Aon plc (NYSE:AON) Q4 2023 Earnings Conference Call February 2, 2024 8:30 AM ET
Company Participants
Greg Case – CEO
Christa Davies – CFO
Eric Andersen – President
Conference Call Participants
Andrew Kligerman – TD Cowen
Jack Matten – BMO Capital Markets
Jimmy Bhullar – JPMorgan
Bob Huang – Morgan Stanley
Rob Cox – Goldman Sachs
Elyse Greenspan – Wells Fargo
Meyer Shields – KBW
Charlie Lederer – Citi
Operator
Good morning, and thank you for holding. Welcome to Aon plc’s Fourth Quarter 2023 Conference Call. At this time, all parties will be in listen-only mode until the question-and-answer portion of today’s call. I’d also like to remind all parties that this call is being recorded. If anyone has any objection, you may disconnect your line at this time.
It’s 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 1995. 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 fourth quarter and full year 2023 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.
Greg Case
Good morning, everyone. Welcome to our fourth quarter conference call. I’m joined by Christa Davies, our CFO; and Eric Andersen, our President. As in previous quarters, we posted a detailed financial presentation on our website.
We want to start with a very sincere thank you to our Aon colleagues around the world for all they’ve done in 2023 pivotal for our clients and support each other. As we reflect on 2023, we observed that the client demand driving our Aon United journey. Trends around increasing volatility and interconnected risk have accelerated.
Specifically, we see four broad areas of focus that increase the relevance of our core business and create opportunity to deliver more value to clients. These four megatrends revolve around trade and the consequence of sustained geopolitical uncertainty. Technology, particularly the rise of AI, weather reflecting the rate of natural catastrophes and workforce where the pandemic has fundamentally impacted talent. These profound transitions described in our Global Risk Management Survey and Human Capital Trends Report require clients to both deliver against today’s expectations and evolve to make better decisions on new risk and people challenges.
Against that backdrop, we’ve taken significant steps to accelerate our Aon United strategy in ways that drove performance in 2023 and set the stage to build momentum and deliver stronger performance in 2024. Most notably, we’re executing our three-by-three plan to leverage our risk capital and human capital structure and capability, embed the Aon Client leadership model across the firm and utilize Aon Business Services to set a new standard of innovation and client service.
We then doubled down on this plan by announcing a $900 million investment into our business to accelerate Aon Business Services as a catalyst for the three-by-three plan and the complete workforce strategy effort to reflect our simplified and more connected go-to-market strategy. We closed the year with strong operating momentum and also took action to build upon our ABS driven capability to deliver innovative and accretive new products into the middle-market by announcing our intent to acquire NFP.
NFP under the leadership of Doug Hammond and an exceptional team is the premier operating platform in the middle-market segment with tremendous client relationships and distribution. And together, we can bring stronger analytics and innovation to this space and not just capability but content that can serve the middle market like Aon Cyber Quotient Evaluation or CyQI, a proprietary platform that helps clients identify, measure and manage cyber risk. NFP’s operating platform will enable quick and efficient connections to Aon Business Services content driving meaningful growth in the middle market. And we’re incredibly excited about the top and bottom-line growth potential for NFP, given our complementary businesses and expected synergies and the value it will create.
For Aon overall and barely one month into 2024, we already feel the momentum from these actions that’s demonstrated through the client benefits of our integrated risk capital and human capital capabilities. On the risk capital side, our recent weather, climate, and catastrophe report highlights the growing frequency and severity of events around the world as clients look to manage volatility, enhance resilience and unlock opportunity.
To do this, organizations must have more actionable analytics, exactly the insight we bring with risk capital through the combined power of reinsurance, commercial risk analytics and expertise for our clients. We recently saw this in action at our Annual Property symposium with over 1,000 clients in insurance markets in the room where we demonstrated a new suite of advanced analytic tools that bring together content and capability across reinsurance and commercial risk.
One example is our property risk analyzer giving clients a better understanding of the risk profile in real time, which allows us to work more closely together to provide better insight into the risk mitigation options and enable them to make better decisions.
From the overwhelming feedback and engagement, it’s clear our clients are demanding better solutions and greater support. And because of the steps we’ve taken and progress we’ve made with Aon Business Services on products and platforms, we can develop and roll these tools out more quickly for our largest clients, and the clients of all sizes deliver efficiently at scale.
Equally compelling for Human Capital, our Human Capital trends report highlights the rising importance to clients, but having a unique and differentiated value proposition for employees. We see clients facing significant rising healthcare costs and lower overall population health at a time they need to provide broad health and well-being offerings is greater than ever. We also saw attracting and retaining top talent as the fourth ranked risk in our Global Risk Management Survey.
Our clients realize it’s more important than ever to have a compelling strategy across health, wealth and talent needs that’s delivered in an efficient way to maximize the benefit rewards offering. Together, this creates significant opportunity to work with clients to design and optimize their programs including core offerings to improve colleague health.
Our operations drive workers’ compensation costs, choosing optimal partners in their health model and supporting top talent is a strong employee value proposition, to ultimately maximize return on investment or their people spend. All these are examples of our three-by-three plan in action. It’s human capital and risk capital delivered through our Aon Client leadership model and enabled by our Aon Business Services. These three pillars reinforce and accelerate our Aon United strategy, which has driven financial performance and gives us great confidence in our outlook.
On financial performance, we delivered strong results in the quarter that contribute to full-year progress against our key financial metrics. Organic revenue growth of 7% in the quarter and 7% for the full-year was highlighted by full-year double-digit growth in reinsurance solutions and health solutions. And we’ve maintained strong overall growth throughout the year on top of 6% organic in the prior year.
In the fourth quarter, commercial risk grew 4% organically with strength in property, casualty and construction even against the headwind communicated in prior quarters of ongoing pressure from trends in the M&A and IPO markets. Wealth solutions, organic growth of 5% in Q4 reflects strong growth in retirement, which includes growth from ongoing pension risk transfer projects and work to help clients address changing regulatory requirements.
Reinsurance solutions organic growth was 14% contributing to full-year organic growth of 10% with our team closed the year strong, while also helping clients prepare for and execute an early one-one renewal. Health solutions delivered 11% organic growth, reflecting the strength around the world in the core, driven by net new business and retention, as well as strong growth in the U.S. consumer benefit solutions.
This performance gives us confidence in our ability to drive ongoing growth across the portfolio, fully reflecting the strength of Aon United. For the full-year, 7% organic growth and ongoing operational improvement contributed to 80 basis points of adjusted operating margin expansion and 10% adjusted operating income growth. These strong results demonstrate our progress and momentum, as well as the power of Aon United strategy and Aon Business Services platform.
This performance builds on our long-term track-record of results. Over the past 12 years, we’ve strengthened and accelerated organic revenue growth to mid-single digits or greater, delivered over 400 basis points of adjusted operating margin, expansion and growth in EPS and free-cash flow at 11% compounded annual rate ending 2023 with nearly $3.2 billion in free cash flow.
The steps we’ve taken to accelerate Aon United with our three-by-three plan reinforce and strengthen our long-term financial guidance for the firm including mid-single-digit or greater organic revenue growth in 2024 and over the long-term, adjusted operating margin expansion over the long-term and long-term double-digit free-cash flow growth.
As we’ve communicated initiatives like our restructuring program and expected acquisition of NFP impact this guidance in the near-term and over time, we believe these initiatives will contribute to significant ongoing shareholder value creation. More important we view the opportunity is higher over the next five years than at any time in our history. And in closing, we’re pleased to report another strong year of progress against our Aon United strategy, which we’re accelerating with our three-by-three plan, deliver risk capital and human capital at scale fully reinforced through Aon Business Services.
Looking back on a year, we delivered accelerating growth across three or four solution lines and built momentum across the firm. Including 7% full-year organic revenue growth, 80 basis points of adjusted operating margin expansion, 10% adjusted operating income growth and nearly $3.2 billion of free cash flow. Equally important, we took a series of major actions that position Aon for stronger performance in 2024 and over the coming years.
Now. I would like to turn the call over to Christa for her thoughts on our financial results and long term outlook. Christa?
Christa Davies
Thanks so much Greg, and good morning everyone.
As Greg highlighted, we delivered strong operating results in the fourth quarter to finish the year strong. In the quarter, we translated 7% organic revenue growth into 60 basis points of adjusted operating margin expansion and 10% adjusted operating income growth.
The full year 2023, we delivered 7% organic revenue growth, 80 basis points of margin expansion, 6% EPS growth and generated $3.2 billion of free cash flow. In the quarter, we announced out definitive agreement to acquire leading broker NFP, enabling us to unlock the fast-growing mid-markets with Aon Business Services enabled enhanced distribution and further accelerate our Aon United strategy.
The steps that we’ve taken around Aon Business Services now enables us to address this attractive market in a compelling way that delivers risk capital and human capital at scale to clients of all sizes. The expected acquisition of NFP builds on our long-term proven track record of strategically allocating capital at scale to high return opportunities to create long-term value for clients, colleagues and shareholders. And as Greg mentioned, we see the expected acquisition and our restructuring program, reinforcing our Aon United Strategy and our three-by-three plan. We are extremely well-positioned to build on this momentum as we head into 2024.
As I reflect on our results, as Greg noted, organic revenue growth was 7% in Q4 and for the full-year, highlighted by double-digit organic revenue growth in Reinsurance Solutions and Health Solutions. I would note that reported revenue growth of 8% in Q4 includes this favorable impact from changes in FX of 2%, and there is no net impact from changes in FX to full-year reported revenue.
I’d also highlight fiduciary investment income, which is not included in organic revenue growth, was $78 million in Q4 and $274 million for the full-year. If you were to include fiduciary investment income, organic revenue growth would have been 8% in both Q4 and the full-year. We continue to expect mid-single-digit or greater organic revenue growth for the full-year 2024 and over the long-term.
Moving to operating performance. We delivered strong operational improvement in Q4 with adjusted operating margins of 33.8%, an increase of 60 basis-points, driven by revenue growth, efficiencies from Aon Business Services, overcoming expense growth, including investment in colleagues and technology to drive long-term growth. For the full-year, adjusted operating margins of 31.6% reflect margin expansion of 80 basis points. As previously communicated, there was no impact on margin from restructuring savings.
Looking forward, we expect to deliver margin expansion in 2024 and over the long-term, as we continue our track-record of cost discipline and managing investments in long-term growth on ROIC basis. We expect restructuring savings will fall to the bottom-line and contribute to full-year adjusted operating margin expansion.
Restructuring actions completed in 2023 are expected to generate $70 million of run-rate savings in 2024. At this time, we continue to expect a $100 million of run-rate savings in 2024 as we continue to execute against our plans at Aon Business Services and our business.
As we’ve previously communicated, we conservatively modeled the expected acquisition of NFP to close mid-year 2025. While the combined adjusted operating margin will initially be lower than Aon standalone, we expect over time to continue to improve Aon’s overall margins through operational improvement and the impacts from previously communicated cost synergies.
Turning to EPS. Adjusted EPS was flat in Q4. Operating income grew 10%, but was offset by a headwind from a higher tax-rate in the quarter and non-operating expense. For the full-year, organic revenue growth and margin expansion translated into adjusted EPS growth of 6%, overcoming a headwind from non-operating expense.
I’d note, the change in other non-operating expense had a $0.15 per share or 4% unfavorable impact in Q4 and a $0.98 per share or 7% unfavorable impact for the full-year. This reflects an unfavorable impact from balance sheet FX remeasurement in the current period, an increase in non-cash net periodic pension expense, as well as a gain on sale of businesses in the prior year period.
Also, as noted in our earnings materials, FX translation had a favorable impact or approximately $0.03 per share in Q4 and an unfavorable impact of $0.17 per share for the full-year. If currency to remain stable at today’s rates, we would expect no material net translation impact results for the full-year 2024.
Additionally, in 2024 we expect non-cash pension expense NOI to be $43 million, spread evenly across quarters, compared to $71 million in 2023. And as we’ve previously communicated based on a mid-2025 close, the expected acquisition of NFP is expected to be dilutive in 2025, breakeven to adjusted 2026 EPS and accretive in 2027 and beyond. At this time, there are no further updates on the regulatory process or deal timeline for NFP.
Turning to free-cash flow, we generated $3.3 billion of free-cash flow in 2023. For the full-year, cash from operations increased $216 million Year-over-Year, or 7%, reflecting double-digit operating income growth and overall working capital optimization, partially offset by higher cash tax payments. I’d note, the negative impact to working capital, caused by temporary invoicing delays associated with the new system implementation, which we communicated last quarter persisted in Q4 and impacted our overall continued progress on working capital. Free-cash flow increased 5% as cash-flow from operations was offset in-part by a $56 million or 29% increase in CapEx.
CapEx was $252 million in 2023 as we executed technology projects to drive long-term growth. Going forward, we expect CapEx to grow in-line with the business managed on a disciplined ROIC basis. Looking forward, free-cash flow will be impacted in the near-term by restructuring, higher interest expense and the expected NFP deal and integration costs.
We expect to return to our trajectory of double-digit free-cash flow growth over the long-term, driven by operating income growth and a $500 million opportunity in working capital. As we contemplate the expected acquisition of NFP, the transaction strengthens our long-term free-cash flow outlook. We expect the transaction to add over $300 million of free-cash flow in 2026 and $600 million of free-cash flow in 2027.
Now let me provide an update on our accelerating Aon United program which is enabling Aon Business Services and our three-by-three plan. As Greg highlighted, three-by-three plan is accelerating our Aon United strategy. We see particular opportunity around Aon Business Services as the catalyst.
We are investing to standardized platforms and operations, drive data analytic-based product innovation and deliver at scale to create better tools, better experiences and greater relevance to clients and colleagues. In the fourth quarter, we incurred a $129 million of restructuring-related charges with a cash outflow of $13 million. We’re pleased with the progress we made in the quarter and we’ve incurred 12% of total expected cash restructuring charges.
The actions we’ve taken in 2023 are expected to generate $70 million of run-rate savings in 2024, contributing to the $100 million of cumulative savings we expect for full-year 2024. As mentioned, program savings were not material in 2023. As we’ve said previously, we look at the opportunity in Aon Business Services and across our client-facing capabilities. We now are delivering our strategy will result in long-term progress against our key financial metrics and will drive more value for clients, colleagues and shareholders.
Turning now to capital allocation. We allocate capital based on return on capital and long-term value creation. I’d note, over time, we’ve driven value creation through core business results, share buyback and acquisitions. As you look historically, we have a successful track record of balancing acquisitions and dispositions of all sizes and share buyback. Given our strong outlook for free-cash flow over the long-term, we expect share repurchases to continue to remain our highest-return on capital opportunity for meaningful ongoing capital allocation. We believe we are significantly undervalued in the market today, highlighted by the $2.7 billion of share repurchase in 2023.
We expect to continue to invest organically in content and capabilities we can scale across the firm and we’ll continue to assess priority as inorganic investments noting our M&A pipeline continues to be focused on our global priority areas that will bring scalable solutions to our clients growing and evolving challenges. We will continue to assess all capital allocation decisions on an ROIC basis. Noting we ended 2023 with an ROIC of 33.1%, an increase of nearly 2,100 basis-points over the last 12 years, reflecting our track record of balancing growth and returns to create long-term value.
I’d note ROIC will initially be negatively impacted after the expected acquisition of NFP. We expect it to improve over time as we execute our Aon United strategy to drive long-term value creation. Our expected acquisition of NFP is consistent with our proven capital allocation framework. It enables us to put capital to work at-scale and strengthen our free-cash flow profile in the long-term, which will continue to allocate to drive shareholder value creation.
Between now and the expected close of the deal, we expect discretionary capital allocation will continue to be much more weighted towards share buyback, given the commitments we’ve made around NFP. Following the expected close of NFP, free-cash flow will be impacted in the near-term by deal and integration costs and higher interest expense, transaction-related debt, and as we take steps to delever our balance sheet and return metrics to levels consistent with our current credit ratings profile.
Turning now to our balance sheet and debt capacity. We remain confident in the strength of our balance sheet and manage liquidity risk through a well-laddered debt maturity profile. We remain committed to maintaining our current investment grade credit ratings. We expect to continue adding debt supported by EBITDA growth until we complete the expected acquisition of NFP and expect to maintain our current ratings.
As we’ve previously communicated, we expect to fund the cash portion of the purchase with approximately $7 billion of new debt with $2 billion borrowed at close and $5 billion raised in 2024 across a range of maturities, subject to market conditions. Following the transaction related debt issuance in 2024, we expect to incur approximately $12.5 million of negative interest carry expense per quarter until deal close.
As we previously communicated, the financing and capital management plan contemplated in this transaction is consistent with maintaining our current investment grade credit profile. We expect our credit ratios to be elevated over the 12 to 18 months post close. And we expect to bring our leverage ratios back in line with levels consistent with our credit profile, driven by substantial free cash flow generation and incremental debt capacity from EBITDA growth noting our track-record of effectively managing leverage within current ratings.
In summary, in 2023, we delivered strong operational performance contributing to continued progress against our Aon United strategy. Our strong financial results and disciplined capital management enables us to return to $3.2 billion to shareholders through share repurchases and dividends.
The steps we’ve taken around our three-by-three plan are accelerating our Aon United strategy catalyzed by Aon Business Services and reinforced by the restructuring program and our expected acquisition of NFP. We remain incredibly excited about the opportunity to continue to drive top and bottom-line results to drive value for clients, colleagues and shareholders and look forward to building on this momentum in 2024 .
With that, I’ll turn the call-back over to the operator and we’d be delighted to take your questions.
Question-and-Answer Session
Operator
[Operator Instructions] Thank you. And our first question today will be coming from the line of Andrew Kligerman with TD Cowen. Please proceed with your question.
Andrew Kligerman
Hi, thank you. Thank you and good morning. Kind of interested in the robust growth in both the reinsurance business, and the health solutions business, and the sustainability there. On reinsurance with 14% organic growth, was it largely driven by the capital markets and advisory? And how sustainable do you think that could be? And then on the consumer benefits solutions inside of health, what actually drove the consumer benefits solution strength?
Greg Case
Well, Andrew, let start and Eric will chime in here as well. I’ll start overall, we’re really pleased with how we closed the year on the growth story overall and to think about the 7% across the firm. Really strong momentum as we build into 2024. But you’re right, reinsurance and health, absolutely phenomenal. Teams were absolutely terrific. And I would highlight the quarter, but also highlight the year.
When you think about reinsurance across the year at 10% and health solutions at 10% double-digit, it really is a story amplified by Q4, but really across the year. And it’s been highly consistent when you think about the description around the 3×3 plan and risk capital and human capital.
Both of these approaches contributed to growth sort of in the context of health and reinsurance and give us great momentum as we go into 2024. But maybe Eric, a little texture on both pieces for the year and the quarter.
Eric Andersen
Sure, Greg. It’s a great question. And just to reaffirm, just a fantastic team operating really on fire. I would say on Q4, to go to your question, there was record cat bond issuance for the quarter, but we also had very strong growth in Treaty and Fac. So across the board, good. And I would say that the trends that we have been seeing over the last couple of years, I think have an opportunity to continue.
Certainly, whether it’s climate change, whether it’s casualty uptick in terms of lost costs, whether it’s opportunities from a profitability standpoint that, our insurers are dealing with from their own books of business. The need for data analytics, the need for capital support as a position, their primary businesses are all still there.
And it’s a global answer. So, we’re seeing it in Europe and Asia Pacific, as well as strength in North America and the U.K. So, we’re really optimistic about the business, and feel like it’s really well positioned.
Greg Case
And then maybe on the health side, just a comment on the health side?
Eric Andersen
Listen, we having same thing, right? We had great wins in the core health and benefit business. And as you mentioned, the consumer business across the globe, whether led by EMEA, U.K., U.S., and it really was new logos for us on core health and benefits.
I think on the consumer side, the ability to offer unique products, to the consumer part of our corporate clients, is really a strength of the firm and those products evolve. And I think they’re meeting the needs of the individual consumer. And we also see that as an opportunity to continue to grow.
Andrew Kligerman
Excellent. And then just lastly, on M&A, I guess, in the slides, you talked about potentially growing organically and inorganically there. Do you think M&As are a real possibility in the next year or two, as you kind of await a conclusion on the NFP acquisition? And if you are interested in M&As what would be some of those targeted businesses where you’d like to be?
Greg Case
So let me just start overall, as Christa described, we continue to look as we think about deployment of capital, obviously buyback, it’s top of the list given how undervalued we are. But we’re looking across the board, even as we think about sort of the closure on the NFP front. And again, return on investment capital-based, content-based in every way, but we see opportunities around the world. And our pipeline continues to be very strong. But what else could you add from a capital allocation standpoint?
Christa Davies
I mean, reinforcing exactly what you said, Greg, we allocate capital-based return on capital. We definitely, based on the free cash flow outlook in 2024 in the long-term, see we are significantly undervalued. And we will disproportionately allocate that free cash flow, to buyback in 2024. But we do have a great M&A pipeline, Andrew, to your question, in areas like data analytics.
If you think about the acquisition of Tyche, a fantastic acquisition of the data analytics space in areas like health, as Eric highlighted. And so, there are a number of areas that are front and center for clients in terms of meeting their emerging challenges.
Andrew Kligerman
And if you see the right opportunity, you wouldn’t hesitate to go after it, correct?
Christa Davies
And Andrew, the thing I would say is, it’s all about return on capital. And so, given how undervalued we are, buyback is the top of the list. And for us to invest in M&A, it’s got to be buyback. And so, we’ll continue to look at everything and there’s certainly some terrific opportunities out there, but we’ll continue to be very, disciplined on return on capital.
Andrew Kligerman
Very helpful. Thank you.
Operator
Thank you. Our next question is from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your questions.
Jack Matten
Hi, good morning. This is Jack on for Mike. A question on organic growth. In your footnotes, it says that organic growth benefited by 1% from a held-for-sale business and, which segment did that impact and will that have a similar impact until the business is sold?
Christa Davies
So, thanks so much for the question, Jack. We do continue to manage the portfolio actively. These are businesses that we are divesting. And so, we think about this is just a better representation of our revenue, and business going forward. It is in commercial risk and we communicated the 1% impact in Q4, and for the full-year.
Jack Matten
Got it. Thank you. And then second question, you call-out again this quarter decline in global M&A activity, as being a source of organic growth deceleration from prior periods. Would you be able to offer any color on what percentage of Aon revenues touched M&A spend, is it a big enough driver, it impacts continue negatively impacting growth given that M&A volumes are still falling by double-digit levels?
Greg Case
So Michael, let me step back, it’s been a continuation of what we’ve talked about throughout the overall year. In terms of sort of where we are. And we would observe by the way, we help serve, we think about Q4, 2023 versus Q4, 2022 state on four and four. So it’s sort of same year-over-year, even against this headwind. And we haven’t disclosed sort of the detail on sort of the impact, but it’s substantial.
We’ve got an amazing group of colleagues, who serve this marketplace and as Eric had mentioned before on prior calls. We have doubled down and this capability. We fully anticipate this is going to come back in absolute full force. The amount of dry powder out there as you know well is extensive. We remind you it shows up in our organic, when the deal is complete.
And we see lots of – we see lots of things in the pipeline as it sort of things are coming to pass. And we fully expect over the course of 2024 to see a return. But this is meaningful for us and we’ve been able to work at very, very strongly and maintain growth across-the-board even at the face of the segment. But Eric, what else would you add to that.
Eric Andersen
Greg, I think you described it perfectly, just maybe one little bit of color. This week, for example, we held a conference where we had 400 members of the private-equity community, the corporate M&A, Corp Dev teams, the insurance markets, the reps and warranties, tax indemnity, and we essentially were going through the marketplace. Just from a growth standpoint, but also from a product innovation standpoint, recognizing that as the deals return and they will.
We want to make sure we’re well situated with the clients with the markets, making sure the products are fit-for-purpose, and are evolving to meet the needs, not just here in the US, but in Europe and other places. Where, when it returns we have made that commitment, we want to hold the team so that, we’re ready and front and center when the deals start to happen.
Jack Matten
Thank you.
Operator
Our next question is from the line of Jimmy Bhullar with JPMorgan. Please proceed with your questions.
Jimmy Bhullar
Hi, good morning. So first, just following-up on the whole M&A discussion. It seems like capital markets activity, is beginning to pick-up and the investment banks are seeing that across-the-board. So, wondering if you’re seeing any signs of that in your business as well, or is it more your hope that things will pick-up in 2024, but you haven’t seen any of it?
Greg Case
Jimmy, we’re seeing exactly the same thing you’re seeing and you’re hearing about. You can imagine, this is a market where highly connected to, with clients and with all the banks, and everyone else involved in the process. And I would say there’s high expectations everywhere, you’d only listened to the Investment Bank our quarterly calls, to sort of understand that. And so, we certainly see lots of potential.
And as Eric described, the amount of capital on the sidelines ready to return is high and we’re incredibly well-positioned to do that. But I would say, as I mentioned before, it shows up in organic for us as the deals were completed. And so, as you see that move, you can expect it’s going to be fully reflected in our performance.
Jimmy Bhullar
Okay. And then on commercial brokerage, the organic growth of 4%, I think you mentioned double-digit growth in Asia-Pacific, which is obviously good, but it also suggests that the U.S. is very weak and maybe close to flat. Which seems a little odd given GDP growth, pricing and also just strength that, other brokers have reported. So what’s really going on in the U.S. that’s, pressuring the growth to being flat, despite some of the tailwinds in the economy overall?
Greg Case
Yes. I would start overall, your overall assertion continue where you’re getting to, but really doesn’t reflect what’s going on in reality. Obviously the business is a very, very different sizes. So, one doesn’t really offset the other in any way, shape or form. We would come back to the overall commercial risk story, is exactly what we described before, which is, listen, we are exactly where we were in Q4 of last year with an emerging headwind and became a substantial headwind.
We overcame that and a lot of this is not just commercial risk, but the connection of commercial risk reinsurance, and risk capital. And we closed the year, we’d observed some others in the market seem to be retreating. We’re not retreating at all, 12% versus 12% of last year and we’re going into ’24, with a lot of momentum. So, we’re very excited about the overall prospects, as we move into 2024. And maybe Eric talk a little bit about the risk capital implications of all this is coming together, and the potential around it?
Eric Andersen
Yes, sure Greg. I think certainly strong retention, strong new business, both in North America and around the world and the commercial risk business is important. But maybe I’ll use it as an opportunity to show the connectivity between sort of the risk capital framework. And maybe I’ll talk about the cat bonds that, I know you wanted to get some airtime on.
We did the first-ever cyber cat bond in the quarter, which was a great opportunity for the – for our team working with one of our insurance company clients, to take the systemic cyber risks and get it into the capital markets, which does two things. It actually allows the insurer to open up the amount of limit they provide the clients, which was something that our clients were looking for.
And it also appropriately values in places that type of systemic risk into the right capital source. But the point of it is, we were then able to take that ILS structure, using the data and analytics that we did to build it, and used it to do an ILS structure for one of the largest corporates in Europe who was looking for traditional sort of cyber program, but wasn’t able to get the limit they wanted.
So, taking something that we did for an insurer, using the data and analytics and structuring, bringing it to a large corporate and maybe finishing it, because Greg I know you mentioned NFP in your opening comments just to tie it through, able to take the same data and analytics that we use to build the cat bond and the corporate structure to actually power the side [ph] cue product that is built for the middle-market, which then attaches a risk transfer product to it.
So, again using data and analytics on one topic, just cyber actually to drive growth in reinsurance in commercial risk and ultimately in the middle-market, part of the commercial risk segment. So, that’s what’s driving the retention. That’s what’s driving the strong new business, and I think those opportunities exist for us across multiple areas.
Operator
Thank you. The next question is from the line of Bob Huang with Morgan Stanley. Please proceed with your questions.
Bob Huang
Hi, good morning. First question is about the Vesttoo legal settlement. Can you talk about how much of the $197 million is likely to be the full extent of the impact? In other words in the press release, you obviously mentioned there is the potential of some of that been sent back to you. What’s the progress of that? Can you maybe give a little bit more detail of how confident you are that, some of the $197 million will be paid back to Aon?
Greg Case
Listen – I would just open by saying that we strategically wanted to draw a line under this issue for our market partners and for ourselves. So that we were able to move forward together as partners. And so, the effort was made to come to an agreement with each of the affected parties, sorry. So that we could then continue to both one trade forward.
But then also begin to work on recoveries together. And so, we see an opportunity for recoveries that will happen over-time, as the bankruptcy process runs its way through. And we’re confident that we’ll be able to recover meaningful amount.
Bob Huang
Okay. Thank you. Second question is on cash flow. I understand that you kind of mentioned this a little bit. Is that – on your slides, you remove the double-digit growth for the near-term, but reiterate at a long-term guidance for free cash flow. I’m assuming that it’s fair to say that is mainly due to the NFP acquisition over the next two years. Is that safe to assume that like is that the reason and can you maybe give a little bit more context in terms of, how you’re thinking about free cash flow guidance going-forward?
Christa Davies
Yes, thanks so much for the question. So firstly, I’d reiterate your point, which is we are incredibly confident in the long-term free cash flow growth of double-digits. I’m extremely excited about how NFP accelerates the long-term free cash flow growth of Aon, adding $300 million in free cash flow in 2026 and $600 million free cash flow in 2027. And look, as we think about free cash flow in 2024, we haven’t given specific guidance.
But here’s how I think about it. We expect to grow free cash flow driven by operating income growth and improvements in working capital. We do expect ongoing cash tax headwinds. We’ve communicated the restructuring program, but we haven’t given specific guidance around the timing of the cash impact, and we’ve talked about the impacts of NFP. We don’t expect to incur material costs before close.
And we’ve said, we would expect to incur $12.5 million of negative interest carry expenses per quarter until deal close following the transaction-related debt issuance. We said CapEx will grow in-line with the business from $252 million in 2023. We’ve communicated legal settlements and as Eric just said, expect those to flow through over the next several years known – there will be meaningful recoveries.
Ultimately, we expect to deliver underlying free cash flow growth. And we’re targeting double-digits as we move past the negative impact of restructuring and NFP, very excited about the long-term double-digit free cash flow trajectory of Aon. Lastly in 2024, we do expect a disproportionate, majority of the free cash flow to be allocated to buyback given we’re operating on a return on capital basis, and we are substantially undervalued today.
Bob Huang
Really appreciate the color. Thank you for reiterating that. Thank you.
Operator
Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your questions.
Rob Cox
Hi, thanks for taking my question. Maybe just first question on, one of the higher growth areas of insurance, and thinking about the higher growth areas, one of those is currently the E&S space. And I was just curious on how Aon thinks internally about the feasibility of owning a wholesale broker, and is there any reason, to think that could potentially be a good fit?
Eric Andersen
Maybe I’ll take a stab at that one. Thanks for the question. Listen, there’s been explosive growth in the wholesale market over the last or the E&S market over the last five to seven years. They are on the magnitude of tenfold, there’s a lot that’s driving and, whether it’s the lawsuit. But you see in the property market, whether it’s regulatory pressure on pricing and forms and there’s a lot to it.
We have consolidated our wholesale relationships. So that we’re actually working in partnership to get access, to those to that capital when we needed for our clients. Some of our competitors do own wholesalers and that’s the way they chose, to enter into the marketplace. So it’s something we always looked at, but we like where we are today. And we like the.
We like the relationships that we have with our major partner [ph] as we need. That marketplace tends to flex up and down with different market cycles. And so, I would say right now, it is based on the challenging market conditions, especially in the property area. It’s significant, a significant growth, but it will ebb and flow overtime.
Rob Cox
Got it. Appreciate that. And maybe just a follow-up on pricing. I think some of the other brokers have talked about expectations for fairly stable P&C pricing in 2024. I’m curious if Aon shares that view, if there is any other color you’d want to add-on the pricing trajectory?
Eric Andersen
So I think a number of people have commented on it during this earning season. I would say that we’re probably heading towards a market where it’s more of a series of markets where you see price competitive – price competitiveness in certain areas, where new capital has drawn in D&O for example, would be one that’s been called out. You also see challenges still in certain parts of property and people are a little worried about casualty as social inflation from nuclear verdicts have kind of hit the wires.
And they’re worried about prior year reserves. So, I think rather than just a rising market for all what we’re going to see over ’24 and ’25, it’s going to be very product specific and very risk specific, which is something that I think plays well to us, because it allows to use our teams in our analytics, to able to help them think through, how they either want to trade, or manage the risks. And so, but I think that’s where we see the market going in ’24 and ’25.
Greg Case
I maybe just add Rob as well, if you think about impact as it relates to our overall performance bringing it back to Aon. We’ve talked about mid-single-digit or greater. We don’t see anything changing that view. Again, pricing is one aspect, we talked about market impact which includes insured values in a number of other pieces that, fit into the equation.
Our ability to work with clients in any type of marketplace than our advantage in doing so. And so, our view is, market will be, what it will be a series of markets as Eric just described. But our ability to deliver mid-single-digit or greater. We feel like, we’re going into ’24 with a lot of momentum behind.
Rob Cox
Appreciate that thanks.
Operator
Our next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions.
Elyse Greenspan
Hi, thanks, good morning. I wanted to come back to commercial risk. You guys said. I guess there was a 1% impact of business that you put out in dispositions in the quarter overall, right. So that would imply if it impacted commercial risk that, was 2% of the segment, which would bring your organic 2% before that adjustment. And I know you’ve highlighted the M&A and the SPAC [ph] and the IPO slowdown. And I think Greg in response to one of your question. You pointed that the U.S. probably would not have been flat, right, that there’s if we couldn’t really back into that. But what is actually impacting commercial risk away from the M&A and SPAC business that aside from this disposition, the growth would have been 2%?
Greg Case
Christa, you might be on mute.
Christa Davies
Oh sorry. So, Elyse one of the things I wanted to clarify, was on the held-to-sale item, it is across a couple of solution lines and we didn’t disclose the specifics. But we are divesting this business. And so, we think it’s a much better presentation of our organic revenue growth, and the go forward business.
And then as we continue to describe, the major impact on commercial risk is the M&A and IPO environment. And that has remained depressed and Eric and Greg have outlined how they see that recovering in 2024, but Eric, would you like to add anything here?
Eric Andersen
Christa, the only thing I would add, I mentioned it before, is stronger business growth, strong retention, and rollover for our clients in North America and around the world. So, the underpinnings of the business continue to be very strong.
Elyse Greenspan
Okay. That’s helpful. And then as we – one question. I had on reinsurance, right. Obviously to lower volume quarter. And we went through kind of what drove the growth in the fourth quarter. As we think about the Q1 and ’24, right. We’ve heard about the renewals, it January 1 being good, but right obviously, price increases came down, because they were so strong last year. How do we think about reinsurance organic growth in a still strong, but decelerating price increase environment?
Eric Andersen
Maybe I’ll take that one, Greg. Listen, I think there was certainly adequate capital to get the client needs done for the one-one renewals then that’s predominantly Europe and parts of North America, recognizing the Florida and Asia-Pacific tend to be April and June of the year. I would also say, part of the risk capital strategy is how do, we actually deploy reinsurance capability into either commercial risk or new sectors.
And so, I’ll just to give you an example. It’s kind of early days, but I spent some time in Dubai at the COP conference, and we spent a lot of time working with various government entities, around how you bring reinsurance structure and capability, to help mitigate the effects of climate – changing climate. And so, that is core reinsurance data analytics structurally and global access to capital, to a whole new sector of potential clients.
And so, I do think it’s certainly the main of the business continues to be serving insurance companies. But there is opportunity outside of that space, to drive new growth for us in what you would consider core reinsurance capability. So that Elyse and you think about FAC, you think about investment banking ILS markets and being able to use that capital for corporates.
And so, it’s a very creative group that is well-coordinated with our commercial risk clients in the risk capital framework. And so, we do see opportunities for continued growth in that space over the coming period.
Greg Case
I would add Elyse though, the momentum of this team in the core space, reinsurance, more broadly across risk capital, has been tremendous. And obviously, the quarter-by-quarter view is helpful. But we look at the annual view. If you think about kind of 10% for the year. That’s what’s really unique not saying where we’re going to be next year. Other than mid-single-digit, or greater across the solution lines, which is what we – which we aspire to.
And so, I think you can take away you’ve just heard on commercial risk momentum into 2024 and clearly as you look at reinsurance momentum into 2024, for all the reasons that Eric described in the core solution lines, but also in risk capital, don’t lose this, this risk capital orientation is a big deal. It is meaningful in terms of sort of what we’re doing the same on the human capital side.
The connectivity across reinsurance or commercial risk creates better solutions, Eric described a couple of them already. And so for us, we feel good about the momentum going into 2004 based on the work we did the groundwork we laid in ’23, on risk capital and human capital.
Elyse Greenspan
Thanks. And then one more the savings. I know, Christa, you reaffirmed on the $100 million for ’24, it doesn’t sound like there were any that came through in the fourth quarter. So. I guess we’ll start seeing the savings flow through in the first-quarter, is that correct?
Christa Davies
That’s correct. Elyse.
Elyse Greenspan
Thank you.
Operator
Our next question is from the line of Meyer Shields with KBW. Please proceed with your question.
Meyer Shields
Thanks. So, Greg. And because we’ve been very consistent about the impact of a slow M&A and IPO market on organic growth. Wanted to take a step back and say. How do you think about the fact that organic growth, is so dependent on one segment of the marketplace that you ended-up with this differentiated results relative to peers. Is that a concern?
Greg Case
Well, if you step back, Meyer. You can step-back and say, look at the overall performance of the firm year-over-year in essence we are up to the year 6%, last year, 7% this year across the firm. We think about commercial risk. Again, we are 4% in Q4 last year was 4% in Q4 this year, even against a substantial headwind we described. And what we want you to understand in the context of that, is imagine all the things sort of behind that created that momentum in Q4 and our 2024 in the commercial risk space.
We’ve overcome that and maintain where we were last year. So, we’re very optimistic about the momentum in 2024. This category is substantial in M&A and we love it, and we are disproportionately good at it. We are unbelievably good at it from a client leadership standpoint. And so, we don’t feel bad about that in the least. We love it, and we’re going to double down on it. But we also continue to build-out other platforms.
This year given us the opportunity to really think that through and really leverage the risk capital orientation. I would highlight I mentioned in my comments, the Property Symposium. We got a 1,000 clients and markets in the room and we bring up the property risk analyzer. And this is really a function of reinsurance, and commercial risk analytics and the power of that in the minds of a client were substantial.
And so, now we’ve got a suite of capabilities that are going to contribute to the commercial risk and the reinsurance, as we head into 2024. So from our standpoint, what you really like you to take away and certainly our feeling and commitment is mid-single-digit or greater, the translation into OI margin improvement and as Christa described the translation into double-digit free cash flow growth.
We have – never had more conviction about each of those three categories and on our delivery knows and will continue to deliver those. And the addition of NFP is only going to strengthen our free cash flow profile over time. So for us, we’re always going to be cautious in our approach, but resolute and we feel very good about the momentum going into 2024.
Meyer Shields
Okay. That’s very helpful. Thank you. Second question, when we look at the strong organic growth in reinsurance. Looking at the breakdown. I think you talked about pretty facultative and investment banking. Is that component of revenues positive, or negative to overall margin?
Christa Davies
So reinsurance is a similar margin business to all of our businesses, which is why we operate Aon as one segment Meyer. And one of the things we would say, part of our Aon United strategy is, we are bringing together a lot of the back-office technology, operations and shared service functions into Aon Business Services, which is enabling our focus on common and shared operations, technology platforms at scale, and then product innovation at-scale. And so, we’re really operating more-and-more the firm in one segment with risk capital, human capital, enterprise client and Aon Business Services.
Greg Case
And Meyer, this is Greg, this is really a great question and really work point of high emphasis. This connectivity that Christa is describing risk capital, human capital connected through, enterprise client, delivered an amplified by Aon Business Services, a big deal. Our ability to continue to drive margin improvement as we did this year with lots of investments into the business is high.
And the exciting piece is connectivity on Aon Business Services, 15,000 colleagues working this interconnected into the business, is not just continued margin improvement, which you saw, but also the capability to really create outcomes that really drive clients innovation options that they didn’t have before as well as service enhancements, they didn’t have before.
And so, these pieces all come together to sort create this integrated view, which really give us great confidence around not only top-line growth, but also margin improvement and the implications on free cash flow.
Meyer Shields
Okay, fantastic. Thank you so much.
Operator
Our next question is from the line of Charlie Lederer with Citi. Please proceed with your questions.
Charlie Lederer
Hi, thanks. Good morning. I guess, first question, as we’ve seen some reserving issues in casualty and financial lines across the industry. Wondering if this were to become a more widespread issue for the industry. Could that impact Aon’s profit commissions and that material enough that it would impact your margins are organic growth near-term?
Greg Case
So I’ll say, we don’t do the profit commission. So that’s not true for us. And so that’s not in our portfolio. But I would say in terms of what’s happening in that marketplace, I do think it does reflect some pressure that the insurers are seeing, especially on the casualty side. I would say on the financial line side, it’s probably more a question of just supply and demand where a lot of new capital into the market as company. [technical difficulty] yes you just seeing price competition versus any prior loss problems. But I think the casualty piece with medical inflation they call it social inflation, is affecting their prior reserves. So, but it will not have an impact on us from that perspective.
Charlie Lederer
Got it, thanks. And then on the commercial risk segments. Just wondering it as deal volumes come back eventually, does that carry a higher margin where that would help your margins, as that becomes a larger proportion of the mix again?
Greg Case
Again. I would just reinforce the point Charlie around sort of as Christa described overall margin, our ability to sort of drive margin across the firm. We’ve got a very long track-record of being able to do that over the last decade plus. And we have enhanced our ability to do that with Aon Business Services. And so, we are excited about adding growth as it also helps us deliver on margin.
You don’t see us really make that trade-off. We really do both. And in the profile is ahead of us to do exactly that. And we would absolutely see as our 3×3 plan fits together, but M&A is going to be and IPO is going to be a fundamental part of that, and we’re excited to have that growth come back.
Charlie Lederer
Got it, thank you guys.
Operator
Thank you. Our last question comes from the line of Jimmy Bhullar with JPMorgan. Please proceed with your question.
Jimmy Bhullar
Great, thanks. I just wanted to follow-up on your comments around the expected timing of the close of the NFP deal. Is mid-2025, what do you realistically think the deal will close, or is it just more given the uncertainty, you don’t want to over promise. Because it seems like it’s a long-lead time for a deal that really, in my view, doesn’t entail a lot of antitrust or other issues, given the market focus of NFP, but…?
Christa Davies
Thanks so much for the question. And we agree, we operate in very different segments, with very limited overlap and we fully expect to close in mid ’24, we have modeled the deal very conservatively with a mid ’25 close. And that is off being conservative financially.
Jimmy Bhullar
Okay. But in terms of – and then in terms of sort of processes are there areas there is some overlap, but we can see from the outside. Or do you not think there is going to be anything related, to potential dispositions in order to get the deal approved?
Christa Davies
So, Aon and NFP operate in highly competitive markets. And most importantly, the purpose of this transaction is to grow Aon’s presence in the fast growing middle-market segment. And so, we do not see overlap and we again expect the deals closed mid ’24.
Jimmy Bhullar
Okay. Thank you.
Operator
Thank you. I’d now like to turn the call back over to Greg Case for closing remarks.
Greg Case
Thanks very much. I would like to add a couple of thoughts as we close today, just picking up Eric and Christa, on some of the comments that have been made throughout the call, which has been very, very helpful. Just reiterate a couple of things. First reflect on the track-record we’ve had delivering on the strategic initiatives and external commitments and think about it included in a number of significant acquisitions and divestitures.
And a history of successfully executing around the restructuring programs, and that brings us to where we are today, which you can tell from our enthusiasm we’re very excited about. You think about the 3×3 plan each component of our strategy and the execution plan here, are fully aligned totally connected.
If you think about Eric described today risk capital and human capital and the capability that comes together with that, the client response of this has been exceptional. As we continue to build that it’s now connected completely, through our ability to deliver that into the field, enterprise clients and Aon client leadership model fully connected. And this amplification on Aon Business Services came up a few times today.
We’d encourage you to really dig in and understand the power of what this really means 15,000 colleagues in this group well beyond the efficiency that Christa described, which you saw in ’23 OI margin of 31.6%. It’s really the ability to deliver better content in a better service experience that, combination really is extremely it’s exciting for us in terms of what it means for Aon, and for our clients.
And as Eric described it really you think about sort of NFP, the opportunity in NFP is there, because of their great capability and awesome operating platform and our Aon Business Services capability. And again we bring all that together with the $900 million investment to accelerate that do that over three years across the 3×3 plan with what do we are taking more time.
So, I just want to highlight as the questions come together, we really connected in our mind and really put us in a unique position, to execute against our overall plan and deliver great momentum in ’24, ’25 and ’26. So just want to end with a summary, and say thanks to everyone for being part of the call today. And look forward to our discussion next time.
Operator
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.
