Aon’s Q2’23 summary

Aon hosted its Q2’23 earnings call on Jul 28th, 2023. Select highlights:

  • Aon powers a parametric insurance program for the government of Puerto Rico. The program was designed by Aon’s reinsurance and commercial risk teams and in the event of a sizable earthquake or hurricane, Puerto Rico will quickly receive liquidity.
  • Aon Business Services remains a key drivers of margin improvement and requires investment in 3 areas – Standardized Platforms, Standardized Operations, and New Products at Scale to manage it as one organization.
    • Standardized Platforms – Aon is digitizing and connecting existing platforms and creating an ecosystem that encompasses technology and operations and brings data, analytics and expertise together.
    • Standardized Operations – Aon is focused on common processes.
    • New Products at Scale – Aon looks to deliver new data-driven products, which we can then effectively develop and scale.
  • Operating Aon Business Services as one entity will allow Aon to move more quickly on the AI opportunity, for instance. To quote Christa Davies, Aon’s  EVP and CFO, “We see real opportunity here to enhance colleague productivity by leveraging the services of our technology partners in a protected environment to enhance existing offerings like our human capital assistance by building an AI risk framework for our clients.”
  • Aon CEO Greg Chase mentioned that IP business is a “phenomenal opportunity,” sharing that Aon invested in hundreds of colleagues with a truly unique market-leading platform to really help understand this opportunity and these risks and the value of these assets. “And we built a marketplace with so many insurers 26 — 27, almost 30 insurers sort of in the marketplace, $2 billion in aggregate insured transaction value. And by the way, demand is stronger than ever. And we’re evolving in the market, and there are always so many different third parties out in the marketplace and different things that affect that. But we love the position. We love the progress we’ve made, and we feel stronger than ever about the future opportunity.”
  • More on AI:
    • Aon shared its excitement about AI and its application to the business.
    • Doing AI “really for a decade.”
    • Implementation of basic technologies like machine learning and robotic process automation for automation and efficiency.
    • Goal to improve colleagues’ work processes and make interactions with clients easier.
    • Use generative AI (“high end”) to drive insights and impact in analytical areas like risk capital and human capital.
    • GenAI requires thoughtful consideration of cost and scalability for choosing between basic technologies and generative AI – “we’re very thoughtful about the cost of this, and where it’s best to use basic technology, machine learning, robotic process automation, because it’s just cheaper and more efficient and more scalable broadly. And where we’re really trying to have insight and impact with clients and use generative AI. So we’re sort of scaling it depending on the impact and opportunity.”
  • Cash from operations remained flat year-over-year.
  • Free cash flow decreased by 7% to $986 million.
  • The decrease in free cash flow was mainly due to a $77 million increase in CapEx.
  • Increased CapEx was driven by various projects, especially in technology, aimed at long-term growth and evolving Aon Business Services.