Earnings Call Transcript
Aon plc (AON)
Earnings Call Transcript - AON Q4 2023
Operator, 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, CEO
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 which has been pivotal for our clients and supportive of each other. As we reflect on 2023, we observed that the client demand is 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, along with 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. 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. Barely one month into 2024, we already feel the momentum from these actions, which is 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. 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, delivering efficiently at scale. Equally compelling for Human Capital, our Human Capital trends report highlights the rising importance to clients of 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 that is greater than ever. We also saw attracting and retaining top talent ranked as the fourth highest 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 is delivered efficiently 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, ultimately maximizing the return on investment for their people spending. 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, 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. We've maintained strong overall growth throughout the year on top of 6% organic growth 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 demonstrated organic growth of 5% in Q4, reflecting strong growth in retirement, which includes growth from ongoing pension risk transfer projects and work to help clients address changing regulatory requirements. Reinsurance solutions saw organic growth of 14%, contributing to full-year organic growth of 10%, with our team closing 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 the 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 an 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, and long-term double-digit free cash flow growth. As we've communicated, initiatives like our restructuring program and the expected acquisition of NFP impact this guidance in the near term, but over time, we believe these initiatives will contribute to significant ongoing shareholder value creation. More importantly, we view the opportunity as higher over the next five years than at any time in our history. 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, delivering risk capital and human capital at scale, fully reinforced through Aon Business Services. Looking back on the year, we delivered accelerating growth across three or four solution lines, building 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 in free cash flow. Equally important, we took a series of major actions that position Aon for stronger performance in 2024 and in 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 Davies, CFO
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. For 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 a definitive agreement to acquire leading broker NFP, enabling us to unlock the fast-growing mid-markets with Aon Business Services enabling enhanced distribution and further accelerate our Aon United strategy. The steps that we've taken around Aon Business Services now enable 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. 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 an ROIC basis. We expect restructuring savings will flow 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 $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 the sale of businesses in the prior year period. Also, as noted in our earnings materials, FX translation had a favorable impact of approximately $0.03 per share in Q4 and an unfavorable impact of $0.17 per share for the full-year. If currency remains 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. 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 in free cash flow in 2026 and $600 million in 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, our 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 standardize platforms and operations, drive data analytics-based product innovation, and deliver at scale to create better tools and experiences for our clients and colleagues. In the fourth quarter, we incurred $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 the 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 will now be delivering our strategy that 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 that 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 repurchases 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 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. 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 enable us to return $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.
Operator, Operator
Thank you. Our first question today will come from Andrew Kligerman with TD Cowen. Please proceed with your question.
Andrew Kligerman, Analyst
Hi, thank you. Thank you and good morning. I'm interested in the robust growth in both the reinsurance business and the health solutions business, and the sustainability of that. 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, CEO
Well, Andrew, let's 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. 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. It's been highly consistent when you think about the description around the three-by-three plan and both approaches have contributed to growth 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, President
Sure, Greg. It's a great question. 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. The trends that we've been seeing over the last couple of years have an opportunity to continue. Certainly, whether it's climate change, casualty uptick in terms of lost costs, or 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 to their primary businesses are all still there. And it's a global answer. We're seeing it in Europe, 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, CEO
And then maybe on the health side, just a comment on the health side?
Eric Andersen, President
Listen, we're having the 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. 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, Analyst
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, CEO
So let me just start overall. As Christa described, we continue to look as we think about the deployment of capital. Obviously, buyback is top of the list given how undervalued we are. But we're looking across the board even as we think about 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. Our pipeline continues to be very strong. But what else could you add from a capital allocation standpoint?
Christa Davies, CFO
I mean, reinforcing exactly what you said, Greg. We allocate capital based on return on capital. We definitely, based on the free cash flow outlook in 2024 and the long term, see we are significantly undervalued. 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 in the data analytics space in areas like health, as Eric highlighted. There are a number of areas that are front and center for clients in terms of meeting their emerging challenges.
Andrew Kligerman, Analyst
And if you see the right opportunity, you wouldn't hesitate to go after it, correct?
Christa Davies, CFO
And Andrew, the thing I would say is, it's all about return on capital. Given how undervalued we are, buyback is at the top of the list. For us to invest in M&A, it's got to meet that criterion. So, we'll continue to look at everything, and there are certainly terrific opportunities out there, but we'll continue to be very disciplined on return on capital.
Operator, Operator
Thank you. Our next question is from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your questions.
Jack Matten, Analyst
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. Which segment did that impact, and will that have a similar impact until the business is sold?
Christa Davies, CFO
Thanks so much for the question, Jack. We do continue to actively manage the portfolio. These are businesses that we are divesting. So, we think about this as just a better representation of our revenue and business going forward. It is in commercial risk, and we communicated a 1% impact in Q4, and for the full-year.
Jack Matten, Analyst
Got it. Thank you. And then the second question, you call out again this quarter the 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 that the continued negative impacts on growth could be felt, given that M&A volumes are still falling by double-digit levels?
Greg Case, CEO
So 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. By the way, we help serve. We think about Q4, 2023 versus Q4, 2022 at four and four. So it's sort of the same year-over-year even against this headwind. We haven't disclosed the detail on the impact, but it's substantial. We've got an amazing group of colleagues who serve this marketplace. As Eric mentioned before on prior calls, we have doubled down on this capability. We fully anticipate this is going to come back in absolute full force. The amount of dry powder out there is extensive. We remind you it shows up in our organic when the deal is complete. We see lots of things in the pipeline as things are coming to pass. 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 very vigorously and maintain growth across the board, even in the face of the segment. But Eric, what else would you add to that?
Eric Andersen, President
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, corporate M&A teams, the insurance markets, representatives and warranties, tax indemnity, and we essentially were going through the marketplace. From a growth standpoint and also from a product innovation standpoint, recognizing that as the deals return, and they will, we want to ensure we're well situated with our clients and our markets, making sure the products are fit-for-purpose, evolving to meet the needs, not just in the U.S., 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.
Jimmy Bhullar, Analyst
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, I'm wondering if you're seeing 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, CEO
Jimmy, we're seeing exactly the same thing you're seeing and you're hearing about. You can imagine, this is a market where we're highly connected to our clients and with all the banks, and everyone else involved in the process. I would say there's high expectations everywhere. You'd only need to listen to the investment bank quarterly calls to understand that. 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. So, as you see that move, you can expect it's going to be fully reflected in our performance.
Jimmy Bhullar, Analyst
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 overall economy?
Greg Case, CEO
Yes. I would start overall, your assertion continues where you're getting to, but it really doesn't reflect what's going on in reality. The business is a very, very different size. One doesn't really offset the other in any way, shape, or form. We would come back to the overall commercial risk story, exactly as we described before. We are exactly where we were in Q4 of last year, with an emerging headwind that became a substantial headwind. We overcame that, and a lot of this isn’t just commercial risk, but the connection of commercial risk reinsurance, and risk capital. We closed the year, and we 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. We're very excited about the overall prospects as we move into 2024. Maybe Eric, talk a little bit about the risk capital implications of all this as it's coming together and the potential around it?
Eric Andersen, President
Yes, sure, Greg. I think certainly strong retention and strong new business, both in North America and around the world in the commercial risk business is important. But maybe I'll use it as an opportunity to show the connectivity between the risk capital framework. 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 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 allows the insurer to open up the amount of limit they provide to clients, something our clients were looking for. It also appropriately values and places that type of systemic risk into the right capital source. The point of it is, we were then able to take that ILS structure, using the data and analytics we used to build it, and applied it to one of the largest corporates in Europe, looking for a traditional cyber program but wasn't able to get the limit they wanted. We could take something that we did for an insurer, using the data and analytics and structuring, and bring it to a large corporate. Maybe finishing it, as Greg mentioned NFP in your opening comments, we could actually power the side queue product that's built for the middle-market which then attaches a risk transfer product to it. Again, using data and analytics on one topic, just cyber, to drive growth in reinsurance in commercial risk, and ultimately in the middle market part of the commercial risk segment. That's what's driving retention; that's what's driving strong new business, and I think those opportunities exist for us across multiple areas.
Bob Huang, Analyst
Hi, good morning. My 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 the press release, you obviously mentioned there is the potential of some of that being sent back to you. What's the progress of that? Can you 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, CEO
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. The effort was made to come to an agreement with each of the affected parties, so that we could then continue to trade forward. We see an opportunity for recoveries that will happen over time, as the bankruptcy process runs its course. We're confident that we'll be able to recover meaningful amounts.
Bob Huang, Analyst
Okay, thank you. The second question is on cash flow. I understand that you mentioned this a little bit. On your slides, you removed the double-digit growth for the near-term, but reiterated the 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, and can you provide a little bit more context in terms of how you're thinking about free cash flow guidance going forward?
Christa Davies, CFO
Yes, thanks so much for the question. First, 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 in free cash flow in 2027. As we think about free cash flow in 2024, we haven't given specific guidance. 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 have 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. 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've communicated legal settlements, and as Eric just said, expect those to flow through over the next several years. 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, and we're very excited about the long-term double-digit free cash flow trajectory of Aon. Lastly in 2024, we 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.
Rob Cox, Analyst
Hi, thanks for taking my question. Maybe just the first question on one of the higher growth areas of insurance, thinking about the higher growth areas, one of those is currently the E&S space. I was just curious about 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, President
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 five to seven years. They've been on the magnitude of tenfold, and there's a lot driving it, whether it's the lawsuits. But you see it in the property market, whether it's regulatory pressure on pricing and forms. We have consolidated our wholesale relationships, so we're actually working in partnership to get access to that capital when we need it for our clients. Some of our competitors do own wholesalers, and that's the way they chose to enter the marketplace. It's something we've always looked at, but we like where we are today. We like the relationships that we have with our major partners, as we need that marketplace tends to flex up and down with different market cycles. I would say right now, it is based on the challenging market conditions, especially in the property area. It's significant growth, but it will ebb and flow over time.
Rob Cox, Analyst
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, President
I think a number of people have commented on it during this earnings 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 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 has kind of hit the wires, and they're worried about prior year reserves. 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 for us because it allows us to use our teams in our analytics to help them think through how they either want to trade or manage the risks. I think that's where we see the market going in '24 and '25.
Greg Case, CEO
I would add Rob as well, if you think about the 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 that 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 is our advantage in doing so. Our view is the 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.
Elyse Greenspan, Analyst
Hi, thanks, good morning. I wanted to come back to commercial risk. You guys said 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 growth to 2% before that adjustment. I know you've highlighted the M&A and the SPAC and IPO slowdown. In response to one of your questions, you pointed out the U.S. probably would not have been flat. If we couldn’t 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, CEO
Christa, you might be on mute.
Christa Davies, CFO
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. We think it's a much better presentation of our organic revenue growth and the going forward business. As we continue to describe, the major impact on commercial risk is the M&A and IPO environment. That has remained depressed, and Eric and Greg have outlined how they see that recovering in 2024, but Eric, do you want to add anything here?
Eric Andersen, President
Christa, the only thing I would add is that stronger business growth, strong retention, and rollover for our clients in North America and around the world. The underpinnings of the business continue to be very strong.
Elyse Greenspan, Analyst
Okay, that's helpful. And then, I had one question on reinsurance. Obviously, lower volume quarter. We went through kind of what drove the growth in the fourth quarter. As we think about Q1 and '24, we've heard about the renewals, January 1 being good, but 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, President
Maybe I'll take that one, Greg. Listen, there was certainly adequate capital to get the client needs done for the one-one renewals - that's predominantly Europe and parts of North America recognizing that Florida and Asia-Pacific tend to be April and June of the year. I would also say, a part of the risk capital strategy is how we actually deploy reinsurance capability into either commercial risk or new sectors. I'll 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 change. That is core reinsurance data analytics structured through global access to capital, to a whole new sector of potential clients. The main business, continues to be serving insurance companies. There is an opportunity outside that space to drive new growth for us in what you would consider core reinsurance capability. So that, Elyse, as you think about FAC, you think about investment banking ILS markets and being able to use that capital for corporates. There are opportunities for continued growth in that space over the coming periods.
Greg Case, CEO
I would add Elyse though, the momentum of this team in the core space, reinsurance, more broadly across risk capital, has been tremendous. The quarterly view is helpful. 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 aspire to. You can take away what 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 the risk capital orientation; it's a big deal and meaningful in terms of what we're doing the same on the human capital side. The connectivity across reinsurance or commercial risk creates better solutions, and Eric described a couple of them already. We feel good about the momentum going into 2024 based on the groundwork we laid in '23 on risk capital and human capital.
Elyse Greenspan, Analyst
Thanks. One more thing on the savings. I know Christa, you reaffirmed the $100 million for '24, but 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, CFO
That's correct, Elyse.
Operator, Operator
Our next question comes from the line of Meyer Shields with KBW. Please proceed with your question.
Meyer Shields, Analyst
Thanks. Greg. 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 these differentiated results relative to peers. Is that a concern?
Greg Case, CEO
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. When we think about commercial risk, we're 4% in Q4; last year was 4% in Q4 this year, even against a substantial headwind we described. We want you to understand in the context of that, is imagine all the things behind that created momentum in Q4 and our 2024 commercial risk space. We've overcome that but maintained where we were last year. We feel very optimistic about the momentum in 2024. This category is substantial in M&A, and we love it. We are disproportionately skilled in it, and we're unbelievably good at it from a client leadership standpoint. 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 has given us the opportunity to really think that through and really leverage the risk capital orientation. I mentioned in my comments, the Property Symposium. We had 1,000 clients and markets in the room, and we brought up the property risk analyzer. This is really a function of reinsurance, and commercial risk analytics, and the power of that in the minds of our clients was substantial. We've got a suite of capabilities that are going to contribute to commercial risk and reinsurance as we head into 2024. From our standpoint, what we want you to take away and certainly our feeling and commitment is mid-single-digit or greater, translated into OI margin improvement, 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 our delivery, and we will continue to deliver those. The addition of NFP is only going to strengthen our free cash flow profile over time. For us, we're always going to be cautious in our approach, but resolute, and we feel very good about the momentum heading into 2024.
Meyer Shields, Analyst
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, CFO
Reinsurance is a similar margin business to all of our businesses, which is why we operate Aon as one segment, Meyer. One of the things we would say is part of our Aon United strategy, 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. We are really operating more and more the firm in one segment with risk capital, human capital, enterprise clients, and Aon Business Services.
Greg Case, CEO
And Meyer, this is Greg, this is a great question and really a high emphasis point. This connectivity that Christa is describing, risk capital, human capital connected through enterprise client, fully delivered and amplified by Aon Business Services. Our ability to continue to drive margin improvement as we did this year with lots of investments into the business is high. 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 with an OI margin of 31.6%. It's the ability to deliver better content and better service experience, and that combination is extremely exciting for us in terms of what it means for Aon and for our clients. As Eric described, you think about NFP, the opportunity in NFP is there because of their great capability and awesome operating platform combined with our Aon Business Services capability. We bring all that together with the $900 million investment to accelerate that over three years across the three-by-three plan with what we are taking more time for. I want to highlight as the questions come together, we are really connected in our mind and really put us in a unique position to execute against our overall plan and deliver great momentum into '24, '25, and '26. I want to thank everyone for being part of the call today. Look forward to our discussion next time.
Operator, Operator
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.