Q3 2022 Aon PLC Earnings Call
[music].
Good morning, and thank you for holding welcome to the Aon plc third quarter 2022 conference call. At this time all parties will be in a listen only mode until the question and answer portion of today's call.
I would also like to remind all parties that this call is being recorded.
Anyone has an objection you may disconnect. Your line at this time.
It is important to note that some of the comments in today's call may constitute certain statements that are forward looking in nature as defined by the private Securities Reform Act of 1095.
Such statements are subject to certain risks and uncertainties that could cause actual results to differ materially from historical results or those anticipated.
Information concerning risk factors that could cause such differences are described in the press release, covering our third quarter 2022 results as well as having been posted on our website.
Now it is my pleasure to turn the call over to Greg case, CEO of Aon plc.
Good morning, everyone welcome to our third quarter conference call I'm joined by Christa Davies, our CFO and Eric Anderson, our president.
As in previous quarters, we posted a detailed financial presentation on our website.
We began by thanking our aon colleagues for delivering another strong quarter of top and bottom line growth.
Our recently concluded all colleague engagement survey reinforces the resilience and commitment of our team as we continue to receive benefit from exceptional colleague feedback with overall engagement ways of working and brands rank all at 80% or greater.
More than ever colleagues understand the power of our Aon United strategy had been.
The smart working approach, we've developed and preserve flexibility in how and where we work, while enabling them to be better connected and more capable of helping clients make better decisions to support their businesses.
The importance of the support and the exceptional nature of our response as illustrated by our recently released executive with survey and the tremendous leadership of our team and Hurricane Dorian.
Taken together these two data points reinforce the relevance and return on our Aon United strategy.
First our 2022 executive risk survey, which surveyed 800 C suite executives from global companies underscores the volatility 18, leading organizations and all of US a window into their mindset and needs.
A majority of survey, 79% the increased volatility on the horizon, but only a third just 35% you'll fully prepared to manage the impact of that volatility.
Important those feel very prepared share three fundamental leadership attributes that reinforces the relevance of our capabilities.
They see embracing risk as a source of potential competitive advantage, 62% are very prepared leaders agree that their company's appetite for risk has increased in response to the current economic conditions.
Second.
We're willing to invest in new approaches to address emerging risks. These leaders focus on long tail risks and call out concerns around disruptive categories like cyber and supply chain.
And third.
<unk> expert insights and are looking for partners to help them make better business decisions compared theatres are nearly twice as likely to look to counsel from an external adviser that can provide a more holistic enterprise perspective, our decision to protect and grow their businesses.
And while these survey findings reinforce the relevance of our strategy Hurricane and highlight the excellent example of that value and action.
To begin <unk>.
I want to extend our deepest sympathies to those impacted by this event.
In these times of challenge and community endure the tragic loss of life and tremendous damage. We believe that our actions as a firm to help businesses and communities respond and recover.
As always our team took a holistic aon United view towards serving our clients before during and after the event.
<unk>, we used our resource development what models to ensure that our 800 promotional risk claims colleagues around the world we're prepared to respond to a surge in client needs.
This was a collaborative global effort possible only because of our mindset and single P&L approach. In addition, we were able to use impact forecasting models from our reinsurance team the game out potential hurricane paths and share those insights with like I'm not sure. What's colleagues so they could alert clients potential exposures, allowing for early activation business continuity plans.
During the event.
We provided real time insight on actual harm by leveraging satellite drone imagery provided through technology partnerships enabled by our Aon business services team. This is another example of how our emphasis on technology driven innovation is reshaping client service at scale.
We obviously focus on accelerating claims resolution, but we're also stepping back with clients and taken an enterprise view of what the hurricane means for their benefit plans leveraging our health solutions team.
And beginning new conversations around how they think about return to work exploring how our human capital solutions colleagues can apply learnings from our own smart working strategy so their workforce management.
This is aon United in action and only possible because of the decade, plus investment we've made to break down barriers across our business and build Aon business services into an engine that provides us the insights and scale necessary to meet client needs.
Turning to performance.
In the third quarter, our colleagues delivered excellent results demonstrated continued momentum and year to date progress against our key financial metrics.
For Q3 organic revenue growth was 5%.
On top of 12% in the prior year quarter adjusted operating margin was up 100 basis points and adjusted EPS was up 16%.
These results are consistent with our full year ongoing financial guidance and we would note that Q3 is our seasonally smallest quarter for revenue.
Year to date, we delivered 7% organic revenue growth adjusted operating margin expansion of 80 basis points, adjusted EPS growth of 14% and generated over $2 billion of free cash flow.
Turning to solution lines commercial risk delivered 5% organic revenue growth this quarter on top of 13% in the prior year quarter.
<unk>, 7% organic revenue growth year to date.
Driven by ongoing strong retention, new business generation and renewal highlighting the resilience of our core business as we continue to help clients protect and grow their businesses.
As we previously mentioned the significant decrease in M&A volume impacted our transaction solutions business, especially compared to last year's result, which was particularly strong in Q3 and Q4.
Reinsurance delivered 7% organic revenue growth in the quarter with 7% year to date.
As our team continues to help clients in the current market by bringing new solutions and capabilities for.
For instance, our newly established strategy and Technology group provides our clients with strategic advice data driven consulting analytics and modeling tools and is further strengthened by the capability we've gained through our acquisition of tightening.
This is all the time and driving growth efficiency and resilience have never been more important.
Health solutions delivered 5% organic revenue growth in Q3 on top of 16% in the prior year quarter contributed two 8% year to date growth.
But particularly strong growth in human capital solutions.
Cross health, we see clients assessing their people strategies to optimize for workhorse scale, an organization structure, while making sure those employees feel valued and engaged.
Finally wealth solutions delivered 2% organic growth on top of 4% in Q3 last year and 2% year to date as our team continues to help clients address market volatility Taco regulatory challenges.
And execute ongoing pension risk transfers.
Two exciting milestones our team has advised over $200 billion of pension risk transfer transactions in the U S and UK pension plans continue to Derisk and take advantage of market conditions.
And we reached the 1 billion Mark in client assets and commitments for a pooled employer plan, which helps cover and helps lower cost and enhanced retirement security for employees of smaller organizations.
Overall, our strong performance in Q3 and year to date reflects the strength of our Aon United strategy and.
And Aon business services platform delivered for clients across regions and solution lines for the full year, we remain confident in our commitment to mid single digit or greater organic revenue growth margin improvement and double digit free cash flow growth.
As our clients assess the impact of increased economic volatility on their businesses. Many are looking to improve their own working capital and liquidity often by accessing new sources of capital in one recent example, and Andy United example, our client based in Asia was awarded a multi billion dollar construction contract in Latin America for a manufacturing facility that.
<unk> innovative carbon reduction technologies.
The client had a regulatory and contractual requirement that they provide a financial performance guarantees essentially drawing on their own credit facility.
To address.
Our local commercial risk team, who has deep understanding of our client strategy and financial position collaborated closely with our local credit experts in Latam.
The design of bespoke surety bond solution for our clients.
Rather than using a bank guarantee facility, our client was able to access capital at a lower cost and more attractive terms, while maintaining their own balance sheet strength and flexibility.
Just as we've done with intellectual property lending.
And pension risk transfer solutions. This is another example of how we help clients access to new capital to reduce risk and drive their own growth at justice.
In summary.
We delivered a strong quarter of top and bottom line results contributed to our year to date progress against key metrics.
We continue to be stronger position to deliver on our full year financial commitments, a mid single digit or greater organic revenue growth margin expansion and double digit free cash flow growth.
We see increasing opportunity to help our clients and the steps, we've taken to operationalize and United and business services platform gives us confidence in our ability to address our clients' existing and emerging needs that they continue to protect and grow their businesses.
Now I'd like to turn the call over to Christophe for her thoughts on our performance in the quarter and year to date as well as our long term outlook for continued shareholder value creation Christa.
Thanks, So much Greg and good morning, everyone as Greg highlighted we delivered continued progress on our key financial metrics for both the quarter and year to date through the first nine months, we translated 7% organic revenue growth into 80 basis points of adjusted margin expansion and 14% growth in adjusted earnings per share.
Generated over 2 billion and free cash flow.
We look forward to building on this momentum as we head into the last quarter of 2022.
As I reflect on our performance year to date as Greg noted organic revenue growth was 5% in the third quarter and 7%. If states. We continue to expect mid single digital Grace out organic revenue growth of 48 2022.
Over the long term.
I would also flat reported revenue growth in Q3, and 3% to Yesterdays includes an unfavorable impact from changes in FX of five.
5% for Q3, and 4% Yesterdays, primarily driven by a stronger U S dollar versus most currencies.
Not highlight fiduciary investment income, which is not included in our organic revenue growth calculation was $26 million in Q3 and $35 million year to date.
Moving to operating performance, we delivered strong operational improvement through the first nine months of the year with adjusted operating margins of 30% an increase of 80 basis points, driven by organic revenue growth and efficiencies from Aon business services overcoming expense growth, including investment in colleagues and technology to draw.
<unk> long term growth and some ongoing resumption of CNA.
Looking forward, we expect to deliver margin expansion in 2022 under the long term as we continue our track record of cost discipline and managing investments in long term growth on an ROI basis.
As we've previously communicated we think about margins over the course of a full year and we expect continued investment in colleagues and ongoing reduction of G&A as well as ongoing investments in long term growth like technology throughout the year.
I own this incentive is a key contributor to margin expansion and represents a competitive advantage, especially in a highly inflationary market.
Our Aon business services platform continues to drive efficiency gains improved quality and service and increased innovation at scale.
Let me say a woman Fantastic example of how Aon business services platform supports ongoing improvement as we automate day to day processes around the fab.
Reinsurance is operated on a single global Broking platform and client service model.
2017.
Over the past five years, the team has digitized processes automated workflows and moved work to low cost locations.
64% of transactions are now processed digitally increasing speed and accuracy, which has helped reduce the average number of days. It takes to get claims from carriers pay to our clients by 22%.
Actually eight to 30 days.
Increase in capacity enabled 27% more fruitful.
Costs are up just 9% over five years, particularly impressive outcome when considering recent cost and wage inflation trends.
And that's the platform enabled the team to provide them hot citizens, while dealing with more complex transactions and Aon United outcome that allows our colleagues to better support each other.
And our clients we.
We continue to find and capture efficiency opportunities like this around the sudden unexpected Aon business services will continue to be a driver of ongoing efficiency improvements.
Quality and service improvements and increased innovation for clients.
We tried to find its strong operating income growth into double digit adjusted EPS growth of 16% in Q3, and 14% ish days.
As noted in our earnings materials FX translation was an unfavorable impact of approximately <unk> <unk> per share in Q3.
Especially for <unk> per share year to date.
If currency to remain stable at today's rates, we would expect an unfavorable impact of approximately 11 cents per share or approximately $33 million decrease in operating income in the fourth quarter of 2022.
Turning to free cash flow and capital allocation.
Free cash flow increased 17, 9% year to date to $2 billion and $51 million, reflecting an increase in cash flow from operations due primarily to the $1 billion termination fee payment in the prior year period.
As we've communicated before free cash flow can be lumpy quarter to quarter.
Q4 is out seasonally strongest for free cash flow generation.
We continue to expect to deliver double digit free cash flow growth for the full year and over the long term driven by operating income growth and working capital improvements.
Given our strong outlook for free cash flow growth in 2022, and beyond we expect share repurchases to continue to remain our highest return on capital opportunity for capital allocation.
We believe we are significantly undervalued in the market today highlighted by the approximately $1 2 billion of share repurchase in the quarter and $2 5 billion yesterday.
We also expect to continue to invest organically and inorganically and content and capabilities to address unmet client needs.
We've invested in expertise and content in our retirement business, where we're helping clients navigate regulatory changes such as GNP and the U K and utilizing higher interest rates to drive record levels of pension risk transfer.
Our M&A pipeline continues to be focused on our priority areas that will bring scalable solutions to our clients growing and evolving challenges. We will continue to actively manage the portfolio and assessed all capital allocation decisions on a return on capital balance basis.
Now turning to our balance sheet and debt capacity.
We remain confident in the strength of our balance sheet and manage liquidity risk through a well lettered debt maturity profile.
We issued $500 million of 10 year senior notes in Q3.
And as I said before we'll continue to add debt as EBITDA grows while maintaining our current investment grade credit ratings.
With respect to interest rates I'd note that our term debt is all fixed rate with a weighted average interest rate of approximately three 8% and a weighted average maturity of approximately 12 years.
I'd also note that our pension liability improves as interest rates increase and historically, we've taken steps to de risk this liability and reduce volatility.
In summary, our strong financial results for the quarter and year to date demonstrate continued momentum and progress against our key financial metrics.
Well, we're seeing signs of economic uncertainty, we remain confident in the strength of our firm and our financial guidance for 2022.
Overall, our businesses are resilient and our Aon United strategy gives us confidence in our ability to deliver results in any economic scenario.
With that I'll turn the call back over to the operator, and we'd be delighted to take your questions.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad, a confirmation tone will indicate your line is in the question. Kim You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing.
The Star Keys.
Our first question comes from the line of Jimmy.
Mueller with Jpmorgan. Please proceed with your question.
Hi, Good morning, So first I just had a question on the commercial risk business.
Your organic growth slowed sequentially, obviously comps were.
More difficult as well, but you mentioned that.
Asia, Latin America, and U K grew at a pretty strong pace and there was a slowdown in U S retail business because the lower transaction volumes can you sort of elaborate on that and what youre seeing in the U S business.
Yes, let me thanks for the question.
Since we'd highlight again on commercial specifically, but it really plays out for the firm overall, 7% organic year to date, 11% year to date last year and 13% in the quarter as you highlight and really just strong across the board across all geographies and real strength in core P&C and affinity and we really want to highlight that the only thing we highlighted there was a little different with obviously.
The M&A transaction.
Levels last year were extraordinary in our capability. There is just exceptional and Eric maybe you can talk a little bit about that.
That's really what it's not going to repeat this year, but overall very very strong momentum.
As we as we finished the year this year and move into next year, but Eric in your thoughts on pharma.
Sure Greg Great question, I would say from an overall perspective commercial risk or very shortly in the U S. At very solid new business numbers very solid retention and rollover numbers, Greg as you mentioned in your prepared remarks, and I would just say look on transaction services, we are serving the private equity industry in the corporate industry as they make.
The divestitures so we.
During a period like this where it's a little bit slower we are spending time with the markets with the reinsurance markets with the clients building out our strategy for when it ultimately comes back.
Feel like the team that we have today is fantastic, but theyre also working very hard with their.
Their clients, making sure we've got the next generation of products ready.
When they when the economic environment changes.
Okay, and I think you mentioned modestly positive benefit from pricing the last few quarters and this quarter as well.
And if we think about the reinsurance business Theres, obviously, a lot of dislocation there.
Can you talk about how do you expect.
I expect that to affect our results and should there be a greater tailwind from pricing at least on the reinsurance side.
Maybe I'll start with the overall, Eric just to pick up on the reinsurance front in particular overall, Jimmy as you highlighted we look at market impact that's how we think about it obviously it includes insured values and price.
Like modest impact sort of in the quarter and expect for the year over time, you can expect insured value will begin to creep up that will actually have a.
Sustained lasting impact over time.
We'll see how the pricing piece changes out, but overall market impact kind of modest as we think about the impact here.
The reinsurance dynamics important and is evolving Eric do you want to pick up on that.
Sure Greg maybe just one comment on the just general pricing environment on the primary side.
I think you laid it outright, but also and I think we've talked about this before we spent a lot of time with our clients using data and analytics to kind of understand the choices. They need debate, so while inflation and while pricing may be moving against them from this perspective.
Don't sit still theyre looking at whether its captive utilization, whether it's retentions deductibles limits all of those tools and we try and help them think through whats best for them as they are navigating their sort of economic changes that theyre facing in their business. So while the market is as you said, Greg there is effect of inflation and pricing.
We're certainly working with them.
Clients as they make those decisions certainly on a reinsurance I think it's worth just stepping back there is a lot going on right now on the reinsurance side.
And our primary mission continues to be to help our insurance company clients match risk with capital but.
And remember this is a global business like few in terms of where the capital of <unk> and how it's deployed and it shows a very differently in different parts of the world.
As we move away from Hurricane and we start to get a little more clarity around what the ultimate losses look like and who's holding those losses.
But if you step back and you think about it geographically the European clients I think are expecting to have the supply of property cat that they need, albeit with a pricing and structure negotiation.
That takes into account the effects of inflation, that's happening in Europe , but also the losses that have happened in that region over the last three years, whether it's German floods, French hail et cetera, they've got certain dynamics that have affected the European marketplace.
I think for North America, the property cat market is going to be more challenging.
Managing the effects of inflation and the supply challenges some remaining uncertainty around.
We'll create difficulties, but ultimately we're focused on creating capital for them capital options. So they can they can get the protection that they need going forward.
Also say.
It also has an effect on facultative reinsurance and other tools that we have because as those insurers are forced to take higher retentions. They certainly are going to continue to look to derisk. They just do it with different tools right. They actually then we'll look at specific clients that they've got on their primary portfolio that they want help on they'll use faculty.
Instead of treating so while the market those shifts there are there are levers out there that we bring to bear for our clients.
That can actually help them de risking and get the protection that they need.
And last thing I just wanted to highlight on this inventory leave. This point. This is this is a tremendous Ross I mean this is this is where we live.
There is more activity going on with a set of capabilities that are unique in the world today, what our colleagues have built on the reinsurance side is extraordinary and we've just added to them with data and analytics and all that we've done with our strategy and technology upward now added with Nike that I mentioned before so Eric described the market perfectly but boy. This is our wheelhouse, we love it creates tremendous opportunity to support.
Our clients and we're bringing all the solutions to bear and.
In many respects opened our clients manage challenging times and for US it's a great opportunity.
For the next 12 to 24 months.
Thank you.
Yes.
Yeah.
Thank you. Our next question comes from the line at least Greenspan with Wells Fargo. Please proceed with your question.
Hi, Thanks. Good morning. My first question is on the margin side in the corner you guys saw.
Points of margin improvement.
I assume that all of that could you share your investment income fell into the bottom line that could give you a tailwind of 90 basis points I'm, just trying to get a sense of that country can you give us a sense of the split between how much of that margin improvement came from the pickup in fiduciary investment income braces core margin improvement and operating leverage.
Sure. Thanks for the question Ali and look what we would say as we think about this in terms of year to date.
And year to date, we had a $35 million benefit from investment income. So there's about a 20 basis point impact on full year margin and so it's not nearly as big as the numbers you highlighted the laser so for us as we think about growing margin expansion.
For the full year, which we are completely committed to doing it's really about continuing to drive organic revenue growth the portfolio mix and higher revenue growth higher margin areas.
On the productivity benefits, we're getting from Aon business services and software fully on track to deliver full year margin expansion.
As we think about rate continuing to rise to that could you say investment income should go higher from here.
So we're not just thinking Q4 about 23 as well.
I think most of the benefit well thought of the bottom line or how do you balance letting it fall versus looking to take some extra dollars to invest internally.
Yeah. So so first of all at least what I would say is we manage 6 billion of fiduciary investment income and every 100 basis points of increase is $60 million topline and bottom line, but at least we're doing a lot of work for clients to actually manage that we're actually doing all the insurance accounting and transaction processing.
Being in the middle on paying premiums and the way in and then paying claims on the way out just one correction a lasting impact on fiduciary investment income in the quarter at 70 basis points not 19.
Okay. Thanks, and then my last question going back to.
The comment on on transactions.
Within commercial risks any but I'd like to not only transaction volume with the third quarter of last year heavier for that business.
So potentially see that impacts the growth there in the fourth quarter as well.
Obviously, if we take a step back.
And then I guess empathized literally look at the quarter overall for us in sort of year to date. He has just done a tremendous job year to date, 7% overall, 9% over 9% last year really strength across the board. The M&A activity that we described and talked about it was really Q3 and Q4.
Both both levels of activity exceptionally strong, but it didn't change hasnt Genesis in any way shape or form as Christa described exactly where we are now as we think about mid single digit or greater for the year margin expansion and double digit free cash flow growth.
I would highlight eric's points around the strength of our team, it's really extraordinary and what they've been able to do and how that's evolved over time. So they are exceptionally well positioned as the market as the market comes back.
Thank you.
Thank you. Our next question comes from the line of Mike Zaremski with BMO capital markets. Please proceed with your question.
Hey, good morning Happy Friday.
Maybe.
Thinking about free cash flow.
Last year as you guys help us out with there's clearly.
Noise.
This year are there any items that you feel you want to call out maybe.
Maybe on the working capital improvement side.
You mentioned Christina <unk> is usually a pretty strong quarter. So I'm looking at free cash flow. This year as a percentage of revenues for example, it's a very healthy level I just want to make sure.
I'm not missing something.
Mike I don't think you're missing anything so free cash flow $2 billion and $51 million year to date up 79% nothing.
Nothing, particularly unusual we did mentioned in Q1 and Q2 that we had.
Lower levels of free cash flow because of higher incentive comp based on extraordinary performance in 2021, that's the only thing I would note and then I would say in general we're going to continue to drive free cash flow growth double digits.
Based on continued acceleration in revenue growth margin expansion and then working capital improvement you did see if you look at the external receivables divided by revenue on the back.
Alex sheet that DSO improved by two days from Q3 dollars 21 to Q3 'twenty two.
From 91 days down to 89 days and so we're very pleased with our continued progress on working capital.
And as you stated is the goal to get download below 89 over time or is that the main lever for the for <unk>.
Working capital over the next few years.
Yeah. So what we have said Mike is that we have essentially $500 million of excess receivables sitting on our balance sheet and that overtime, we will continue to improve.
<unk>.
To get that 500 million to zero and so that is a big upside in free cash flow growth over the coming years.
Okay, Great that's helpful and.
And maybe switching gears.
I'm curious if.
Cyber insurance you guys are one of the leaders in the marketplace. That's clearly.
Rates are are up a lot of our clients are still we're seeing still buying just as much or more.
Maybe you can comment on the cyber market I'd also be curious to hear about whether the intellectual property market, which I think you guys are one of the pioneers of us is gaining any traction. Thank you.
Sure. This is Eric maybe I'll take a shot at it so on the cyber market. We continue to see great growth in the business and I would say.
What has changed if anything over the last several months is really the renewed focus on quality underwriting.
You remember at the very beginning of that product. It was all about risk management risk identification risk management have been risk transfer.
What happened to the market as they went immediately to risk transfer without enough focus on the quality of the risk mitigation on the risk management as the market has reacted due to losses, they essentially went back to basics.
Ultimately the market will be healthier for it. So we continue to see great growth we invest.
Globally, and our capability, there and really like our position in the work that we're doing for clients.
Say on intellectual property.
Very similar it couldnt be more excited about where we are with that.
Continue to see great deal flow.
Getting markets to join the product, we actually did our first IP reinsurance treaty this quarter, certainly not big dollars, but a real symbol on how we're bringing a broader market to bear on supporting that product develop so.
Really excited about both of them I think we've got a great lead in the market with our capability and we're going to continue to invest and push to develop those markets in a broader way.
And Mike I can't help but that I did call out the IP progression has been.
Extraordinary if you go back four years ago, we bring in 25 30 colleague them to sort of think about this for 200 strong now in this category no one had ever actually valued.
It stack.
Such that our patents that such that it could actually be insured against loan borrowed against that now we've done 15, plus deals I think we talked about last quarter, we crossed $1 billion in.
And Monday on those fronts and as Eric said.
Now we have multiple markets involved in even reinsurance involved. So this is a progression it's still very very early days.
That meant that he has done a tremendous job sort of building up this opportunity.
Thank you best of luck.
Thank you. Our next question comes from the line of David <unk> with Evercore ISI. Please proceed with your question.
Hi, Thanks, Good morning, I just had a question on the wealth business.
Just on the AUM.
AUM base delegated investment management that was cited as a headwind.
Could you give us an idea of how much the AUM base was down and how we should think about that going forward as markets remain under pressure.
It was down David we didn't give the impact of it but youre absolutely right the way in which we earned fees in that.
And that delegated businesses is a percentage on.
And so it really depends on how the market goes to as to how we see that progressing going forward, but I would say offsetting that decline on the investment management side was fantastic growth on <unk>, It's Greg and I talked about in our prepared remarks, we've got enormous growth dealing with regulatory change, particularly in <unk>.
In the U K fantastic work going on there by the team and then as global interest rates rise. It's one of the best environments to do pension risk transfer that has happened in the last 15 years and we are the global leader in this went very very excited about our position in that space.
Then as we mentioned on the call our pets product in the U S is doing exceptionally well.
There are so many areas on the retirement side, where we have great opportunities to grow it but Eric I mean, what else would you out here.
No because I think you've covered all of it. We're just really excited about watching the retirement business in particular really add great value to our clients. The UK certainly some great activity going on there in the U S as well, but that pet product, which is the pooled employer plan really is a great.
<unk> solution for our smaller clients as they look to manage their retirement assets. So you covered it well and really a solid quarter for them.
Got it that's helpful.
And then maybe just going back to commercial risk.
I guess I was just wondering if you could.
Talk about.
I guess, maybe just say what the what the growth was if we were to just exclude that U S retail.
Retails.
That was a bit tougher.
And how that compared versus last quarter did we see any any slowdown there sequentially or was it really just all driven by the U S retail's tougher comp.
Yes, David as we described.
We would step back really tremendous progress across the board as you think about your what was happening on the commercial restaurants.
We highlighted.
But really isn't as an opportunity where should we see over time, that's going to be tremendous on the.
Transaction solution size, it, but overall really strong across the board and just continues to build momentum as we described before.
Okay, great. Thank you.
Thank you. Our next question comes from the line of Meyer Shields with <unk>. Please proceed with your question.
Okay.
Thanks, two quick questions. If I can first Eric I was hoping you could talk a little bit about a little bit more about capacity shortfalls in the U S.
In the context of the impact of rising interest rates on capital and how much more work does that actually entail for.
The reinsurance unit.
So if you think about <unk>.
When youre talking about property cat at this point.
Casualty basis on the reinsurance, which people don't tend to talk about but it is a substantial part of the industry.
They are continuing to battle their own inflation understanding as they price long tail products I do think that market is much. It's while it's challenged it is more around price and structure not about supply.
Listen I think as property cat in the U S continues to be challenged for a couple of reasons one you've got significant losses, both on the traditional things like hurricane, but also as you think about wildfire storms. The secondary barrels have been a substantial hit to reinsurers over the last five years. So there is a certainly.
A crisis of confidence in underwriting and how they deploy their capital for our clients and so models have to be better we really have to focus hard on making sure our risk identification they understand exactly what they are offering them.
The sort of return scenarios are for them over time.
Effective interest rates really affect the ILS market, which has to I would say two headwinds right. Now one is there are some trapped capital with Ian as people are trying to figure out exactly what where the losses are what the damages.
And Theres also the relative investment question of as interest rates go up their ability to find other assets that don't risk their their capital.
Is something that essentially just creates a repricing I think of the ILS market, which is happening.
And so for US I think it doesn't necessarily work it creates understanding of the market dynamics and the returns.
But we're in the middle of that right now as we lead up to the big one one renewal season.
And then again in April and July .
Hey, Marty I know you've got another question no I don't come to that but this really does is there a described reinforces the opportunity when you can take a part of the market. The way Eric described and have the analytics to really do something about it.
Drive solutions on behalf of clients. This is what puts us in such a unique position against the rest of the world on this topic. So again, a lot going on out there and we'd love it everyday because it puts us in a very very big provision.
No that's very helpful I understand that thanks.
And then I guess a question for Christa maybe.
So you talked about how there's more pension risk transfer going on and you also mentioned how higher interest rates.
Benefit pension.
Pension funding and I'm wondering I understand that there's more willingness to take tension.
Liabilities when people in higher interest rate environment, but wouldn't there be less demand for transfer if interest rates are higher.
So there's always been capacity the real challenge my RSV. The economics Havent made made it makes sense to actually be able to to buy out because you haven't been able to execute the tranches without being I wish to add the cash given to get to fully fund it and so the.
The increase in interest rates is getting plans fully funded which means that they can actually do this transfer. So the capacity has always been that it's more that the pension plans haven't been funded and ought to be able to make this work and I would say, we're seeing more demand from best buy in and buyout from clients than we have in the last 10 plus years and we have done.
Substantial numbers of pension risk transfer in the U S and the U K in a very very well positioned to do that so it's a very exciting growth area for us.
Okay phenomenal. Thank you so much.
Thank you ladies and gentlemen, our final question. This morning comes from the line of Josh Shanker with Bank of America. Please proceed with your question.
Yes, Thank you for giving me at the end here.
You spoke in the prepared remarks about higher expenses from TNT resumption.
Both as a.
A consultant and protector of the risks are your clients as well as internally can you talk about the shift thats happening.
Where we are relative to where we were $2 five years ago, and if we go into recession, whether we're topping out here on <unk> and whatnot.
Yeah. Thanks for the question, Josh So I would say G&A is obviously up from 2020 in 2021 levels, it's not back to 2020, not 2019 levels.
Really because we're actually very thoughtful about how we do the work.
We've implemented smart working which I know Greg talked about in relation to our engagement survey. It's one of the things that's driving employee engagement at the highest levels in our history.
Because we're very thoughtful about where is the best place.
A number of areas and Eric you might want to talk about them, where we're doing work in different ways and it has a higher impact on class Eric.
Yes, Chris I think that's great and I think it drives productivity of our colleague drive engagement as you said really being able to use the technology that we've been investing in through our Aon business services model over a number of years and just want something that happened a week or two ago. Just came to mind as you were talking per se. We do these insights series across the world with our clients.
And normally historically would've flown everybody in from around the world and this one happened to be in Australia. So it would've been a week of time for the team off basically off the grid as they went to present on our slot for whatever topic. They were asking for it and so on this one in particular, we had our climate change which is based in London, that's been working on building the climate strategy.
For us essentially webex into the insights series meeting did the question and answer actually gave a great presentation and then when they were finished they were home and they were back on to the next topic and continuing to work. So we were able to bring that capability without the big expense of travel and entertainment.
We're able to deliver that capability and we gain the hours that we would've lost to the flights and the jet lag and everything else that we all know about in a way that drives more productivity. So that's just one example, there are many of them that followed a similar path. We just did a big renewal meetings for example for a big U S client, where we use the immersion room in our New York office and brought into the <unk>.
P and insurers and reinsurers in the London European insurers and reinsurers essentially did what would've been a three week trip turned it into a five hour session in one location and so again save time save money.
But more importantly, the clients are finding value in it they actually feel like they're getting that connection with the markets that they want and our colleagues at absolutely allows us to show off our global colleagues in a way that you don't really get to do when you're traveling place to place and so focused on schedule. So we're really excited about it and Christopher it's driving engagement.
More importantly, productivity and I think the clients are really enjoying the time they get back as well.
And then just can you add and this has obviously been aam's experience is this similar to what your understanding is going on with your clients or is your clients' cost rising faster than your.
Crack team of.
I guess spend managers can to manage for the company itself.
So I would say are human capital business spends a lot of time working with our clients on how to do smart working.
And so I think as we come the pandemic has further and further in the rearview mirror people are finding their new normal in <unk>.
Our teams are doing I think a great job of helping them structure and engage with our clients in a way that they are able to do the same thing because our clients are also looking to get productivity. They're also looking to manage G&A.
And they want to leverage the technology that we all use so much during the pandemic in ways that actually create the outcomes that they're looking for.
And really if you think about it.
Phenomenon, you're highlighting it really is a b and to be incredibly substantial insignificant for us, but even more so for our clients.
Eric described it well, but just combine the whole wellness issues and challenges. It really connects with our health group has found a way through hasn't before.
Very integrated response cutting across multiple solution lines. It's the Best example, another example of Aon United in action as we help clients trying to understand how they can really address.
And work environment Smart working as we describe it but even more broadly how it impacts their own engagement and how they drive talent acquisition talent retention talent enrichment.
And it's a real opportunity for us and it really the beauty of it is it connects across multiple solution lines, which is which is perfect and United from our standpoint.
Thank you very much.
Thank you, ladies and gentlemen that concludes our question and answer session I will turn the floor back to Mr. Kingston for any final comments.
Thanks, everybody for joining us we appreciate it and look forward to talking next quarter. Thanks very much.
Thank you. This concludes today's conference you may disconnect your lines at this time.