Aon (AON) Q4 2021 Earnings Call Transcript

Aon (AON -6.85%)
Q4 2021 Earnings Call
Feb 04, 2022, 8:30 a.m. ET

Contents:

• Prepared Remarks
• Questions and Answers
• Call Participants

Prepared Remarks:

Operator

Good morning and thank you for holding. Welcome to Aon plc's fourth quarter and full year 2021 conference call. [Operator instructions] I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time.

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

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. In 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 and client activity continued 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. Within health and wealth solutions, we saw double-digit growth in priority areas that we've been disproportionately investing in in the last several years, including voluntary benefits in health solutions and in 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 and 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 observations that drove performance in '21 and reinforce our continued strong momentum in 2022. First, as complexity and uncertainty has 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 continue to face the ongoing challenges of COVID and resulting effects in supply chain, growing concerns over climate change, commercial property, retirement readiness, regulatory changes, cyber and workforce resilience.

Against that backdrop, our decade-plus focus on Aon United and the content capability it 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 what engages 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-colleague survey, engagement levels remain at all-time highs, in line with top-quartile employers. Ultimately, we know that by creating an exceptional colleague experience or 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 bases, paving the 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 in 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 heard us talk about Aon Client Treaty, pre-underwritten insurance capacity we established at Lloyd's that we used to offer clients more easily and efficiently access capital for their placements.

When we designed this program over five years ago, we analyzed every historic placement, quantified the risk parameters around business replacement on Lloyd's and then prearranged 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 derived directly from this capability is a solution the team designed called Marilla, which enables reinsurers and investors to invest across our global reinsurance client portfolio. This provides a broad entry point into global reinsurance risk that 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 combines user insight around enrollment from our active healthcare exchanges and capabilities from acquisitions like Univers and Farmington. Our analytics platform and dashboards assess and illustrate planned features, product usage, claims experience and overall plant performance, providing insight into employee demand and satisfaction.

This work has been formed by 20 years of enrollment data from over 4 million participants, which enables us to rapidly develop bespoke solutions for our clients that strengthen their total rewards offering and reinforce their human capital strategy at a time when this has never been more essential. These examples demonstrate how we help our clients access capital end markets in ways that never existed before. Within that backdrop of increasing and changing risk, we're not only bringing our clients better solutions, we're also working more closely with them to understand their 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 connections with Aon and across the industry position her 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 for 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

Thanks so much, Greg and good morning, everyone. As Greg highlighted, we delivered another strong quarter of 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 that total revenue growth of 10% includes a modest favorable impact from change in FX, partially offset by the impact of certain divestitures completed within the year. Most notably, the retiree healthcare exchange business, as we continue to shift our portfolio toward our highest growth and return opportunities. As we look to 2022, we're continuing to monitor various macroeconomic factors, including the underlying drivers of GDP, asset values, corporate revenues and employment, inflation, government stimulus and the impacts of COVID variants, all of which impact our clients and our business. 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 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 have 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 expenses that incurred within 2021, which have 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 an expense growth. During the year, as we previously communicated, we saw revenue growth outpace 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 reduction of T&E, we think about growing margins over the course of the full year.

We expect to deliver margin expansion in 2022 as we continue our track record of cost discipline and managing investments and long-term growth on an 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 was a favorable impact of roughly $0.23 per share for the full year. If currency will remain 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 noncash pension expense of approximately $11 million for full year 2022 based on current assumptions. This compares to the $21 million of noncash 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 $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 repurchase 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 expect an investment of $180 million to $200 million. As we've said before, we manage 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 a 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 manage liquidity risk through a well-laddered 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 -- funded pension balance improved by nearly $500 million in 2021, reflecting continued progress and a result 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 a chance to reduce the risk of future volatility related to funding status or regulatory changes. Our retirement team's insight and analytics in this space can help our clients access new capital to efficiently reduce their risk, often with a partial pension risk transfer, creating a 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 returned nearly $4 billion to 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 & Answers:

Operator

[Operator instructions] Looks like our first question will come from Elyse Greenspan from Wells Fargo. Please go ahead.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi, thanks. Good morning. My first question goes back to some of Christa's comments. You guys mentioned investing organically and inorganically over the coming year.

So I was 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-point average you mentioned over the past decade.

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Thanks so much, Elyse. As we stated previously, our goal is to grow margins each and every year, including in 2022. And we expect 2022 margins to be driven by accelerating revenue growth, portfolio mix shift to higher-growth of 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 expansion of 160 basis points in 2021. And there will always be lumpiness from quarter to quarter, which we did see this year, in terms of the timing of investment and discretionary expenses. So are we going to expand margins in 2022? Absolutely. And as we look to 2022, we also expect investments in colleagues, some ongoing reduction 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 -- Wells Fargo Securities -- Analyst

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

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

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're in a really strong capital position. And so you're right, Elyse, the first starting point is expectations for free cash flow, which is 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 buybacks 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 but 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. And we're 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 -- Wells Fargo Securities -- Analyst

Thanks for the color.

Operator

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

Unknown speaker

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 for more expense saving initiatives?

Greg Case -- Chief Executive Officer

We'd start, I think, with our entire design, our entire approach is really around, as it always is, around client delivering, which we're trying to accomplish, supporting our colleagues to do that. So we will, first and foremost, really optimize around that approach and that 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 what it will be. We'll make investments, as Christa just described, on a return on invested capital basis and that's actually worked exceptionally well for us. And where there's opportunities to create optimization, we'll do that.

Where there's opportunities to invest to create a better outcome for clients and colleagues, we'll do that. So that's really how we thought about it and it's worked exceptionally well for us, especially as the environments continue to evolve.

Unknown speaker

OK, great. And then you noted in your slide deck that exposures in pricing on the P&C side were modestly positive. Can you talk to us about what you're seeing in terms of momentum there and whether you have an outlook on the P&C pricing environment for '22?

Greg Case -- Chief Executive Officer

Go ahead, Eric.

Eric Andersen -- President

Sure, Greg. Thanks. Listen, I would say, and I think I've said this on a 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 role in this, when we work with our clients, is really about, first, how they do risk identification, risk management. So there's a lot that they do that doesn't go into the market. And then, ultimately, they're also financed, 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 ability. They look at retentions, they look at coinsurance, they look at deductibles, they look at terms and conditions, they look at limits, all these areas.

In fact, 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's going up, the market's going down, versus what they do for their own portfolio.

OK, thank you.

Operator

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

Paul Newsome -- Piper Sandler -- Analyst

Good morning. Thanks for the color, everyone. I was hoping you could give us a little bit more on the relationship between organic growth and margin expansion over time. The rule of thumb in the industry has been sort of 3% to 4% organic growth, where most brokers allows for -- or margin expansion.

But there's been some folks have been talking maybe that, because of the pandemic, that relationship has been broken down and I really wanted to see what your thoughts there on.

Greg Case -- Chief Executive Officer

Well, the top line, a couple of things. First, when you think overall about what we've said around organic, we've continued 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 we've described. And you've seen us kind of go to mid-single digit or greater and we see that opportunity obviously achieved in 2021.

We see that opportunity in 2022 and beyond, again, serving existing demand that's out there, but also net new demand, new addressable markets 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 and what we're able to accomplish. If you think about it, over the last 10 years, there's kind of a variety of different growth environments. We've achieved margin expansion and fully expect to do that.

But Eric, what would you add to that?

Eric Andersen -- President

Greg, I would say there's 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. You've got what 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 is 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 they're facing with climate while also investing in the future to provide new opportunities to help manage those risks. So there are issues that are happening that would be -- have been considered horizon risks that are today on everybody's front door, as 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 -- Piper Sandler -- Analyst

Great. 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, in just about everything brokerage. And there seems to be just an endless supply of new roll-up companies, new probably roll-up companies.

But it's hard to be outside in the know if 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 take on the current environment?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

So Paul, one of the things we do is we look at -- we start from client need and we then build our M&A pipelines around the highest growth, highest margin, highest return on capital opportunities, which are really aligned with the biggest areas of client needs, whether that's health and associated benefits, whether that's delegated investment management, whether that's data analytics. And so a lot of the areas that we're actually focused in, we're actually building relationship with companies well before they go through a process. So 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 that capability into Aon.

And we expect to do a lot more of that in 2022.

Paul Newsome -- Piper Sandler -- Analyst

OK. Thank you very much for all the help. Appreciate it.

Operator

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

Yaron Kinar -- Jefferies -- Analyst

Good morning and thanks for taking my question. Actually, it's really 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. And yet you called out, at the beginning of first period or first quarter '22, a diluted share count of 224 million almost.

Can you maybe provide some color as to why that share count will be going up?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

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 -- Jefferies -- Analyst

OK, so that's apples to oranges. OK. 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

Yes, of course. So when you issue shares, you increased 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 issue has been remained the same. So we've been very disciplined about the granting amount we're giving out.

But obviously, as the stock price increases, the dilutive impact decreases. So in 2021, as an example, we issued 1.7 million shares.

Yaron Kinar -- Jefferies -- Analyst

Thank you.

Operator

Next, we'll go to the line of Jimmy Bhullar from J.P. Morgan. Please go ahead.

Jimmy Bhullar -- J.P. Morgan -- Analyst

Hi. Good morning. So just I think there were a lot of questions about just or concerns about the fallout from the Willis deal. And based on your organic growth, it 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 expenses, 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 pay a little bit more to retain talent, whether because of inflation or just because of the deal breaking up?

Greg Case -- Chief Executive Officer

Jimmy, I appreciate the question. Both of them, in fact. Let's start with the first one. And when you consider and you think about our ability to maintain momentum over '22, '23, '24 and, really, over time -- and with the final momentum, by the way, because we'll 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 at 9% organic; margin at 30%; free cash flow, double digit; more important, colleague engagement, 80%. Voluntary attrition, by the way, is below pre-COVID levels. And then client need, as Eric was describing, as high and getting higher but it's also evolving.

And so if you think about this, Jimmy and say, look, the momentum we have going into 2022 is exceptional and it really is on all these fronts: financial performance colleagues and client needs. But most important, as you ask 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 and why we're going to continue to perform in '22,'23 and '24. And it's 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're 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, well, 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 if you think about it, we're getting to make a difference in all these areas that matter for clients, then 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'd add to that first piece around just where we're going?

Eric Andersen -- President

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. So 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, a 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 backgrounds, 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're 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

And then on your comp and benefits question, I think you said expenses are going up. We are absolutely investing in our colleagues. We're 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're 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 -- J.P. Morgan -- Analyst

OK. 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? First, if you could just comment on the positive and negative of the pickup in inflation?

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

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're on inflation, is interest rates. So if interest rates were to continue to rise, that is a very positive dot 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 -- J.P. Morgan -- Analyst

Thank you.

Operator

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

Adam Klauber -- William Blair and Company -- Analyst

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

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 lower revenue growth, lower-margin, low 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 prove 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 portfolio, but Aon Business Services is probably a much bigger lever for us in driving margin expansion going forward.

Greg Case -- Chief Executive Officer

Kind of 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're 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.

I think because there's 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.

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Absolutely.

Adam Klauber -- William Blair and Company -- Analyst

OK. 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 -- impact in that business across the market.

It has been impacted by some 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? Are HR managers getting more engaged? What they do more for the workforces as we go into 2022?

Greg Case -- Chief Executive Officer

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 workforce and talent. So we love the space overall from a talent and a health standpoint.

While it also ties into what's going on, on the retirement side and I think 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're seeing -- we see tremendous opportunity on the health side everywhere around the world, not just in the U.S. And as Eric described before, it connects with demand in other areas that touch employees like retirement and all aspects of that.

Eric Andersen -- President

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're best able to drive value for the company, but also for the individual or career opportunities as well.

Operator

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

Greg Case -- Chief Executive Officer

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

Operator

[Operator signoff]

Duration: 55 minutes

Call participants:

Greg Case -- Chief Executive Officer

Christa Davies -- Chief Financial Officer and Executive Vice President of Global Finance

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Unknown speaker

Eric Andersen -- President

Paul Newsome -- Piper Sandler -- Analyst

Yaron Kinar -- Jefferies -- Analyst

Jimmy Bhullar -- J.P. Morgan -- Analyst

Adam Klauber -- William Blair and Company -- Analyst

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