Aon responding to demand for balance sheet solutions to cope with virus

Aon withdrew its 2020 guidance on revenues and profits as it announced its first-quarter results on Friday, because of the uncertainty caused by the Covid-19 pandemic. The group is preparing for a likely reduction in revenues in coming quarters because of the global economic downturn caused by the virus. It assured investors that it is proactively managing its cost base to help weather the crisis, including the controversial imposition of a group-wide reduction in pay of 20% for most employees. But despite the need for such harsh crisis management measures, CEO Greg Case and his fellow board members do see positive signs as demand for protection among customers – both primary and reinsurance – rises and shifts towards more balance sheet and liquidity-style solutions. Mr Case told analysts during the Q1 results conference call that the planned deal with Willis Towers Watson, planned for completion in the first half of next year, now makes more sense than ever because the combined resources of the group will be able to deliver what customers really need and want in the new world. “One outcome of the current trauma is that we're seeing a heightened interest by clients and understanding where other areas of major potential risk might exist. Specifically, we've seen concerning areas like cyber, climate change and the health wealth gap, which may create future debilitating events,” explained Mr Case to analysts, as reported by web news service Seeking Alpha. Mr Case said that, up to now, these risks have only been addressed in a very limited way. He gave an example of one client who had said Covid-19 highlighted that when catastrophes happen, whether they be epidemics or natural catastrophes, it is now clear that a key aspect of successful recovery is access to liquidity and capital to match exposures immediately. “To create the cover and fulfil the required speedy resolution, our team designed an innovative parametric insurance solution to address earthquake exposure. The programme quickly provides our client with a liquidity infusion in the event of a quake and gives them broad discretion on how to use these funds. This product covers our client and the exposure to their employees who may require financial assistance, ensuring resilience and responsiveness in a future crisis,” explained Mr Case. “Driving faster innovation for clients is a key outcome of our strategy and one that we can accelerate through our planned combination with Willis Towers Watson. As our world becomes more complex, clients need the unique capabilities that this combination will create. Our two firms have been on similar paths, focused on bringing the best solutions from across their respective organisations to clients. As a combined firm we will be able to accelerate progress and become even more relevant to our clients, with faster innovation and better solutions,” he continued. “Ironically, if there's one thing about this current crisis, it really highlights the need for higher octane, higher capability, higher insight and, if you want that, you go to Aon Willis Towers Watson – that's really what we're talking about. So that's really been one of the observations our shareholders have made,” added Mr Case. Eric Andersen, recently appointed president of Aon, added further examples of innovation opportunities from the crisis in areas such as D&O, surety and other financial lines. “There's a couple [of examples] in particular, certainly in the D&O area, the work we're doing around distressed companies in particular has really created some opportunity for us and also trying to create liquidity using surety bonds, to place letters of credit in other areas along these lines,” he said. “Balance sheet protection and providing financial liquidity are just things that, honestly, today the clients are very interested in dealing with. But also I would say just our traditional business and how we're providing advice, and helping clients do structuring and understanding the different areas where perhaps they can take more risk themselves or perhaps combined programmes – things along those lines,” added Mr Andersen. Despite the need to withdraw the guidance because of uncertainty cause by the pandemic, Aon reported a solid set of first-quarter figures. Total revenue increased 2% to $3.2bn, including organic revenue growth of 5%. The group’s Commercial Risk Solutions business reported premiums up 3% to $1.146bn. The group said organic revenue growth of 4% was driven by growth across every major geography, highlighted by double-digit growth in Canada and Latin America. The broker said this was primarily driven by strong retention and management of the renewal book portfolio. “On average globally, exposures and pricing were both modestly positive, resulting in a modestly positive market impact overall,” stated Aon. The operating margin increased to 32.1%, while earnings per share increased to $3.29. Net income from continuing operations attributable to Aon shareholders was $773m, compared to $659m for the first quarter of 2019. For the first three months of 2020, cashflows from operations increased $264m to $338m and free cashflow increased $262m to $279m.

Aon responding to demand for balance sheet solutions to cope with virus

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