AON Q4 2021 Earnings Call Transcript

Participants

Corporate Executives

• Greg Case, Chief Executive Officer
• Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance
• Eric Andersen, President

Analysts

• Elyse Greenspan, Wells Fargo & Company
• Charlie Lederer, Wolfe Research
• Paul Newsome, Piper Sandler Companies
• Yaron Kinar, Jefferies Financial Group Inc.
• Jimmy Bhullar, JPMorgan Chase & Co.
• Adam Klauber, William Blair

Presentation

[Operator]

Good morning, and thank you for holding. Welcome to Aon Plc's Fourth Quarter and Full-Year 2021 Conference Call. [Operator Instructions]

It is 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 2021 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. You may begin.

[Greg Case, Chief Executive Officer at AON]

Thank you and 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 for your reference, we posted a detailed financial presentation on our website.

Our strong performance in 2021 is the direct result of deliberate steps we've taken that are enabling us to win more, do more and retain more with clients. We're driving top and bottom line results and are exceptionally well positioned to continue to deliver ongoing performance in 2022, and over the long-term. Most important, we want to express deep gratitude to our Aon colleagues around the world for their performance and results this year and for everything they've done for clients and for each other.

Our colleagues delivered a fantastic Q4 and a very strong finish to an outstanding year. We achieved organic revenue growth of 10% in the fourth quarter with double-digit growth in commercial risk and reinsurance, driven by net new business generation and client retention. The commercial risk we saw strength across the world, driven by net new business and retention in the core. We also saw strength in more discretionary areas of the portfolio as economic growth in client activity continue to increase, including double-digit growth in project related work and in transaction solutions as our teams responded to M&A deal flow and increased client demand.

And in Health and Wealth solutions, we saw double-digit growth in priority areas that we've been disproportionately investing in the last several years, including voluntary benefits in Health Solutions and delegated investment management in Wealth Solutions, which remains an essential part of our portfolio.

Our full year organic revenue growth of 9%, reflects the strength and momentum of our Aon United strategy, which is designed to drive top and bottom line results. To that point, operating income increased 17% year-over-year. Full-year operating margins expanded 160 basis points to 30.1% with margins of 32.8% in the fourth quarter, reflecting ongoing efficiency improvements, net of investment in long-term growth. Earnings per share increased 22% for the full-year. Free cash flow exceeded $2 billion. And we completed $3.5 billion of share buyback in 2021, a strong indication of our confidence in the long-term value of the firm.

Looking forward to 2022 and beyond, we continue to expect mid single-digit or greater organic revenue growth, margin improvement and double-digit free cash flow growth. Looking back on the year, we would offer three observation, the growth performance in '21 and reinforce our continued strong momentum in 2022.

First, as complexity and uncertainty have increased around the world, clients are demanding a partner capable of providing them greater clarity and confidence to make better decisions that will protect and grow their businesses. In 2021, organizations and individuals continued to face the ongoing challenges of COVID and resulting effects in supply chain, growing concerns over climate change, intellectual property, retirement readiness, regulatory changes, cyber and workforce resilience. Against that backdrop, our decade plus focus on Aon United and the content capability that allows us to deliver has never been more relevant.

Second, our colleagues feel that relevance and they take great pride in our ability to deliver existing and new sources of value to clients. They recognize that these external challenges facing our clients create opportunity for them to bring better solutions and grow professionally. We know this is going to engage with our colleagues, and why they're feeling more relevant, more connected and more valued. And we're seeing the impact of this focus. In our recent all colleagues survey engagement levels remain at all time highs in line with top quartile employers. Ultimately, we know that by creating an exceptional colleague experience, we're ensuring a better client experience, both of which translate into better performance for the firm.

And third, we continue to accelerate our innovation strategy by using our Aon United operating model to replicate successful solutions and applying those capabilities to new client basis, paving a way for innovation at scale. We're incorporating our data, analytics and insight to direct existing capabilities to previously unmet client needs. This allows us to serve existing clients with new and customized ways, bring existing solutions to new clients, and expand our addressable market.

Let me highlight a few examples that demonstrate how we scale innovation to help our clients both in new ways and from new sources. Historically, you've heard us talk about Aon Client Treaty, pre-underwritten insurance capacity we established at Lloyd's that we used to up our clients more easily and efficiently access capital for their placements. When we designed this program over five years ago, we analyzed every historic placement, quantify the risk parameters around business replacement in Lloyd's and then pre-arrange capital to back those risks. Aon Client Treaty provides more efficient access to capital for clients and insurers. And we see ongoing opportunity to apply this concept to different geographies and risk classes using the same proprietary data and analytics backbone supported by Aon Business Services.

One new offering drawing directly from its capability, it's a solution, which is designed called Motorola, which enables reinsurers and investors to invest across our global reinsurance client portfolio. This provides a broad entry point in the global reinsurance risk and benefits our clients by enabling capital to access markets more efficiently. This first of its kind solution could not have been designed without a proprietary analytic capability and we see important opportunities to build on this platform for future growth across Aon.

Another example to highlight is within voluntary benefits, where we're developing innovative solutions at scale and driving double-digit growth. The offering combined use of insight around enrollment from our active health care exchanges and capabilities from acquisitions like Univers and Farmington. Our analytics platform and dashboards assess and illustrate planned futures, product usage, clients' experience and overall plant performance, providing insight into employee demand and satisfaction. This work has been formed by 20-years enrollment data from over 4 million participants, which enables us to rapidly develop bespoke solutions for our clients that strengthened their total rewards offering and reinforce their human capital strategy at a time when this is never been more essential.

These examples demonstrate how we help our clients access capital end markets in ways that never exist before. We didn't set backdrop of increasing and changing risk, we're not only bringing our clients better solutions, but also working more closely with them to understand our biggest challenges, which in turn guides further innovation.

Our focus on building innovative capabilities that scale across Aon to better meet our clients' needs is also highlighted by our recent appointment of Jillian Slyfield, as our Chief Innovation Officer. Jillian's digital experience and deep connection to Aon and across the industry position are exceptionally well to ensure that we're rapidly distributing new solutions to clients.

To summarize, 2021 was a year of incredible performance, and a year that positions us for growth, innovation and momentum in 2022. As we look forward, this momentum is further reinforced by global economic and societal trends and the resulting challenges and opportunities for our clients, which means that our Aon United Strategy becomes even more relevant as we help clients make better decisions to protect and grow their businesses. The capability and track record that we've built gives us confidence in our ability to drive further value for our clients, colleagues, society and shareholders.

Now I'd like to turn the call over to Christa for her thoughts on our financial progress in Q4 and 2021 and our long-term outlook. Christa?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

Thanks so much, Greg, and good morning, everyone. As Greg highlighted, we delivered another strong quarter performance across our key metrics to finish the year. In the quarter, we delivered 10% organic revenue growth, the third consecutive quarter of double-digit organic growth, which translated into double-digit adjusted operating income and adjusted earnings per share growth, continuing our momentum as we head into 2022.

As I reflect on full-year results: first, organic revenue growth was 9%, including double-digit growth in Commercial Risk Solutions and Health Solutions. I would note the total revenue growth of 10% includes a modest favorable impact from changes in FX, partially offset by the impact of certain divestitures completed within the year, most notably the retiree health care exchange business, as we continue to shift our portfolio towards our highest growth and return opportunities.

As we look to 2022, we're continuing to monitor various macroeconomic factors, including the underlying driver of GDP, asset values, corporate revenues and employment, inflation, government stimulus and the impacts of COVID variant, all of which impact our clients and our business. We continue to expect mid single-digit operational organic revenue growth for 2022 and over the long-term.

Moving to operating performance, we delivered substantial operational improvement with adjusted operating income growth of 17% and adjusted operating margin expansion of 160 basis points to a record 30.1% margin. The investments we've made in Aon Business Services give us further confidence in our ability to expand margins, building on our track record of approximately 100 basis points average annual margin expansion over the last decade.

We previously described the repatterning of expenses that incurred within 2021, which has no impact on year-over-year margins. While certain expenses may move from quarter-to-quarter, we do not expect further repatterning. We expect the 2021 expense patterning to be the right quarterly patterning going forward, before any expense growth.

During the year, as we previously communicated, we saw revenue growth outpaced expense growth and investments. While we do expect expenses to increase in 2022, due to certain factors such as increased investments in colleagues and a modest resumption of T&E, we think about growing margins over the course of a full-year. We expect to deliver margin expansion in 2022, as we continue our track record of cost discipline and managing investments in long-term growth on ROIC basis.

We translated strong adjusted operating income growth into double-digit adjusted EPS growth of 22% for the full-year, building on our track record of double-digit adjusted EPS growth over the last decade. As noted in our earnings materials FX translation was an unfavorable impact of approximately $0.03 in the fourth quarter and with the favorable impact of approximately $0.23 per share for the full-year. If currency remains stable at today's rates, we would expect an unfavorable impact of approximately $0.16 per share or approximately $48 million decrease in operating income in the first quarter of 2022. In addition, we expect non-cash pension expense of approximately $11 million for full-year 2022, based on current assumptions. This compares the $21 million of non-cash pension income recognized in 2021.

Turning to free cash flow and capital allocation. We continue to expect to drive free cash flow growth over the long-term, based on operating income growth, working capital improvements and structural uses of cash enabled by Aon Business Services.

In 2021, free cash flow decreased 23% to $2 billion, reflecting strong revenue growth, margin expansion and improvements in working capital, which were offset by a $1 billion termination fee payment and other related costs. I'd observe that excluding the $1 billion termination fee payment, free cash flow grew $400 million or approximately 15% from $2.6 billion in 2020.

Our outlook for free cash flow growth in 2022 and beyond remains strong. Given this outlook, we expect share repurchases to continue to remain our highest return on capital opportunity for capital allocation, as we believe we are significantly undervalued in the market today, highlighted by the approximately $2 billion of share repurchase in the quarter and $3.5 billion of share repurchase in 2021.

Over the last decade, we've repurchased over a third of our total shares outstanding on a net basis. In 2022, we expect to return to more normalized levels of capex as we invest in technology and smart working. We expected investment of $180 million to $200 million. As we've said before, we managed capex like all of our investments on a disciplined return on capital basis. We also expect to invest organically and inorganically in content and capabilities to address unmet client needs.

Our M&A pipeline is focused on our highest priority areas, that will bring scalable solutions to our clients' growing and evolving challenges. We continue to assess all capital allocation decisions and manage our portfolio on a return on capital basis. We ended 2021, with return on capital of 27.4%, an increase of more than 1,500 basis points over the last decade.

Turning now to our balance sheet and debt capacity, we remain confident in the strength of our balance sheet and managed liquidity risk through a well-lettered debt maturity profile. In addition, we issued $500 million of senior notes in Q4. As we said before, growth in EBITDA combined with improvements in our year-end pension and lease liability balances increases the capacity we have to issue incremental debt, while maintaining our current investment grade credit ratings.

Our net unfunded from the pension balance improved by nearly $500 million in 2021, reflecting continued progress and the results of the steps we've taken over the last decade to derisk this liability and reduce volatility. This reduction in volatility is significant for many of our clients, who still have pension obligations on their balance sheets. Current market conditions and funding status are giving many clients to a chance to reduce the risk of future volatility related to funding status or regulatory changes.

Our climate change insight and analytics in this space can help our clients access new capital to efficiently reduce their risk often with the partial pension risk transfer, creating long-term opportunity for us to help our clients manage their balance sheet risk effectively.

In summary, 2021 was another year of strong top and bottom line performance, driven by the strength of our Aon United Strategy and Aon Business Services. We've attained nearly 4 billion shareholders through share repurchase and dividends in 2021. The success we achieved this year provides continued momentum as we head into 2022. We believe our disciplined approach to return on invested capital, combined with expected long-term free cash flow growth will unlock substantial shareholder value creation over the long-term.

With that, I'll turn the call back over to the operator and we'd be delighted to take your questions.

Questions and Answers

[Operator]

Thank you. We would now like to open the phone lines for any questions. [Operator Instructions] Looks like our first question will come from Elyse Greenspan from Wells Fargo. Please go ahead.

[Elyse Greenspan, Analyst at Wells Fargo & Company]

Hi, thanks. Good morning. My first question, going back to some of Christa's comment, you guys mentioned investing organically and inorganically over the coming year. So just trying to get a sense of the increase in expenses that you expect in '22, and if you have a thought on how the margin expansion could trend relative to 100 basis points average, you mentioned over the past decade?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

Thanks so much, Elyse. As we stated previously, our goal is to grow margins each and every year, including 2022, and we expect 2022 margins will be driven by accelerating revenue growth, portfolio mix shift to higher growth, higher margin businesses and leverage from Aon Business Services. You've seen our track record as you mentioned of driving 100 basis points of margin expansion a year over the past decade with some years a little more, and some years a little less.

We did deliver above average margin expansions of 160 basis points in 2021. And there will always been lumpiness from quarter-to-quarter, which we did see this year in terms of the timing of investment and discretionary expenses. So we're going to expand margins in 2022, absolutely. And as we look to 2022, we also expect investments in colleagues, some ongoing resumption of T&E and investments in long-term growth. So we expect to drive margin expansion net of investments over the course of the full-year.

[Elyse Greenspan, Analyst at Wells Fargo & Company]

Okay, thanks. And then on the capital side, you guys bought back $2 billion a pretty robust number in the fourth quarter. As we think about going forward, I know you guys don't provide guidance on buyback, but is the right way to think about potential level of capital return thinking [Phonetic] about expectations for free cash flow, as well as incremental leverage that you guys can have as your EBITDA growth. Can you just help us think about the capital firepower you would have in '22 and beyond?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

Absolutely, and look, we do expect double-digit free cash flow growth for the foreseeable future. So we have a substantial cash flow generation capacity, and we are in a really strong capital position. And so you're right, Elyse, the first starting point is expectations free cash flow to double-digit over the long-term, and incremental debt capacity. So as EBITDA grows, you should expect us to add debt, keeping our leverage ratios in line with our current investment grade ratings.

And then what we would say is we continue to follow a very disciplined return on capital approach to allocate that capital. And you saw that with share buyback remaining the highest return on capital opportunity across Aon, $3.5 billion repurchased in 2021 and $2 billion in Q4, giving you a sense of how undervalued we think the stock currently is. But in addition to investing in share buyback, Elyse, we have a substantial M&A pipeline and we expect to do M&A during 2022 in areas of high growth and high demand from clients.

We also expect to invest organically in our colleagues, whether it's in technology to scale, innovation across the globe. And so we're really excited about the $4 billion of capital return to shareholders in 2021. I'm also really pleased with the return on capital of 27.4% in 2021, an increase of over 1,500 basis points over the last 10 years.

[Elyse Greenspan, Analyst at Wells Fargo & Company]

Thanks for the color.

[Operator]

Our next question comes from Mike Zaremski from Wolfe Research. Please go ahead.

[Charlie Lederer, Analyst at Wolfe Research]

Hey, good morning. This is Charlie on for Mike. So, Aon has been ahead of the curve building collaborative workplaces via less real estate. Does Aon expect to undergo any cost-cutting measures similar to some peers who have announced formal expense saving initiatives?

[Greg Case, Chief Executive Officer at AON]

We'd start, I think, our entire design, our entire approach is really around, is it always been around compliance, delivery and we're trying to accomplish, supporting our colleagues to do that. So we will, first and foremost, really optimize around that approach in our perspective. And we've done, as you've described, a number of innovative things to sort of reinforce that. It's actually worked exceptionally well on the client side and for our colleagues as well. So you'll continue to see us do that.

The outgrowth on the expense side will be a little weak. We will make investments as Christa just described on the return on invested capital basis and that's actually worked exceptionally well for us to do that for those opportunities to invest, to create a better outcome for clients and colleagues will be that. So that's really how we thought about it and it's [Technical Issues]

[Charlie Lederer, Analyst at Wolfe Research]

And then you noted in your [Technical Issues] pricing on the P&C side, we're not [Technical Issues] positive and [Technical Issues] momentum there and whether you have an outlook on the P&C pricing environment for '22?

[Greg Case, Chief Executive Officer at AON]

Go ahead, Eric.

[Eric Andersen, President at AON]

Sure, Greg. Thanks. Look, I would say, and I think I have said this in our -- couple of these calls. The pricing environment really is just one factor, you also have to look at exposure growth and the like. And listen, our world win this, when we work with our clients is really about first how did you risk identification risk management, so there is a lot that they do, it doesn't go into the market. And then ultimately, they also finance, right? So what can they do on their own balance sheets and how can they protect themselves using their own resources.

But when they get to a point, where they actually want to do risk transfer, they have a number of tools at their durability. They look at retention, they look at coinsurance, they look at deductibles, they look at terms and conditions, they look at limits, all these area factor and we try and bring all of our insight, our data and analytics to them to help them make those best choices. And so when you see discussions around market rates, it's different than what clients actually buy. So it's not a direct line from the carrier, who may say the market is going up, the market is going down, versus what they do for their own portfolio.

[Charlie Lederer, Analyst at Wolfe Research]

Okay. Thank you.

[Operator]

Next we'll go to Paul Newsome from Piper Sandler. Please go ahead.

[Paul Newsome, Analyst at Piper Sandler Companies]

Good morning. Thanks for the call everyone, congrats on the quarter. I was hoping you could give us a little bit more on the relationship between organic growth and margin expansion over time. So new ones come in the industry has been through 3% or 4% organic growth, who most welcomes [Indecipherable] for -- or margin expansion. But there has been some folks who've been talking, maybe because of the pandemic that relationship has broken down and want to see what your thoughts were on in?

[Greg Case, Chief Executive Officer at AON]

[Indecipherable] topline a couple of things. First, when you think overall, about what we said around organic, we continue to improve that profile, strengthen that profile. As we serve clients, we believe more and more effectively over time against their demands, which are changing and increasing all the ways you described. And you've seen us kind at a mid single-digit or greater, and you see that opportunity obviously achieved in 2021, you see that opportunity in 2022 and beyond.

Again certainly an existing demand that's out there, but also net new demand, new addressable market in terms of what we're trying to accomplish in doing. I would just also observe, and Christa described very well our perspectives on margin [Technical Issues] accomplish. If we think about over the last 10-years, it's been at a variety of different growth environments, we've achieved margin expansion and fully expect to do that, but [Technical Issues]

[Eric Andersen, President at AON]

You know, Greg, I would say there is a number of areas where we continue to drive growth and how we've built our strategy around trying to take advantage to bring that value to clients. The [Indecipherable] we do today, how do we connect it globally, how do we make sure we're bringing new solutions within our existing business. And then areas where we find growth where we're actually connecting the different capabilities that we have across what have historically been business units, where you might free up insight that sits inside of a reinsurance business and bring it to corporate clients or how you bring human capital capability to match with our directors' and officers' capability on the risk side. So how you bring those new -- how you bring existing capabilities together in new ways to solve clients problems.

And then, you've obviously got the net new growth that we're so focused on whether it's cyber, where it's no longer just an insurance policy. You need to bring risk mitigation, risk identification, new skills to be able to provide real value to clients. Certainly climate, how you drive better insight to give our clients an opportunity to try and manage today the issues that their facing with [Indecipherable], while also investing in the future to provide new opportunities to help manage those risks. So there are issues that are happening that would have been considered horizon risks that are today on everybody's front doors, we've said in the past, but also how we use our existing capabilities in new ways to drive better outcomes for clients. So, we see an opportunity for growth, certainly today and in the future.

[Paul Newsome, Analyst at Piper Sandler Companies]

My second question, I'd like to ask about the M&A environment for the industry. It seems like we continue to hear lots of comments that private equity is interested in just about everything brokerage, and they seem to be just a number of supply of new role of the companies should probably that growth of this. But it's hard, you know, outside and you know what that environment really is getting a lot more competitive and valuations are arising or if it's more of a stable view? What's your taking on that current environment?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

So, Paul, one of the things we do is we look at -- we start from client need and we then build out M&A pipelines around the highest growth, highest margin, highest return on capital opportunities, which are really aligned with the biggest the areas that client need, whether that's hope and associated benefits, whether that's delegated investment management with data analytics. And so a lot of the areas that we're actually focused in, we're actually building relationship companies well before they go through a process, but we're not actually competing with others. And so we're building relationships with companies in areas like cyber, in areas like intellectual property, in a lot of data analytic intensive businesses which we're really thrilled to be bringing in that capability into Aon, we expect to do a lot more of that in 2022.

[Paul Newsome, Analyst at Piper Sandler Companies]

Fantastic. Thank you very much for all the help. Thank you.

[Operator]

Next we'll go to the line of Yaron Kinar from Jefferies. Please go ahead.

[Yaron Kinar, Analyst at Jefferies Financial Group]

Good morning and thanks for taking my question. Actually, filling one question that I have here. If I look at the actual common shares outstanding, I think you ended the year with $215 million just under another $2 million of the dilutive equivalents. You call out beginning of first period or first quarter of 2022, a diluted share count of 224 million almost. Could you maybe provide some color as to why that share count be going up?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

So we have actual shares outstanding in Q4 2021 of $221.4 million. And then we have a few diluted shares which get you to $223.7 million is the estimated Q1 2022 diluted shares.

[Yaron Kinar, Analyst at Jefferies Financial Group]

Okay. So it's apples to oranges. Okay. And maybe could you just remind me the stock-based compensation? Does that flow into adjusted EPS?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

Yes, of course. So when you issue shares, you increase the share count related to stock-based compensation. And so if you think about the actual shares issued each year for the last couple of years, it's been going down substantially, while the dollar amounts of stock we issued has been remain the same. We've been very disciplined about the granting amounts we are giving out, but obviously the stock price increases, the diluted impact decreases. So in 2021 as an example, we issued 1.7 million shares.

[Yaron Kinar, Analyst at Jefferies Financial Group]

Thank you.

[Operator]

Next we'll go to the line of Jimmy Bhullar from JPMorgan. Please go ahead.

[Jimmy Bhullar, Analyst at JPMorgan Chase & Co.]

Hi, good morning. So just -- I think there were a lot of questions about just or concerned about the follow our from the Willis deal and based on your organic growth, doesn't seem to be impacted a lot. But if you could just talk about that. And then relatedly, it seems like if I look at your expense, the comp and benefits line is the only one that's actually up from a couple of years ago. All the other ones are down. So not sure if you're having to be a little bit more to retain talent whether because of inflation or just because of the deal breaking up?

[Greg Case, Chief Executive Officer at AON]

Jimmy, appreciate the question both of them in fact. We will start with the first one. And when you consider and think about our ability to maintain momentum over '22, '23, '24 and really over time -- into the fine momentum by the way, just to be very specific as grow revenue, improve margins and grow free cash flow double-digits. We believe the opportunity for Aon is very strong, in fact unique at this point in time.

And we'd start -- I think, Jimmy, just to answer your question on sort of where we're going in our future, start with our current position and our financial performance. You saw 9% organic margin of 30%, free cash flow double-digit, more important colleague engagement 80%, voluntary attrition by the way is below pre-COVID levels. And in client need, as Eric was describing, it's high and getting higher, but it's also evolving.

And so you think about the streaming and say look at the momentum we have going into 2022 is exceptional, and it really is on all these fronts, financial performance, colleagues and client need. But most important as you asked the question, you get behind what's driving that, and the actions that drove this performance are the exact same actions that build momentum. And it really is the reasons we performed now, while we're going to continue to perform in '22, '23, '24, and it really built on the decade of work on Aon United and especially the continued refinement and amplification over the last six months. And this is on the blueprint we've talked about before and around Aon Business Services, what we're doing on innovation, a network called Delivering Aon United, very, very systematic around the globe and our people leadership. Really the operating model we've got in Aon United is a lot.

Maybe Eric, I'll ask him to talk about that. Our brand and talent all fit together, and it really is an amplification of the strategy we've had. And the final point I'd say on this in terms of go forward, as you think about client demand in all traditional areas, they are requiring more and more capability, but this mix, this approach, the need they have requires a more integrated approach. And, wow, who would have known that Aon United, while compelling for the last 10-years, becomes more compelling in a post-COVID world and clients are really thinking about ultimately more than ever before.

And then finally, the colleague opportunity and career path in the context of this is more exciting. It's more compelling. And think about it, we're getting to make a difference in all these areas that matter for clients. And that means it's a better career path, it's a greater opportunity for development and more wealth creation for them. And that's why we would say, look, we are fortunate. We believe Aon's positioned to win now and in the future and we've got really strong momentum around it. So I know we've got two questions there. I just want to stay on the first one. But Eric, anything else you add to that first piece around just where we are going?

[Eric Andersen, President at AON]

Yes, Greg, I think you covered it really well. I think the client demand question we talked about a few minutes ago, but as we work with the clients on their risk today and help plan around the risk of the future, it really is an opportunity for us to show the value of our operating model, as we can bring the capabilities of our firm to a client in the way that they want to use it and provide the insight that looks at a risk holistically, not just as an insurance risk, not just as a talent risk, but really pull all of it together at one point.

And you see that in the resilience work that's being done out of our human capital and risk teams together. You see that in reinsurance risk, couple of those different examples we talked about. But the operating model, I think, provides us with a competitive advantage that is different from what you see in the marketplace, connecting globally by using our ability to talk to clients segments with industry background, really understanding their issues and then bringing that capability.

Anybody can say it, it is absolutely critical to do it to be able to meet these needs of the future. But also having an Aon business services as the backbone of the firm, where we are able to leverage the data and analytics, be able to leverage our scale, provide the level of service that clients are looking for in a way that drives efficiency that allows us to invest back in the talent that you need, the new channel that you need to draw into a firm to be able to handle issues like cyber, like climate, like resilience and those types. So we feel really good that the model that we've put in place really does give us an ability to meet those needs going forward.

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

And then on your comp and benefits question, I think you said expenses are going up. We are absolutely investing in our colleagues. We are investing in our current colleagues, in talent and development, in wealth creation, and in hiring great new talents to serve unmet client needs and we are excited about being able to continue to do that into 2022, as well as continue to invest in growth areas across our business in the context of driving margin expansion for the full-year.

[Jimmy Bhullar, Analyst at JPMorgan Chase & Co.]

Okay. And how do you think about inflation affecting your business? Obviously, to the extent the premiums go up, that helps you, but are you seeing evidence of wage inflation as well? If you could just comment on the positive, negative, the pickup in inflation.

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

Yes. We do see wage inflation in our business. We saw that in Q3. We expect that to continue into 2022, but what we would say is, while we continue to invest in our colleagues, which we think is terrific, we expect to offset that with efficiencies driven by Aon Business Services at scale. And so that offset and continued sort of efficiency there allows us to continue to drive margin expansion. One of the other macro things I might add, just while you are on inflation is, interest rates. So if interest rates were to continue to rise, that is a very positive for us in three key ways. Fiduciary investment income increases. Every 100 basis points in short-term interest rates, there's an increase of $60 million top line and bottom line for Aon.

The second is pension liability comes down. And then the third, which you may think is a negative but is not, interest expense and our entire debt portfolio has fixed interest, fixed rate interest, so there's no impact on debt. So inflation, we do expect longer term to be a positive for our business. Short term, there's sort of a wage inflation impact for sure. Interest rates is positive on three fronts. So we do think the macro environment is very positive for our business.

[Jimmy Bhullar, Analyst at JPMorgan Chase & Co.]

Thank you.

[Operator]

And for our last question, we'll go to line of Adam Klauber from William Blair. Please go ahead.

[Adam Klauber, Analyst at William Blair]

Good morning. Thanks. Historically, you've been able to increase the margin in part. I think you said you focused on high growth, higher margin businesses from a business mix perspective, but also you divest historically low growth, lower margin businesses. So on the second part, as we look at 2022, 2023, is there still a fair amount of lower growth or margin parts of the business that you could divest?

[Christa Davies, Chief Financial Officer and Executive Vice President of Global Finance at AON]

I mean, what we would say is, we continue to manage the portfolio actively and continue to invest in higher revenue growth, higher margin businesses. We will continue to divest low revenue growth, lower margin, lower return on capital businesses. I think there's fewer of them left in the portfolio. So you saw us do that with the retiree healthcare exchange business in Q4, but there's also a huge opportunity with Aon Business Services to invest and improve the efficiency and therefore, increase the margins of the existing businesses to help them scale globally in much more efficient ways and to scale innovation in more ways. So, yes, we'll continue to be an active manager of portfolio, but Aon Business Service is probably a much bigger lever for us in driving margin expansion going forward.

[Greg Case, Chief Executive Officer at AON]

And than I'll just add, Adam, this is also a very dynamic conversation. Every year, every situation evolves over time and it's led to a 30% margin, which we believe, as Christa described very clearly, with real, real upside over time as we move through that. But also, if you could call out return on invested capital, this process has led to 27% in change return on invested capital, which is really a phenomenal outcome in terms of, sort of, what it's been able to do. So it served us well and businesses that were, "in the performing category two or three years ago, we have to continue to improve and we are looking for ways to do that" So this is really not just about the static but about the dynamic and how it evolves over time. And that the process that Chris and the team has set up has really served us well. And I think Christa is probably like more like on the return on invested capital side, almost like 1,500 basis points over the last 10 years, surpassing even what we've done on margin.

[Adam Klauber, Analyst at William Blair]

Okay. And then just one follow-up. On the Health Solutions business, you did quite well this year. From what I understand, that business has been impacted in terms of the business across the market, has been impacted by HR managers being very, very busy during COVID and not always having the time to be more offensive, do more discretionary projects. Are you seeing sort of that macro environment beginning to turn or HR managers getting more engaged, what they do more for the workforces as we go into 2022?

[Greg Case, Chief Executive Officer at AON]

Adam, we really are -- the activity has been dramatic and this continues to increase. And whether it results in sort of revenue now or revenue in the future, the opportunity to work with people leaders and our clients around the world, it's just exceptional. And as you highlight, the demand is tremendous, not just for the sort of literally the here and now and what you do day-to-day to support employees, but also as you think about resilience, all things, the workforce and talent, so we love this space overall from a talent and a health standpoint.

It also ties into what's going on, on the retirement side, helping employees really be more effective as leaders, as humans in terms of what they do every day beyond just a specific benefit line. So we are seeing -- we see tremendous opportunity on the health side everywhere around the world, not just in the US. And as Eric described before, it connects with demand in other areas that touch employees, like retirement and all aspects of that.

[Adam Klauber, Analyst at William Blair]

Okay, great.

[Eric Andersen, President at AON]

Hey, Greg, maybe one Just quick comment. I think the -- when we talk about our own colleagues as the whole person, but it's not just the professional side, but certainly the well-being side. That absolutely is playing out right now with all of our clients. There's also a desire to understand on a global basis what their benefit programs look like, how you harmonize those. And this global benefit strategy that corporations are doing really is designed to free up talent to be able to move talent across borders to meet opportunities. And so that is a building part of what a human resource person is looking at. And I think it also fits into the talent piece of trying to use their talent where they are best able to drive value for the company, but also for the individual for career opportunities as well.

[Adam Klauber, Analyst at William Blair]

Thank you very much.

[Operator]

Thank you. I would now like to turn the call back over to Greg Case for closing remarks.

[Greg Case, Chief Executive Officer at AON]

Thanks very much. Just wanted to say on behalf of Christa, Eric and I, thanks very much for joining this quarter and look forward to our discussion next quarter. Take care.

[Operator]

[Operator Closing Remarks]