Aon Corp. more than doubled the size of its consulting operations with last year's $4.9 billion acquisition of human resources consultancy Hewitt Associates, although more than half of Aon's $8.5 billion in 2010 revenue came from its insurance brokerage. As Aon's CFO since 2008, Christa Davies steered the company through some of the choppiest markets in decades. Treasury & Risk recently asked Davies to talk about her priorities now.
T&R: The insurance brokerage industry is coming through a difficult period. How is Aon operating that business going forward and what is the outlook for 2011?
Davies: I'd start with how we finished Q4 2010, which was a very strong finish to what was a difficult year in 2010. We had 3% organic revenue growth in our risk solutions business, which was the strongest performance we've had in three years. And we do believe we are going to grow organically, both in the risk solutions segment and in the HR solutions segment, in 2011. We think both the risk and HR issues for clients are becoming more and more complex, and their appetite and demand for these services is even greater than ever before, so we see the growth prospects being quite substantial over time. And the capabilities we have across our retail brokerage business, our reinsurance business and Aon Hewitt are even stronger than before in being able to help clients solve difficult problems.
T&R: Are there particular risks that your clients are showing renewed interest in going forward?
Davies: There are a number of risks that are increasing in terms of prominence and interest from clients: political risk, environmental risk, sustainability, supply chain and global product management as firms become more global and offshore more often. Pandemic is a risk that we didn't have 10 years ago. So there are a number of risks that exist today that really didn't exist 10 years ago, and one of the ways in which we measure whether we are successful in helping a client is do we help improve earnings, do we help free up capital or do we help manage volatility on a client's balance sheet. If we can't demonstrate that we're doing one of those three things, then we're not clearly adding value in helping clients manage their risk.
T&R: Are there particular areas of the world that clients are more focused on or that you are focusing more on?
Davies: There are a number of areas of growth. Political risk is definitely an area of focus and we just launched our Political Risk Map for 2011, which is a terrific outline of the globe and where political risk is increasing and how clients can help navigate through that successfully.
T&R: How are you allocating capital with regards to Aon's cash flow and balance sheet?
Davies: It's a very big focus for us as we manage Aon going forward. We think about our business in terms of cash management and we value our business on a discounted cash-flow basis and therefore we've been taking a much more serious look at cash-flow management and forecasting accuracy, and we're really trying to optimize the capital to get the best return to shareholders. And one of the things we are doing is redeploying that capital in a share buyback. As you saw in the fourth quarter, we did $150 million in share buybacks and one of the reasons we're doing that is because we really believe our stock is significantly undervalued. We see huge upside potential for the firm, in both the risk and people segments and therefore redeploying that capital in share buybacks will generate a significant return to shareholders.
T&R: Where is the company now, following the acquisition of Hewitt last year, as Aon looks toward the future?
Davies: The acquisition closed on the first of October, so we are in the very early days, in the first couple of months post-close. But we're having terrific progress. We are seeing a very positive reaction from clients, which was really our primary focus. The team is very focused on delivering for clients. We've seen a number of new wins, both in the large-market space where Hewitt had a terrific presence and in growth in middle market. We're also seeing really good excitement with our colleagues. We've got the management teams in place across the businesses and our clients are really recognizing the breadth and depth of the products and services we provide. And then lastly, we are focused on delivering the $355 million of total [cost savings] by 2013, and we're well on track to deliver $242 million of total synergies by 2011. So we feel very good about the progress, although it's very early days.
In 2009, Davies talked to T&R about Aon's approach to political risk, in Doing Business in a Volatile World. And in 2008, she discussed Aon's standardization of its information reporting, in Cross-Border Data Patrol.