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Aon posts flat Q3 revenue; expects pressure in Q4

Greg Case

Aon PLC on Friday reported almost flat revenue growth for the third quarter but signaled it might see increased pressure on growth in the fourth quarter.

About 80% of the brokerage’s business relates to coverage that businesses must purchase, but the remainder is related to “discretionary” purchases and more of that business traditionally is sold in the fourth quarter, Aon’s top executives said on a call with analysts.

Aon’s purchase of rival Willis Towers Watson PLC remains on track to close in the first half of 2021, they said.

Aon reported $2.39 billion in revenue for the third quarter, up less than 1% compared with the same period last year. Organic revenue growth, which excludes foreign exchange fluctuations and the effect of acquisitions and divestitures, was flat, the brokerage reported.

Commercial risk solutions, which includes its core insurance brokerage operations, saw revenue slip slightly to $1.04 billion for the quarter, but organic revenue grew 2%.

Aon’s reinsurance brokerage unit reported $321 million in third-quarter revenue, a 10.3% increase over the same period in 2019 and a 13% increase on an organic basis.

Aon’s health solutions business reported a 1% increase in revenue. Its retirement solutions business reported a 3% decrease in revenue, down 5% on an organic basis, and it data and analytics services division reported a 3% increase in revenue but was down 7% on an organic basis as Aon “saw expected pressure in more discretionary businesses like human capital, travel and events,” CEO Greg Case said on the call.

In the fourth quarter, Aon will continue to navigate uncertainty in the global economy, he said.

In addition, a larger proportion of Aon’s more discretionary revenue falls in the fourth quarter, putting more pressure on organic growth than in other quarters, Mr. Case said.

“For example, areas like construction and transaction liability in commercial risk recognize revenue when shovels hit the ground and deals are closed. As expected, we are seeing pressure on these larger investments in the current environment,” he said.

In addition, organic growth in the fourth quarter of 2019 was “exceptional,” Mr. Case said. Aon reported 7% organic growth in the fourth quarter last year.

Aon reported net income of $275 million for the third quarter, a 23.9% increase over the same period last year.

Aon’s purchase of Willis Towers Watson, which was announced earlier this year, remains due to close in the first half of next year after shareholders of both companies approved the deal in August, said Christa Davies, Aon’s chief financial officer.

In response to an analyst question on possible divestitures related to antitrust concerns, Ms. Davies said the brokerage does not expect it will be required by regulators to sell any of its businesses.

Even in areas such as reinsurance — where Aon is already the largest broker and Willis Towers Watson is the third largest — the brokers don’t expect forced divestitures, she said.

“Clients have a huge range of choices,” Ms. Davies said. “They can place direct, which a lot of them do, they can place in the capital markets for alternative capital, they can place through insurtech and they can place through a huge range of brokers, including a number of broker startups.”