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After a year on top of the Business Insurance annual ranking of the world's largest brokers, Aon P.L.C. is ranked No. 2 for 2012, albeit by a narrow margin.
London-based Aon posted brokerage revenues of $11.23 billion in 2011, behind only the $11.52 billion tallied by New York-based Marsh & McLennan Cos. Inc.
Perhaps the more notable thing about the past year for Aon is that it moved its headquarters from Chicago to London. The company announced its intent to relocate its corporate headquarters in January. In March, the company's stockholders voted overwhelmingly in favor of the proposal, which also saw Aon change its incorporation from Delaware to the United Kingdom. About 20 members of the company's top management, including Chief Financial Officer Christa Davis and Stephen P. McGill, group president of Aon P.L.C. and chairman and CEO of Aon Risk Solutions, now reside in London. Aon President and CEO Greg Case maintains a presence in Chicago and London.
Headquartering and reincorporating in the United Kingdom accomplished several strategic objectives, Mr. McGill said.
A primary benefit is that the London market provides capacity and expertise in many specialty risk areas, which is crucial to serving clients in emerging markets that are seeking coverage for specialty risks, he said.
“The center of gravity of some of the risk business, particularly the larger, more complex clients that we deal with on the insurance and reinsurance side, is more centered around London and Europe,” he said.
“When you look at the growth agenda that we have, focusing on areas of the world with rapid economic growth such as Asia and the Middle East, being based in London made a huge amount of sense to us,” he added.
Another benefit of the move is greater financial leeway, Mr. McGill said. The maximum statutory corporate tax rate is 25% in the United Kingdom, while the maximum U.S. corporate tax rate can reach 39.5%.
“The move gave us more financial flexibility, which will enable us to make more significant investments in our global network,” he said. “There was also a tax advantage that comes hand in hand with that financial flexibility.”
The past year also saw Aon continue to make changes to its operational strategy, with the company looking to leverage similarities across its insurance brokerage and reinsurance brokerage units, as well as its human resources and benefits consulting unit, which expanded significantly with the $4.9 billion acquisition of Hewitt Associates Inc. in 2010. With the aim of ensuring better coordination between the units, the broker in April named Mr. McGill group president of Aon P.L.C.
The goal is to increasingly provide data analytics and consulting advice to Aon clients in addition to traditional brokering services, Mr. McGill said.
“There are capabilities at all of our businesses that are individually compelling when supporting a client, but collectively add disproportionately more value,” he said. “We are constantly looking at how to unite the firm to add the most distinctive value proposition to all our clients. We are very early on this process but very excited for what the future holds.”
Analysts say that, while the business logic of merging the separate businesses into a cohesive offering for customers is sound, it remains challenging from an operational perspective. Meyer Shields, director at St. Louis-based Stifel Nicolaus & Co. Inc., said Aon likely will benefit from having diversified service offerings as clients begin to perceive that employee benefits and other human resources issues rank among the top risks facing their organizations.
“Cross-selling has always been the unachievable holy grail of insurance brokerage, but the prospect of Aon Hewitt benefiting from increased demand on the consulting side is very real,” he said.
Mr. McGill identified Aon's capability with technology as another potential market differentiator for the firm. Technologies such as the company's Global Risk Insight Platform, a proprietary database and analytics engine the brokerage launched in 2008, will enable it to deliver data-derived insights to clients and insurance companies, he said. Mr. McGill said a goal was to instill analytics and technology into the DNA of the firm.
Adam Klauber, an analyst at Chicago-based William Blair & Co., said Aon's use of technology is more likely to pay dividends in the long run than immediately boost market share.
“In the brokerage business, it hasn't been proven that technology is making a big deal in winning or losing clients,” he said. “However, with GRIP, Aon has become a more attractive partner to the carriers.”
Lockton Cos. L.L.C.'s ability to meet the needs of large risk management accounts, retain clients and attract talent is helping push the broker closer to the $1 billion mark in annual revenue, observers say.