EUR 850.00 For Business Accounts Only

Morningstar | Aon is focusing on its moatiest operations.

In recent years, Aon has demonstrated modest growth and improving margins, and we expect much of the same going forward. In our view, Aon is a fundamentally attractive business, with a variety of operations that share the commonality of sticky customer relationships, limited capital requirements, and flexible cost structures. While results in individual areas may be lumpy, they rarely move in lockstep, providing a fairly smooth overall top line.Coming into 2018, Aon will likely see a modest headwind turn into a tailwind. Because Aon generally takes a percentage of premium amounts as commission, it is exposed to the direction of the insurance pricing cycle. Reinsurance pricing has been very weak in recent years, and primary pricing had started to follow suit. However, the outsize level of catastrophe losses in the back half of 2017 provided a prompt to industry pricing. In our view, however, the insurance industry remains well-capitalized and competitive, which could put a bit of a lid on price increases. As a result, we expect pricing to be only a minor tailwind.From a strategic point of view, Aon has been active in reshaping its business, but also a bit of a follower, evolving over time to a diversified business model that resembles that of its closest peer, Marsh & McLennan. More recently, Marsh & McLennan has been tightening up its operations, and Aon has followed suit by announcing a sale of its benefits administration and human resources BPO operations. Even though this represents a substantial undoing of the Hewitt deal, we like the move strategically, as Aon’s moat is strongest on the brokerage side, and the operations sold represent the least attractive area of the company’s human resources side, characterized by limited growth opportunities and relatively low margins. We think management has a good track record when it comes to balancing expansion opportunities and maintaining the company’s competitive position, which gives us confidence. We also like that Aon is focusing on improving cost efficiency, with its current restructuring plan estimated to reduce costs by $450 million annually by 2019.