repository of Aon's placement information, highlight its commitment to long-term growth, he said.
“We are driving a set of initiatives across our risk solutions and (human resources) solutions businesses that are strengthening the underlying performance of the firm,” Mr. Case said.
Michael J. O'Connor, Chicago-based CEO of Aon Risk Solutions, said data-centric offerings such as Aon GRIP are crucial to Aon differentiating itself from competitors and better serving its clients.
“We believe data and analytics will support distinctive client services,” Mr. O'Connor said.
One example of the company adapting to better serve clients was Aon's 2013 launch of its London facility with Berkshire Hathaway International Insurance Ltd., which grants 7.5% of Aon's London market business to Berkshire Hathaway's U.K. arm on a quota share basis, Mr. O'Connor said.
“Because our clients are telling us they have unmet needs, we are going to push ourselves and the industry to innovate,” he said. “The Berkshire sidecar is a great example of that. The client feedback has been extremely positive.”
Moreover, Mr. O'Connor said Aon's January 2013 acquisition of claims preparation and forensic accounting firm Dempsey Partners L.L.C. is an example of the company making an investment to add to its expertise.
“The Dempsey acquisition is a great example of where we may already have great capabilities but are willing to double down where we see a fit,” he said. “It brought us a real depth of expertise and ability to help our clients with some of the more complicated claims issues that they face.”
Taken as a whole, the investments have helped Aon round out its service offerings and steel it against fluctuations in the global economy, Mr. O'Connor said.
“The economic growth around the world is not as strong as everybody would like,” he said. “If you understand the needs of companies, you can identify issues that need solving everywhere. So we feel we can grow consistently around the world, even if we face challenging economic times.”
One potential area of concern for Aon is changes in the reinsurance market, where overcapacity and the influx of alternative capital have put downward pressure on rates, which affects reinsurance brokers such as Aon Benfield.
But the situation is unlikely hurt Aon in the near term, said Paul Newsome, managing director Sandler O'Neill & Partners L.P. in Chicago.
“Aon is an enormous broker of reinsurance but it's still a relatively small fraction of what they do,” he said.
While many brokerages see retaining employees as a priority, some say they could put more effort into attracting talented workers.