Christa Davies
Executive Vice President & Chief Financial Officer at AON
Thanks so much, Greg, and good morning, everyone. As Greg highlighted, we delivered a strong operational and financial performance in the first quarter to start the year, highlighted by 8% organic revenue growth that translated into 60 basis points of margin expansion and double-digit growth in earnings per share. We look forward to building on this momentum through the rest of 2022.
As I reflect on the quarter, first, organic revenue growth was 8% driven by strong ongoing retention and net new business generation. I would note that total revenue growth of 4% includes an unfavorable impact from changes in FX, driven primarily by a weaker euro versus the dollar as Q1 is our seasonally largest quarter for euro-denominated revenues.
As we look to the rest of 2022, we're continuing to monitor various macroeconomic factors, including the underlying drivers of GDP, inflation and interest rates, which all impact our clients and our business. In particular, I would note a few interrelated impacts. On GDP, we've noted there's a correlation between our revenue and GDP growth, particularly the underlying drivers of GDP, such as asset values, corporate revenues and employment levels.
We've recently seen decreases in global GDP growth forecasts for the year driven by the factors such as ongoing impacts of COVID-related restrictions, the war in Ukraine, rising inflation and expected increases in interest rates. As we've communicated previously, our revenue base is very resilient. An impact from GDP tends to shovel the more discretionary portions of our business, such as project-related work across the portfolio. These portions of our business were strong in Q1, though, as Greg mentioned, we're seeing increased uncertainty in overall trends.
I would also note there are many ways in which we can help clients in times of challenging economic circumstances or increased volatility. On inflation, we see impacts to our revenue and expense base. On revenue, inflation increases underlying exposures across our business, for instance, in property value and health care costs. As Greg mentioned, we're working with our clients to ensure they're appropriately protected against these increasing values and optimizing their total cost of risk.
On expenses, we're continuing to invest in our colleagues and are hiring to support growth, especially in priority areas. This does increase overall compensation costs, although Aon Business Services strategy continues to drive efficiency in operations and support our goal of ongoing margin expansion. And on interest rates, there are puts and takes at play. But generally, we are very well positioned for higher interest rates.
While revenue in some areas of our business like construction and transaction liability is often dependent on client investment behavior, which may be impacted by rising interest rates, I would highlight three main points on how we benefit from higher interest rates. First, we see investment income increases as short-term interest rates rise. Over the course of the year, a 100 basis point increase in short-term interest rates, such as the U.S. federal funds rate and ECB deposit facility rate, translates to an impact of about $60 million in total revenue and operating income.
Second, our pension liability improves as increases in interest rates result in higher discount rates used to value our pension obligations. Third, our term debt is all fixed rate with an average rate of 3.8%. So the interest expense associated with our existing term debt does not increase. Overall, our business is resilient, and our Aon United strategy gives us confidence in our ability to deliver results in any economic scenario. As Greg said, we do see increased external volatility. However, we continue to expect mid-single-digit or greater organic revenue growth for 2022 and over the long term.
Moving to operating performance. We delivered strong operational improvement with adjusted operating margins of 38%, an increase of 60 basis points, driven by organic revenue growth and efficiencies from our Aon Business Services platform, overcoming a negative impact of FX and expense growth, which includes investment in colleagues and technology to drive long-term growth and some resumption of T&E.
As we've previously communicated, we think about margins over the course of the full year. We expect continued investment in colleagues and ongoing resumption of T&E throughout the 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 an ROIC basis. We translated strong adjusted operating income growth into double-digit adjusted EPS growth of 13% for the quarter.
As noted in our earnings material, FX translation was an unfavorable impact of approximately $0.19 per share in the quarter. If currency remains stable at today's rates, we would expect an unfavorable impact of approximately $0.08 per share or approximately $24 million decrease in operating income in the second quarter of 2022. Turning to free cash flow and capital allocation. Free cash flow decreased 17% to $440 million, primarily driven by higher incentive compensation payouts given our strong 2021 financial results.
I would note that we had strong growth in the prior year period and that Q1 has historically been our seasonally smallest quarter from a cash flow standpoint due primarily to incentive compensation payments. As we've communicated before, free cash flow can be lumpy from quarter-to-quarter. We continue to expect to deliver double-digit free cash flow growth for the full year 2022. Looking forward, we expect to drive free cash flow growth over the long term, driven by operating income growth, working capital improvements and reduced structural uses of cash enabled by Aon Business Services.
Given our strong outlook for free cash flow growth in 2022 and beyond, we expect share repurchase to continue to remain our highest return on capital opportunity for capital allocation. We believe we're significantly undervalued in the market today even at all-time highs, highlighted by approximately $800 million of share repurchases in the first quarter. We also expect to continue to invest organically and inorganically in content and capabilities to address unmet client need, as we've done with Tyche.
Our M&A pipeline is focused on our high-priority areas that will bring scalable solutions to our clients' growing and evolving challenges. As we've said in the past, we continue to assess all capital allocation decisions and manage our portfolio on a return-on-capital basis. Now turning 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. In Q1, we issued $1.5 billion of senior notes. We estimate our leverage ratios to be within the range expected for our current investment-grade credit ratings. As we've said before, we'll continue to evaluate the opportunity to add debt as EBITDA grows while maintaining our current investment-grade credit ratings.
In summary, our first quarter results reflect strong top and bottom line performance, driven by our Aon United strategy. We start the year in a position of strength and expect to continue to make progress on our key financial metrics and drive shareholder value creation.
With that, I'll turn the call back over to the operator, and we'd be delighted to take your questions.