Aon Plc (AON) Q4 2023 Earnings Call Transcript

Aon Plc (AON -6.85%)
Q4 2023 Earnings Call
Feb 02, 2024, 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 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 -- Chief Executive Officer

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, deliver for our clients and support each other. As we reflect on 2023, we've observed that the client demand driving our Aon United journey trends around increasing volatility and interconnected risk have accelerated. Specifically, we see poor 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 3x3 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 in 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 3x3 plan and the complete workforce strategy efforts that reflect our simplified and more connected go-to-market strategy.

We closed the year with strong operating momentum and also took action to build upon our ABS-driven capability to deliver innovative and accretive new products into the middle market by announcing our intent to acquire NFP. NFP, under the leadership of Doug Hammond and an exceptional team, is the premier operating platform in the middle market segment, with tremendous client relationships and distribution. And together, we can bring stronger analytics and innovation to this space. And not just capability, but content that can serve the middle market like Aon's Cyber Quotient Evaluation, or CyQu, a proprietary platform that helps clients identify, measure, and manage cyber risk.

NFP's operating platform will enable quick and efficient connection to Aon Business Services content, driving meaningful growth in the middle market. And we're incredibly excited about the top- and bottom-line growth potential for NFP given our complementary businesses and expected synergies and the value it will create. For Aon overall, in barely one month into 2024, we already feel the momentum from these actions, best 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 and commercial risk analytics and expertise for our clients. We recently saw this in action at our annual Property Symposium with over a thousand clients and 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 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 enables them to make better decisions.

From the overwhelming feedback and engagement, it's clear, our clients are demanding better solutions and greater support. And because of the steps we've taken and progress we've made with Aon Business Services on products and platforms, we can develop and roll these tools out more quickly for our largest clients and the clients of all sizes, delivered 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 when the need to provide broad health and well-being offerings is greater than ever.

We also saw attracting and retaining top talent as the fourth-ranked risk in our Global Risk Management Survey. Our clients realize it's more important than ever to have a compelling strategy across health, wealth, and talent needs that's delivered in an efficient way to maximize the benefit rewards offering. Together, this creates significant opportunity to work with clients to design and optimize their programs, including core offerings to improve colleague health, how operations drive workers' compensation costs, choosing optimal partners in their health model, and supporting top talent through a strong employee value proposition to ultimately maximize return on investment of their people spend. All these are examples of our 3x3 plan in action.

It's human capital and risk capital, delivered through our Aon client leadership model and enabled by our Aon Business Services. These three pillars reinforce and accelerate our Aon United strategy, which has driven financial performance and gives us great confidence in our outlook. On financial performance, we delivered strong results in the quarter that contributed to full year progress against our key financial metrics. Organic revenue growth of 7% in the quarter and 7% for the full year was highlighted by full year double-digit growth in reinsurance solutions and health solutions, and we've maintained strong overall growth throughout the year on top of 6% organic in the prior year.

In the fourth quarter, commercial risk grew 4% organically, with strength in property, casualty, and construction, even against the headwind communicated in prior quarters of ongoing pressure from trends in the M&A and IPO markets. Wealth solutions organic growth of 5% in Q4 reflects strong growth in retirement, which includes growth from ongoing pension risk transfer projects and work to help clients address changing regulatory requirements. Reinsurance solutions organic growth was 14%, contributing to full year organic growth of 10% as our team closed the year strong while also helping clients prepare for and execute an early 1/1 renewal. Health solutions delivered 11% organic growth, reflecting 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 today 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 our 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 in mid-single digits or greater, delivered over 1,200 basis points of adjusted operating margin expansion, and grown EPS and free cash flow at 11% compounded annual rate, ending 2023 with nearly 3.2 billion in free cash flow. The steps we've taken to accelerate Aon United with our 3x3 plan reinforce and strengthen our long-term financial guidance for the firm, including mid-single digit or greater organic revenue growth in 2024 and over the long term, adjusted operating margin expansion over the long term, and long-term double-digit free cash flow growth. As we've communicated, initiatives like our restructuring program and expected acquisition of NFP impact these items in the near term.

And over time, we believe these initiatives will contribute to significant ongoing shareholder value creation. More important, we view the opportunity as higher over the next five years than at any time in our history. And in closing, we're pleased to report another strong year of progress against our Aon United strategy, which we're accelerating with our 3x3 plan, deliver risk capital and human capital at scale, fully reinforced through Aon Business Services. Looking back on the year, we delivered accelerating growth across three of four solution lines and built momentum across the firm, including 7% full year organic revenue growth, 80 basis points of adjusted operating margin expansion, 10% adjusted operating income growth, and nearly $3.2 billion of free cash flow.

Equally important, we took a series of major actions that positioned Aon for stronger performance in 2024 and over the coming years. Now, I'd like to turn the call over to Christa for her thoughts on our financial results and long-term outlook. Christa.

Christa Davies -- Chief Financial Officer

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. Before the 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 to have a definitive agreement to acquire leading broker NFP, enabling us to unlock the fast-growing midmarkets with Aon Business Services' enabled -- enhanced distribution and further accelerate our Aon United strategy. The steps that we've taken around Aon Business Services now 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. And as Greg mentioned, we see the expected acquisition and our restructuring program reinforcing our Aon United strategy and our 3x3 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 a favorable impact from changes in FX of 2%, and there's 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 fall to the bottom line and contribute to full year adjusted operating margin expansion.

Restructuring actions completed in 2023 are expected to generate $70 million of run rate savings in 2024. At this time, we continue to expect 100 million of run rate savings in 2024 as we continue to execute against our plans for Aon Business Services and our business. As we previously communicated, we've conservatively modeled the expected acquisition of NFP to close midyear 2025. While the combined adjusted operating margin will initially be lower than Aon stand-alone, 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 nonoperating expense. For the full year, organic revenue growth and margin expansion translated into adjusted EPS growth of 6%, overcoming a headwind from nonoperating expense.

I'd note, the change in other nonoperating 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 noncash net periodic pension expense, as well as a gain on sale of businesses in the prior-year period. Also, as noted in our earnings materials, FX translation had a favorable impact 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 to results for the full year 2024.

Additionally, in 2024, we expect noncash pension expense in OIE to be $43 million, spread evenly across quarters, compared to $71 million in 2023. And as we've previously communicated, based on a mid-2025 close, the expected acquisition of NFP is expected to be dilutive in 2025, breakeven to adjusted 2026 EPS, and accretive in 2027 and beyond. At this time, there are no further updates on the regulatory process or deal timeline for NFP. Turning to free cash flow.

We generated 3.2 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 turn -- return to our trajectory of double-digit free cash flow growth over the long term, driven by operating income growth and a $500 million opportunity in working capital.

As we contemplate the expected acquisition of NFP, the transaction strengthens our long-term free cash flow outlook. We expect the transaction to add over 300 million of free cash flow in 2026 and 600 million of free cash flow in 2027. Now, let me provide an update on our accelerating Aon United program, which is enabling Aon Business Services and our 3x3 plan. As Greg highlighted, the 3x3 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 and analytics-based product innovation; and deliver at scale to create better tools, better experiences, and greater relevance for 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've 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 100 million of cumulative savings we expect for the full year 2024. As mentioned, program savings were not material in 2023. As we said previously, we look at the opportunity in Aon Business Services and across our client-facing capabilities. We know delivering our strategy will result in long-term progress against our key financial metrics and will drive more value for clients, colleagues, and shareholders.

Turning now to capital allocation. We allocate capital based on return on capital and long-term value creation. I'd note, over time, we've driven value creation through core business results, share buyback, and acquisitions. As you look historically, we have a successful track record 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 repurchase to continue to remain our highest return on capital opportunity for meaningful ongoing capital allocation. We believe we are significantly undervalued in the market today, highlighted by the 2.7 billion of share repurchase in 2023. We expect to continue to invest organically in content and capabilities we can scale across the firm, and we will continue to assess priorities for inorganic investment, 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'll 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 we'll continue to allocate to drive shareholder value creation.

Between now and the expected close of the deal, we expect discretionary capital allocation will continue to be much more weighted toward 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 for transaction-related debt and as we take steps to delever our balance sheet and return metrics to levels consistent with our current credit ratings profile. Turning now to our balance sheet and debt capacity. We remain confident in the strength of our balance sheet and manage liquidity risk through a well-laddered debt maturity profile.

We remain committed to maintaining our current investment-grade credit ratings. We expect to continue adding debt, supported by EBITDA growth, until we complete the expected acquisition of NFP and expect to maintain our current ratings. As we've previously communicated, we expect to fund the cash portion of the purchase with approximately 7 billion of new debt, with 2 billion borrowed at close and 5 billion raised in 2024 across a range of maturities, subject to market conditions. Following the transaction-related debt issuance in 2024, we expect to incur approximately 12.5 million of negative interest carry expense per quarter until deal close.

As we previously communicated, the financing and capital management plan contemplated in this transaction is consistent with maintaining our current investment-grade credit profile. We expect our credit ratios to be elevated over the 12 to 18 months post-close, and we expect to bring our leverage ratios back in line with levels consistent with our credit profile, driven by substantial free cash flow generation and incremental debt capacity from EBITDA growth, noting our track record of effectively managing leverage within current ratings. In summary, in 2023 we delivered strong operational performance, contributing to continued progress against our Aon United strategy. Our strong financial results and disciplined capital management enable us to return 3.2 billion to shareholders through share repurchase and dividends.

The steps we've taken around our 3x3 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.

Questions & Answers:

Operator

Thank you. We'll now be conducting the question-and-answer session. [Operator instructions] And our first question today will be coming from the line of Andrew Kligerman with TD Cowen. Please proceed with your questions.

Andrew Kligerman -- TD Cowen -- Analyst

Hey. Thank you. Thank you and good morning. Kind of interested in the robust growth in both the reinsurance business and the health solutions business and the sustainability there.

On reinsurance, with 14% organic growth, you know, was it largely driven by the capital markets and advisory, and how sustainable do you think that can be? And then on the consumer benefit solutions inside of health, you know, what actually drove the consumer benefit solutions strength?

Greg Case -- Chief Executive Officer

Well, Andrew, let me start, and, Eric, chime in here as well. So, to start overall, really -- we're really pleased with how we closed the year on the growth story overall when you think about the 7% across the firm. Really strong momentum as we build into 2024. But you're right, reinsurance and health, absolutely phenomenal.

Teams were absolutely terrific. And I would, you know, 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, that really is a story amplified by Q4, but really across the year. And it's been highly consistent when you think about the description around the 3x3 plan and risk capital and human capital.

Both of these approaches contributed to growth sort of in the context of health and reinsurance and give us great momentum as we go into 2024. But maybe, Eric, a little texture on both pieces for the year and the quarter.

Eric Andersen -- President

Sure, Greg. It's a great question. And just to reaffirm, just a fantastic team operating at -- really, on fire. I would say, on Q4, to go to your question, there was record cat bond issuance for the quarter, but we also had very strong growth in treaty and fac.

So, across the board, good. And I would say that the trends that we have been seeing over the last couple of years, I think, have an opportunity to continue. Certainly, whether it's climate change, whether it's, you know, casualty uptick in terms of lost costs, whether it's opportunities from a profitability standpoint that our insurers are dealing with from their own books of business, the need for data and analytics, the need for capital support as they position their primary businesses are all still there, and it's a global answer. So, we're seeing it in Europe and Asia-Pacific, as well as strength in North America and the U.K.

So, we're really optimistic about the business and feel like it's really well positioned. And then maybe on the health side, just to comment on the health side, is that I think the same thing, right? We've had great wins in the core health and benefit business and, as you mentioned, the consumer business across the globe, whether, you know, led by EMEA, UK, U.S. And it really was new logos for us on core health and benefits. And I think on the consumer side, the ability to offer, you know, unique products to the consumer part of, you know, our corporate clients is really a strength of the firm, and those products evolve, and I think they're meeting the needs of the individual consumer.

And we also see that as an opportunity to continue to grow.

Andrew Kligerman -- TD Cowen -- Analyst

Excellent. And then just lastly, on M&A, I guess, you know, 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 target -- targeted businesses where you'd like to be?

Greg Case -- Chief Executive Officer

So, let's start overall, as Christa described, you know, we continue to look as we think about deployment of capital. Obviously, buyback, you know, is top of the list given how undervalued we are. But we're looking across the board, even as we think about sort of the closure on the NFP front. And again, return on invested capital-based, content-based in every way, shape, or form.

But we see opportunities, you know, around the world, and our pipeline continues to be very strong. But what else would you add from a capital allocation standpoint?

Christa Davies -- Chief Financial Officer

I mean, reinforcing exactly what you said, Greg. We allocate capital based on return on capital. We definitely base on the free cash flow outlook in 2024 and in the long term. See we are significantly undervalued, and we will disproportionately allocate that free cash flow to buyback in 2024.

But we do have a great M&A pipeline, Andrew, to your question. In areas like data analytics, if you think about, you know, the acquisition of Tyche, you know, a fantastic acquisition in the data analytics space. In areas like health, as, you know, Eric highlighted. And so, there are a number of areas that are front and center for clients in terms of meeting their emerging challenges.

Andrew Kligerman -- TD Cowen -- Analyst

And if you see the right opportunity, you wouldn't hesitate to go after it, correct?

Christa Davies -- Chief Financial Officer

And, Andrew, the thing I would say is it's all about return on capital. And so, given how undervalued we are, buyback is the top of the list. And for us to, you know, invest in M&A, it's got to be buyback. And so, you know, we'll continue to look at everything, and there's certainly some terrific opportunities out there.

But we'll continue to be very disciplined on return on capital.

Andrew Kligerman -- TD Cowen -- Analyst

Very helpful. Thank you.

Operator

Thank you. Our next question is from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your questions.

Unknown speaker

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 -- Chief Financial Officer

So, thanks so much for the question, Jack. We do continue to manage the portfolio actively. These are businesses that we are divesting. And so, we think about this as just a better representation of our revenue and business going forward.

It is in commercial risk, and we communicated the 1% impact in Q4 and for the full year.

Unknown speaker

Got it. Thank you. And then the second question, you called out again this quarter a 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's revenues touched M&A spend? Is it a big enough driver to impact -- to continue negatively impacting growth given that M&A volumes are still falling by double-digit levels?

Greg Case -- Chief Executive Officer

So, Mike, if you step back, it's been the continuation of what we've talked about throughout the overall year in terms of sort of where we are. And we would observe -- by the way, we held serve if you think about Q4 '23 versus Q4 '22, you know, stayed on 4 and 4, so it's sort of same year over year, even against this headwind. And we haven't disclosed sort of the detail on sort of, you know, the impact, but it's substantial. We've got an amazing group of colleagues who serve this marketplace.

And as Eric has 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, as you know well, is extensive. We'd remind you, you know, it shows up in our organic when the deal is complete.

And we see lots of things in the pipeline as sort of things are coming to pass, and we fully expect, you know, over the course of 2024 to see a return. But this is meaningful for us, and we've been able to work it very, very strongly and maintain growth across the board, even in the face of this headwind. 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, the corporate M&A, corp dev teams, the insurance markets, the reps and warranties, tax indemnity, tech, and we essentially were going through the marketplace just from a growth standpoint, but also from a product innovation standpoint, recognizing that as the deals return, and they will, we want to make sure we're well situated with the clients, with the markets, making sure the products are fit for purpose and are evolving to meet the needs, not just here in the U.S., but in Europe and other places where, you know, 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.

Unknown speaker

Thank you.

Operator

Our next question is from the line of Jimmy Bhullar with J.P. Morgan. Please proceed with your questions.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Hey. Good morning. So, first, just following up on the whole M&A discussion. It seems like capital markets' activity is beginning to pick up and the investment banks are seeing that across the board.

So, wondering if you are seeing any signs of that in your business as well or is it more your hope that things will pick up in 2024 but you haven't seen any of it?

Greg Case -- Chief Executive Officer

Jimmy, we're seeing exactly the same thing you're seeing and you're hearing about. And listen, you can imagine, this is a market where we're highly connected to with clients and with all the banks and everyone else involved in the process. And, you know, I would say, there's high expectations everywhere. And you'd only listen to the investment bank quarterly calls to sort of understand that.

And so, we've certainly seen lots of potential. And as Eric described, you know, 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 are completed. And so, as you see that move, you can expect it's going to be fully reflected in our performance.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

OK. 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 trends that other brokers have reported. So, what's really going on in the U.S.

that's pressuring the growth to being flat despite some of the tailwinds in the economy overall?

Greg Case -- Chief Executive Officer

Yeah. I would start overall your overall assertion, I can see where you're getting to, but it really doesn't reflect what's going on in reality. Obviously, the businesses are very, very different sizes. So, one doesn't really offset the other in any way, shape, or form.

We would come back to the overall commercial risk story. It's exactly what we described before, which is, listen, we are exactly where we were in Q4 of last year with -- you know, it was an emerging headwind and became a substantial headwind. We overcame that, and a lot of this is not just commercial risk, but the connection of commercial risk and reinsurance and risk capital. And we closed the year, you know, we observed some others in the market seem to be retreating.

We're not retreating at all. It's 4% versus 4% of last year, and we're going into '24 with a lot of momentum. So, we're very excited about the overall, you know, prospect as we move into 2024. And maybe, Eric, talk a little bit about the risk capital implications of how this is coming together and the potential around it.

Eric Andersen -- President

Yeah. Sure, Greg. And I think certainly strong retention, strong new business, both in North America and around the world. And that commercial risk business is important.

But maybe I'll use it as an opportunity to show the connectivity between sort of the risk capital framework and maybe I'll talk about the cat bond that I know we wanted to get some airtime on. We did the first-ever cyber cat bond in the quarter, which was a great opportunity for the -- for our team working with one of our insurance company clients to take the systemic, you know, cyber risk and get it into the capital markets, which does two things. It actually allows the insurer to open up the amount of limit they provide to clients, which was something that our clients were looking for. And it also appropriately values and places that type of systemic risk into the right capital source.

But the point of it is we were then able to take that ILS structure using the data and analytics that we did to build it and used it to do an ILS structure for one of the largest corporates in Europe who was looking for a traditional sort of cyber program but wasn't able to get the limit they wanted. So, taking something that we did for an insurer, using the data and analytics and structuring, bringing it to a large corporate. And maybe finishing it, because, Greg, I know you mentioned NFP in your opening comments and just to tie it through, able to take the same data and analytics that we use to build the cat bond and then the corporate structure to actually power the CyQu product that is built for the middle market, which then attaches a risk transfer product to it. So, again, using data and analytics on one topic, just cyber, actually to drive growth in reinsurance and commercial risk and ultimately in the middle market part of the commercial risk segment.

So, that's what's driving the retention. That's what's driving the strong renew business. And I think those opportunities exist for us, you know, across multiple areas.

Operator

Thank you. Our next question is from the line of Bob Huang with Morgan Stanley. Please proceed with your questions.

Bob Huang -- Morgan Stanley -- Analyst

Hi. Good morning. First question is about the Vesttoo legal settlement. Can you talk about how much of the 197 million is likely to be the full extent of the impact? In other words, in the press release, you obviously mentioned there is a potential of some of that being sent back to you.

What's the progress of that? Can you maybe give a little bit more detail of how confident you are that some of the 197 million will be paid back to Aon?

Greg Case -- Chief Executive Officer

Listen, I would just open by saying that we strategically wanted to draw a line under this issue for our market partners and for ourselves so that we were able to move forward together as partners. And so, the effort was made to come to an agreement with each of the affected parties, sorry, so that we could then continue to both, one, trade forward, but then also begin to work on recoveries together. And so, we see an opportunity for recoveries that will happen over time as the bankruptcy process runs its way through, and we're confident that we'll be able to recover, you know, a meaningful amount.

Bob Huang -- Morgan Stanley -- Analyst

OK. Thank you, Second question is on cash flow. I understand that you kind of mentioned this a little bit is that on your slides, you 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 it's mainly due to the NFP acquisition over the next two years.

Is it safe to assume that like is that the reason and can you maybe give a little bit more context in terms of how you're thinking about free cash flow guidance going forward?

Christa Davies -- Chief Financial Officer

Yes. Thanks so much for the question. So, firstly, I'd reiterate your point, which is we are incredibly confident in the long-term free cash flow growth of double digits and 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 of free cash flow in 2027. And look, as we think about free cash flow in 2024, we haven't given specific guidance, but here's how I'd think about it.

We expect to grow free cash flow, driven by operating income growth and improvements in working capital. We do expect ongoing cash tax headwinds. We've communicated the restructuring program, though we haven't given specific guidance around the timing of the cash impacts. And we've talked about the impacts of NFP.

We don't expect to incur material costs before close. And we've said we expect to incur 12.5 million of negative interest carry expense per quarter until deal close, following the transaction-related debt issuance. We've said capex will grow in line with the business from 252 million in 2023. We've communicated legal settlements and, as Eric just said, expect those to flow through over the next several years, noting 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 impacts of restructuring and NFP. Very excited about the long-term double-digit free cash flow trajectory of Aon. Lastly, in 2024, we do expect a disproportionate majority of the free cash flow to be allocated to buyback given we're operating on a return on capital basis and we are substantially undervalued today.

Bob Huang -- Morgan Stanley -- Analyst

Got it. Really appreciate the color. Thank you for reiterating that. Thank you.

Operator

Our next question is from the line of Rob Cox with Goldman Sachs. Please proceed with your questions.

Robert Cox -- Goldman Sachs -- Analyst

Hey. Thanks for taking my question. Maybe just the first question on, you know, one of the higher growth areas of insurance. In thinking about the higher growth areas, one of those is currently the E&S space.

And I was just curious on how Aon thinks internally about the feasibility of owning a wholesale broker and is there any reason to think that could potentially be a good fit?

Eric Andersen -- 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 -- or the E&S market over the last five to seven years on the magnitude of tenfold. And there's a lot that's driving it, right? Whether it's the losses that you see in the property market, whether it's regulatory pressure on pricing and forms.

And there's a lot to it. We have consolidated our wholesale relationships so that we're actually working in partnership to get access to those -- to that capital when we need it for our clients. Some of our competitors do own wholesalers, and that's the way they chose to enter into the marketplace. So, it's something we always look at, but we like where we are today and we like the relationships that we have with our major partners today.

Greg Case -- Chief Executive Officer

As we need it.

Eric Andersen -- President

That marketplace tends to flex up and down with different market cycles. And so, I would say, right now, it is based on the challenging market conditions, especially in the property area. It's significant growth, but, you know, it'll ebb and flow over time.

Robert Cox -- Goldman Sachs -- Analyst

Got it. Appreciate that. And maybe just to follow up on pricing, I think some of the other brokers have talked about expectations for fairly stable E&C pricing in 2024. And I'm curious if Aon shares that view.

If there's any other color you would want to add on the pricing trajectory?

Eric Andersen -- President

Listen, I think a number of people have commented on it during, you know, this earnings season. I would say that we're probably heading toward 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'll also see challenges still in certain parts of property, and people are a little worried about casualty as sort of social inflation.

Some nuclear verdicts have kind of hit the wires, and they're worried about prior-year reserves. So, I think rather than just a rising market for all, what we are going to see over '24 and '25, it's going to be very product-specific and very risk-specific, which is something that I think plays well to us because it allows us to use our teams and our analytics to be able to help them think through how they either want to trade or manage the risk. And so -- but I think that's where we see the market going in '24 or '25.

Greg Case -- Chief Executive Officer

I'd maybe just add, Rob, as well, as you think about impact as it relates to our overall performance, bringing it back to Aon, we talked about mid-single digit or greater. We don't see anything changing that view. Again, pricing is one aspect. We talked about market impact, which includes insured values and a number of other pieces that fit into the equation.

Our ability to work with clients in any type of marketplace and our advantage in doing so. And so, our view is, you know, market will be what it will be, a series of markets, as Eric has 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.

Robert Cox -- Goldman Sachs -- Analyst

Appreciate that. Thanks.

Operator

Our next question is from the line of Elyse Greenspan with Wells Fargo. Please proceed with your questions.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Hi. Thanks. Good morning. I wanted to come back to commercial risk.

You know, you guys said, I guess there was a 1% impact, you know, of businesses that you put up in dispositions in the quarter overall, right? So, that would imply if it impacted commercial risk, that was 2% in the segment, which would bring your organic to 2% before that adjustment. And I know you've highlighted the M&A and the SPAC and the IPO slowdown. And I think, Greg, in response to an earlier question, you pointed that the U.S. probably would not have been flat, right? That there's -- we couldn't really back into that.

But what is actually impacting commercial risk away from the M&A and SPAC business that, you know, aside from this disposition, the growth would have been 2%?

Greg Case -- Chief Executive Officer

Christa, you might be on mute.

Christa Davies -- Chief Financial Officer

Oh, sorry. So, Elyse, one of the things I wanted to clarify was on the held-of-sale item, it is across a couple of solution lines, and we didn't disclose the specifics. But we are divesting this business. And so, we think it's a much better representation of our organic revenue growth and the go-forward business.

And then as we continue to describe, the major impact on commercial risk is the M&A and IPO environment. And that has remained depressed. And Eric and Greg have outlined how they see that, you know, recovering in 2024. But, Eric, would you like to add anything here?

Eric Andersen -- President

You know, Christa, the only thing I would add, I mentioned it before is stronger business growth, strong retention, and rollover for our clients in North America and around the world. So, the underpinnings of the business continue to be very strong.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

OK. That's helpful. And then as we -- you know, one question I had on reinsurance, right? Obviously, it's a lower volume quarter. We went through kind of what drove the growth in the fourth quarter.

As we think about, you know, the Q1 and '24, right, we've heard about the renewals that, you know, January 1, you know, being good, but, right, obviously price increases came down because they were so strong last year. How do we think about reinsurance organic growth in a still strong, you know, but decelerating price increase environment?

Eric Andersen -- President

Maybe I'll take that one, Greg. Listen, I think there was certainly adequate capital to get the clients' needs done for the 1/1 renewals. Then that's predominantly Europe and parts of North America, recognizing that Florida and Asia-Pacific tend to be, you know, April and June of the year. I would also say, you know, part of the risk capital strategy is how do we actually deploy reinsurance capability into either commercial risk or new sectors.

And so, just to give you an example, it's kind of early days, but, you know, I spent some time in Dubai at the COP conference, and we spent a lot of time working with, you know, various government entities around how you bring reinsurance structuring capability to help mitigate the effects of a climate -- changing climate. And so, that is core reinsurance, you know, data and analytics, structuring global access to capital to a whole new sector of potential clients. And so, I do think it's -- certainly, the main of the business continues to be serving insurance companies, but there is opportunity outside of that space to drive new growth for us in what you would consider core reinsurance capability. So, that, and as you think about fac, you think about investment banking, you know, ILS markets and being able to use that capital for corporates.

And so, it's a very creative group that is well coordinated with our commercial risk clients in the risk capital framework. And so, we do see opportunities for continued growth in that space over the coming period.

Greg Case -- Chief Executive Officer

I would add, Elyse, though, the momentum of this team in the core space of reinsurance, but more broadly across risk capital has been tremendous. And obviously, the quarter-by-quarter view is helpful, but we look at the annual view. If you think about kind of 10% for the year, that's what's really unique. Not saying, you know, where we're going to be next year other than, you know, mid-single digit or greater across the solution lines, which is what we -- which we aspire to.

And so, I think you can take away, you've just heard on commercial risk, momentum into 2024. And clearly, as you look at our reinsurance momentum into 2024 for all the reasons that Eric has described in the core solution line, but also in risk capital. Don't lose this. This risk capital orientation is a big deal.

It is meaningful in terms of sort of what we're doing. Same on the human capital side. The connectivity across reinsurance and commercial risk creates better solutions. Eric's described a couple of them already.

And so, for us, you know, we feel good about the momentum going into '24 based on the work we did, the groundwork we laid in '23 on risk capital and human capital.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Thanks. And then one more. The savings, I know, Christa, you reaffirmed the 100 million for '24. It doesn't sound like there were any that came through in the fourth quarter.

So, I guess we'll start seeing the savings flow through in the first quarter. Is that correct?

Christa Davies -- Chief Financial Officer

That's correct, Elyse.

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Thank you.

Operator

Our next question is from the line of Meyer Shields with KBW. Please proceed with your question.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

Thanks. So, Greg and Christa, you've been very consistent about the impact of a slow M&A and IPO market on organic growth. I want 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 such differentiated results relative to peers. Is that a concern?

Greg Case -- Chief Executive Officer

Well, if you step back, Meyer, I just would step back and say, look at the overall performance of the firm year over year. In essence, we are up for the year, 6% last year, 7% this year across the firm. If you think about commercial risk, again, we were 4% in Q4 last year. We're 4% in Q4 this year, even against a substantial headwind we've described.

And what we want you to understand in the context of that is imagine all the things that sort of went behind that, that created that momentum in Q4 and in the now 2024 in the commercial risk space, we've overcome that and maintained what we were last year. So, we're very optimistic about the momentum in the 2024. This category is substantial in M&A, and we love it, and we are disproportionately good at it. We are unbelievably good at it from a client leadership standpoint.

And so, you know, we don't feel bad about that in the least. We love it, and we're going to double down in it. But we also continue to build out other platforms. You know, this year has given us the opportunity to really think that through and really leverage the risk capital orientation.

You know, I would highlight, I mentioned it in my comments, you know, the Property Symposium. We got a thousand clients and markets in the room, and we bring up the Property Risk Analyzer. And this is really a function of reinsurance and commercial risk analytics, and the power of that in the minds of our client were substantial. And so, now, we've got a suite of capabilities that are going to contribute to the commercial risk and the reinsurance as we head into 2024.

So, from our standpoint, what we'd really like you to take away and certainly our feeling and commitment is mid-single digit or greater; the translation into OI margin improvement; and as Christa described, the translation into double-digit free cash flow growth. We have had -- never had more conviction about each of those three categories and are delivering those and we'll continue to deliver those. And the addition of NFP is only going to strengthen our free cash flow profile over time. So, for us, you know, we're always going to be cautious in our approach but resolute, and we feel very good about the momentum going into 2024.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

OK. 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 treaty, facultative, and investment banking.

Is that component of revenues positive or negative to overall margins?

Christa Davies -- Chief Financial Officer

So, reinsurance is a similar margin business to all of our businesses, which is why we operate Aon as one segment, Meyer. And one of the things we would say part of our Aon United strategy is we are bringing together a lot of the back-office technology, operations, and shared service functions into Aon Business Services, which is enabling our focus on common and shared operations, technology platforms at scale, and then product innovation at scale. And so, we're really operating more and more the firm in one segment with risk capital, human capital, enterprise client and Aon Business Services.

Greg Case -- Chief Executive Officer

And, Meyer, this is worth a -- this is really a great question and really worth a point of high emphasis. This connectivity that Christa described in risk capital, human capital, connected through enterprise client, delivered and amplified by Aon Business Services, a big deal. Our ability to continue to drive margin improvement, as we did this year, with lots of investments into the business, is high. And the exciting piece is this connectivity on Aon Business Services, 15,000 colleagues working this interconnected into the business is not just continued margin improvement, which you saw, but also the capability to really create outcomes that really drives, you know, client innovation options that they didn't have before, as well as service enhancements they didn't have before.

And so, these pieces all come together to sort of create this integrated view, which really gives us great confidence around not only top-line growth but also margin improvement and the implications on free cash flow.

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

OK. Fantastic. Thank you so much.

Operator

Our next question is from the line of Charlie Lederer with Citi. Please proceed with your questions.

Charlie Lederer -- Citi -- Analyst

Hey. Thanks. Good morning. I guess, first question, as we've seen some reserving issues in casualty and financial lines across the industry, I'm wondering if this were to become a more widespread issue for the industry, could that impact Aon's profit commissions and is that material enough that it would impact your margins or organic growth in your term?

Eric Andersen -- President

So, I'll say we don't do the profit commission, so that's not true for us. And so, that's not in our portfolio. But I would say, in terms of what's happening in that marketplace, I do think it does reflect some pressure that the insurers are seeing, especially on the casualty side. I would say, on the financial line side, it's probably more a question of just supply and demand where a lot of the new [Inaudible] to the market has come.

[Technical difficulty] You're just seeing price competition versus any prior loss problems. But I think the casualty piece with medical inflation, they call it social inflation, is affecting their prior reserves. So -- but it will not have an impact on us from that perspective.

Charlie Lederer -- Citi -- Analyst

Got it. Thanks. And then on that commercial risk segment, just wondering as, you know, deal volumes come back eventually, does that carry a higher margin where that would, you know, help your margins as that becomes a larger proportion of the mix again?

Greg Case -- Chief Executive Officer

Again, I would just reinforce the point, Charlie, around sort of as Christa described, overall margin, ability to sort of drive margin across the firm. You know, we've got a very long track record of being able to do that over the last decade-plus. And we have enhanced our ability to do that with Aon Business Services. And so, we are excited about adding growth as it also helps us deliver on margin.

You don't see us really make that trade-off. We really do both. And the profile is ahead of us to do exactly that. And we would absolutely see as the -- you know, our 3x3 plan fits together, that M&A is going to be and IPOs are going to be a fundamental part of that, and we're excited to have that growth come back.

Charlie Lederer -- Citi -- Analyst

Got it. Thank you, guys.

Operator

Thank you. Our last question comes from the line of Jimmy Bhullar with J.P. Morgan. Please proceed with your question.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Hey. Thanks. I just wanted to follow up on your comments around the expected timing of the close of the NFP deal. Is mid-2025 what you realistically think the deal will close or is it just more given the uncertainty, you don't want to overpromise because it seems like it's a long lead time for a deal that really, in my view, doesn't entail a lot of antitrust or other issues given the market focus of NFP?

Christa Davies -- Chief Financial Officer

Thanks so much for the question, and we agree. We operate in very different segments with very limited overlap, and we fully expect to close in mid-'24. We have modeled the deal very conservatively with a mid-'25 close, and that is us being conservative financially.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

OK. But in terms of -- and then in terms of sort of processes, are there areas where there is some overlap that we can't see from the outside or do you not think there's going to be anything related to potential dispositions in order to get the deal approved?

Christa Davies -- Chief Financial Officer

So, Aon and NFP operate in highly competitive markets. And most importantly, the purpose of this transaction is to grow Aon's presence in the fast-growing middle market segment. And so, we do not see overlap, and we again expect the deal to close mid-'24.

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

OK. Thank you.

Operator

Thank you. 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 would like to add a couple of thoughts as we close today, just picking up Eric and Christa on some of the comments that have been made throughout the call, which have been very, very helpful. Just iterate a couple of things. First, reflect on the long track record we've had delivering on the strategic initiatives and external commitments and think about it's included a number of significant acquisitions and divestitures and a history of successfully executing around the restructuring programs.

And that brings us to where we are today, which, you know, you can tell from our enthusiasm, we're very excited about if you think about the 3x3 plan, each component of our strategy and the execution plan here are fully aligned, totally connected. If you think about Eric described today risk capital and human capital and the capability that comes together with that, the client responsiveness has been exceptional. As we continue to build that, it's now connected completely through our ability to deliver that into the field, enterprise client and Aon client leadership model fully connected. And then this amplification on Aon Business Services came up a few times today.

We encourage you to really dig in and understand the power of what this really means. Fifteen thousand colleagues in this group, well beyond the efficiency that Christa described that you saw in the '23 OI margin of 31.6. It's really the ability to deliver better content in a better service experience. That combination really is extremely -- it's exciting for us in terms of what it means for Aon and for our clients.

And as Eric described, it really -- if you think about sort of NFP, the opportunity to NFP is there because of their great capability and awesome operating platform and our Aon Business Services capability. And again, we bring all that together with a $900 million investment to accelerate that, do that over three years across the 3x3 plan with what we're taking more time. So, I just want to highlight, as the questions come together, they're really connected in our mind and really put us in a unique position to execute against our overall plan and deliver great momentum in '24, '25, and '26. So, just want to end with that summary and say thanks to everyone for being part of the call today and look forward to our discussion next time.

Operator

[Operator signoff]

Duration: 0 minutes

Call participants:

Greg Case -- Chief Executive Officer

Christa Davies -- Chief Financial Officer

Andrew Kligerman -- TD Cowen -- Analyst

Eric Andersen -- President

Unknown speaker

Jimmy Bhullar -- JPMorgan Chase and Company -- Analyst

Bob Huang -- Morgan Stanley -- Analyst

Robert Cox -- Goldman Sachs -- Analyst

Elyse Greenspan -- Wells Fargo Securities -- Analyst

Meyer Shields -- Keefe, Bruyette and Woods -- Analyst

Charlie Lederer -- Citi -- Analyst

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