怡安集團 (AON) 2017 Q3 法說會逐字稿

Good morning, and thank you for holding. Welcome to Aon plc's Third Quarter 2017 Earnings Conference Call. (Operator Instructions) I would also like to remind all parties that this call is being recorded, and that 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 third quarter 2017 results as well as have been posted on our website. Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon plc.

Thanks very much, and good morning, everyone. Welcome to our third quarter 2017 conference call. Joining me today is our CFO, Christa Davies. Before beginning the discussion on our Q3 and year-to-date results, I'd like to pause for a moment to reflect on the recent catastrophic events that have impacted various communities and millions of individuals around the world. Our sincere condolences go out to families who are enduring this trauma, to business owners forced to rebuild and to those who remain at risk or without sufficient resources. We are very fortunate that our 3,000 colleagues and their families across 30 Aon offices directly affected by the series of events were safe. During times of tragedy and devastation, it is heartening to see my colleagues from across the firm rise up and unite to help their neighbors, fellow colleagues and clients. Aon's also a partner of Red Cross, investing in their disaster relief efforts to respond in times of need and offering volunteer work on the ground to aid the millions of individuals personally affected. I can't begin to express enough gratitude to my Aon colleagues and our partners who put forth tremendous effort during a time of such human need. With all hands on deck, we are fully focused on supporting our clients and our colleagues through the continued aftermath of these events.

Now referencing back to the specific topic of this call, we'd like to highlight that there were slides available on our website for you to follow along with our commentary today. As we discussed in prior calls, Aon's current position is a result of a proven decade-long strategy that focuses on aligning our portfolio of solutions around our clients' highest priorities in the arenas of risk, retirement and health. We've taken significant steps to get here. Earlier this year, we completed the divestiture of our outsourcing platform, which provides a further catalyst for our strategy and actions to deliver substantial shareholder value. With approximately $3 billion of additional capital to accelerate investment in emerging client needs and in our Aon United operating model, we expect to substantially strengthen our firm even further. We're already seeing improvement in our growth profile, driven by investments in high-growth, high-margin areas across our portfolio. For example, our organic growth has accelerated year-to-date from 2% in 2015 to 3% in both 2016 and now 2017. And we're taking further steps to unite Aon with investments to progress toward a single global business services operating model, increasing Aon's efficiency and connectivity and through one global P&L, encompassing all of Aon's industry-leading capabilities, helping us deliver all of global Aon to our clients in their local markets.

Now turning to the quarter on Page 5 of the presentation. Consistent with previous quarters, I'd like to cover 2 areas before turning the call over to Christa for further financial review. First is our performance against key metrics we communicate to shareholders; second, overall growth performance, including continued areas of strategic investment.

On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the key metrics we focus on achieving over the course of the year: grow organically, expand margins, increase earnings per share and deliver free cash flow growth. In the third quarter, organic revenue growth was 2% overall, highlighted by strong growth in Reinsurance and Retirement Solutions. Operating margin increased 170 basis points, primarily reflecting savings from investments in our Aon United operating model and core operational improvement. EPS increased 18% to $1.29, reflecting both strong operating performance and effective capital management. And finally, free cash flow decreased $881 million year-to-date, primarily reflecting tax payments related to the divestiture. Overall, Q3 was a quarter of continued progress, with year-to-date results reflecting 3% organic revenue growth, 170 basis points of margin improvement and 17% EPS growth heading into our seasonally strongest quarter of the year.

Turning to Slide 7 on the second topic of organic growth and strategic investments. Organic revenue growth was 2% overall in the third quarter. And as I mentioned earlier, on a year-to-date basis, organic revenue growth was 3%, reflecting growth across all 5 revenue lines, with particular strength in Health and Reinsurance Solutions. Reflecting now on each of our core growth platforms. In Commercial Risk Solutions, organic revenue growth declined 1% against a strong comparable of 4% growth in the prior-year quarter. The prior-year quarter included a benefit from certain onetime items. On average, globally, exposures are modestly positive and the impact from pricing was modestly negative, resulting in a relatively stable market impact overall. Our results in the quarter reflect modest growth internationally across EMEA, Asia and the Pacific, driven by strong new business generation and management of our renewal book portfolio. In the U.S., results faced headwind from the timing of certain items. Given recent catastrophic events and significant industry challenges, our global teams prioritize helping clients with immediate action plans, claims processing and recovery efforts in the quarter. Overall, we believe our results in Commercial Risk Resolutions for the third quarter reflect a confluence of unfavorable timing and events in our seasonally smallest quarter against a strong comparable in the prior year. We believe the underlying results are better viewed on a year-to-date basis, and we would expect the fourth quarter to show growth in our seasonally strongest quarter. In Reinsurance Solutions, organic revenue growth was 7%, an acceleration from flat in the prior-year quarter. I would note, this is the second consecutive quarter of the highest level of organic revenue growth achieved in our Reinsurance business in 5 years. Results reflect growth across every major area, including treaty placements, capital markets transactions and facultative placements. We saw particular strength in treaty placements, driven by record new business generation, including several new clients to Aon, and a modest benefit from reinstated premiums following the recent events. Results were partially offset by modest unfavorable market impact, primarily in the Americas.

In Retirement Solutions, organic revenue growth was 5%, an acceleration from 4% in the prior-year quarter. We saw continued strong growth in investment consulting, including double-digit growth in delegated investment management solutions, reflected an increasing client demand for Aon's tailored solutions and effective advice as well as an increase in performance fees for outperforming benchmark returns. Assets under management and delegated investment management continued to trend upward, reaching $118 billion in the third quarter. We also saw solid growth in our talent practice, primarily from compensation survey and benchmarking services. In Health Solutions, organic revenue growth was 2%. We saw strong growth in health and benefits brokerage, including double-digit new business generation, with particular strength in the U.S. and Latin America. Results were partially offset by a decline in project-related work in the health care exchange business. On a year-to-date basis, organic revenue growth was 7%, an acceleration from 4% in the prior year.

In Data & Analytic Services, organic revenue growth was 3%. Results primarily reflect growth in our treaty business, with particular strength in the U.S. Growth in U.S. Affinity was highlighted by continued strong performance in pet and financial solutions as well as a modest increase in claims processing in our flood business following the recent activity.

Now turning to Slide 8 to discuss areas of strategic investment. Clients are navigating an increasingly volatile world, where economic demographic and geopolitical forces, combined with the exponential pace of technology change, are all converging to create a challenging new reality for businesses. Aon has a strong track record of allocating capital for developing innovative first-to-market solutions to help solve problems and create differentiated value in response to specific client needs. We're investing organically and through M&A across our portfolio in areas such as data analytics in our end point and review businesses; cyber risk advisory for the recent acquisition of Stroz Friedberg; Affinity in multiple areas across the business; health and elective benefits brokerage through the recent acquisitions of Admix in Latin America and Univers; health care exchanges, where we offer the broadest set solutions and help; geographically, with a pending acquisition of UMG, reinforcing our industry-leading position in The Netherlands; and finally, in delegated investment management solutions, a business with rapidly growing client demand. In the third quarter, we announced the pending acquisition of the Townsend Group, a leading global provider of investment management and advisory services, primarily focused on real estate. Townsend significantly expands our investment capabilities by bringing greater depth through expertise in real estate and real estate assets to Aon's distribution scale, and furthers our ability to provide more attractive alternative private market asset capabilities to our clients.

Overall, our strategic investments in high-growth areas and in data and analytics are improving the firm's long-term growth profile, driven by new business generation, strong retention rates and increased operating leverage across the portfolio. In summary, during a quarter where client and colleague needs were our immediate priority, we delivered strong operational improvement and double-digit earnings growth, reflecting increased operating leverage and performance on new initiatives, in addition to the year-to-date return of approximately $2.1 billion of capital to shareholders through share repurchases and dividends. Looking forward, we expect a strong finish to the year, with continued momentum amplified by an unmatched level of investment, driving the next wave of innovation for clients and substantial value creation for our shareholders. I'm now pleased to turn the call over to Christa for further financial review. Christa?

Thank you so much, Greg, and good morning, everyone. As Greg noted, our performance marks a solid quarter of progress, highlighted by strong operational improvement and effective capital management, while continuing to take significant steps to increase the effectiveness and efficiency of our operating model. Our results year-to-date reflect growth across every major revenue line, strong operational improvement and double-digit earnings growth, heading into our seasonally strongest quarter of the year.

Turning to Slide 10 of the presentation. Our core EPS from continuing operations, excluding certain items, increased 18% to $1.29 per share for the third quarter compared to $1.09 in the prior-year quarter. Certain items that were adjusted for in the core EPS performance, and highlighted in the schedules on Page 11 and 12 of the press release, include noncash intangible asset amortization, restructuring charges, charges related to certain regulatory and compliance matters, noncash expenses related to pension settlements in the prior-year quarter and the related tax impacts. Included in the results was a $0.01 per share favorable impact from foreign currency translation, due primarily to a stronger U.S. dollar versus the pound and a modestly weaker U.S. dollar overall.

Turning to the next slide to discuss our strong operational performance. Operating income increased 16%, and operating margin improved 170 basis points to 20.3% compared to the prior-year quarter. Operating margin improvement primarily reflects $55 million or 240 basis points of savings from restructuring initiatives and other operational improvements before any reinvestment. This was partially offset by $10 million or minus 40 basis points of transaction costs related to recent acquisitions and $5 million or minus 20 basis points headwind resulting from lower noncash pension income.

Year-to-date, operating income has increased 14%, and operating margin has improved 170 basis points compared to the prior year. From a dollar standpoint, operating income has increased $183 million, with $109 million driven by savings before reinvestment and $74 million delivered by solid organic revenue growth and core operational improvement, strong progress operationally as we continue to execute against some multiyear investments in the firm.

Turning to Page 12. I'd like to spend a few moments discussing the investments we're making to create our next-generation global business services model that allows a better scalability, flexibility and enhanced colleague and client experience. These investments are intended to create one operating model with increased operating leverage. Our primary investment areas are across IT, real estate and people. In IT, we expect to create greater insight from data center optimization, application management and strategic vendor consolidation. In real estate, we expect to drive greater collaboration and engagement through real estate portfolio optimization. And in people, we expect to create greater scalability of operations and activity, including the use of centers of excellence and third-party providers. As part of these operating model investments, we plan to invest an estimated $900 million in total cash out of the $3 billion total outsourcing divestiture proceeds. These investments include an estimated $700 million of cash charges expected to be incurred, $350 million in 2017, $250 million in 2018 and $100 million in 2019; and an estimated $200 million of incremental CapEx expected to be incurred, $30 million in 2017, $100 million in 2018 and $70 million in 2019. There is an additional estimated $50 million of noncash charges included as part of asset impairments and lease consolidations.

Overall, we expect these investments and other expense discipline initiatives to deliver $400 million of estimated annual savings in 2019 before any potential reinvestment.

Following this $900 million investment in our operating model, we're left with approximately $2.1 billion of incremental capital from the outsourcing divestiture proceeds to invest in high-growth, high-margin areas across our portfolio and to return to shareholders.

We will deploy this capital to the highest return on invested capital opportunities. As Greg mentioned earlier, we returned approximately $2.1 billion to shareholders year-to-date through share repurchase and dividends. We also announced 2 significant acquisitions during the quarter, the Townsend Group in our delegated investment management business and UMG in The Netherlands, which are expected to close in the coming months. With the completion of these 2 acquisitions and year-to-date activity, we've committed over $1 billion of capital to M&A in 2017 in high-growth, high-margin businesses.

Turning to the next page. In the third quarter, we incurred $102 million of restructuring-related charges, relating primarily to workforce reduction, IT and other general initiatives. Year-to-date, we've incurred $401 million of restructuring-related charges, representing 53% of the total program estimates. The cash impact year-to-date is an outflow of $199 million. We recognized $55 million of savings in the third quarter and $109 million of savings year-to-date, representing 73% of the expected savings for the year and 27% of the expected total savings.

Now let me discuss a few of the line items outside of operations on Slide 14. Interest income increased $9 million to $10 million in Q3 compared to the prior-year quarter, reflecting additional income earned on the balance of proceeds from the sale of the outsourcing assets. I would note that higher cash balances in the short-term resulting in additional interest income, but balances are coming down through the deployment of capital to pending M&A and share repurchase, such that we would not expect the same level of interest income going forward. Interest expense was similar at $70 million for Q3. Other expense of $5 million includes $15 million of net losses due to the unfavorable impact of exchange rates on the remeasurement of assets and liabilities and nonfunctional currencies, partially offset by $10 million of gains, primarily related to certain long-term investments.

Turning to taxes. The adjusted effective tax rate on net income from continuing operations, excluding the applicable tax impact associated with certain non-GAAP adjustments, increased to 17.5% compared to 14.2% in the prior-year quarter. The adjusted effective tax rate in the prior year reflects a net favorable impact from certain discrete items.

Lastly, weighted average diluted shares outstanding decreased 5% to 257.3 million in the third quarter compared to 269.6 million in the prior-year quarter as we effectively allocate capital. The company repurchased 5.4 million Class A ordinary shares for approximately $750 million in the third quarter. The company has approximately $5.9 billion of remaining authorization under its share repurchase program. Actual shares outstanding on September 31 were 250.8 million, and there are approximately 5 million additional dilutive equivalent. Estimated Q4 2017 beginning diluted share count is approximately 256 million, subject to share price movement, share issuance and share repurchase. Now let me turn to the next slide to discuss our solid balance sheet and financial flexibility. At September 30, 2017, cash and short-term investments decreased to $2.4 billion, which continues to reflect higher balances related to the proceeds from the sale of the outsourcing assets. Total debt outstanding was similar at $6 billion, and total debt-to-EBITDA on a GAAP basis to continuing operations increased modestly to 3.3x. As discussed previously, while debt-to-EBITDA will initially be elevated as a result of the sale of the outsourcing assets, we expect to return back to the 2 to 2.5x range by the end of 2018, driven by operational improvement. Cash flow from operations for the first 9 months decreased $863 million to $289 million, primarily driven by cash tax payments associated with the divestiture, $199 million of cash restructuring charges and $45 million of transaction costs related to the divestiture, partially offset by operational improvement.

Free cash flow, as defined by cash flows from operations less CapEx, decreased $881 million to $164 million, driven by declining cash flow from operations and an $18 million increase in CapEx, including investments to deliver our Aon United operating model.

Turning to the next slide to discuss our free cash flow growth over the long term. We value the firm based on free cash flow and allocate capital to maximize free cash flow return. We've made substantial progress since introducing free cash flow as a key financial metric in 2012, reaching record free cash flow of $2.1 billion in 2016. Our disciplined capital management approach is focused on maximizing return on invested capital, which we've consistently improved each year since 2010, increasing 540 basis points to 17.1% in 2016. We expect the recent sale of our outsourcing assets and investments in our Aon United operating model to improve this even further in 2017 and beyond. We've taken significant steps to maximize the translation of each dollar of revenue into the highest amount of free cash flow, including working capital initiatives and actions to manage our cash pension contributions. Since 2010, we've increased our free cash flow margin by nearly 1,000 basis points to 18.1% in 2016. Looking forward, there are 3 primary areas that we expect to continue to contribute to incremental free cash flow generation. The first is continued operational improvement, driven by expected accelerated organic revenue growth and margin expansion. The second is working capital improvements as we focus on closing the gap between receivables and payables. We expect working capital to contribute to free cash flow by over $500 million over the long term. And third is expected lower cash tax payments reflecting a lower effective tax rate over time.

In summary, this is a solid quarter of progress. We delivered strong operational improvement and double-digit earnings growth, while continuing to take substantial steps to strengthen our firm over the long term, including investments in high-growth areas and in our Aon United operating model. We believe that operational improvements, combined with significant financial flexibility from transaction proceeds and underlying free cash flow generation, position the firm to deliver on our near-term goal of exceeding $7.97 in adjusted EPS in 2018. More importantly, we believe this reinforces our ability to deliver double-digit annual growth in free cash flow over the long term, reflecting what we believe is the next significant value-creation opportunity for shareholders. With that, I'd like to turn the call back over to the operator for questions.

(Operator Instructions) Our first question comes from Sarah DeWitt from JPMorgan.

So I was just wondering if you could just talk about, on organic growth, what drove the decline in Commercial Risk Solutions. I think you mentioned some timing issues. And do you expect that to rebound going forward? And then second, could you just talk about your outlook for P&C insurance pricing post the active third quarter hurricane season?

Sure. Happy to do that, Sarah. As we described, first of all, remember, this is our -- Q3 is our smallest quarter sort of over the course of the year heading into our strongest quarter in the fourth quarter. I talked about a strong comparable from the Q3 last year at 4%, and essentially said that the timing was really showing up in Q1 and Q3. So we don't expect anything coming back in Q4. But what we're really trying to highlight is kind of if you look at our results, not just in commercial risk, but really overall, and kind of the year-to-date perspective, this is really where we think's sort of the best assessment overall in terms of where we are. This we essentially said. If we think about year-to-date Q3 '15, '16 and '17, we've gone from 2% in '15 to 3% in '16, 3% in '17, and we believe we continue to accelerate that over time. So we see Q3 is little bit of an anomaly in the context of all that.

Great. And then on pricing?

Pricing piece, I thought you might forget that since I didn't think that would be an interest for everybody. Listen, on the pricing side, obviously, a lot's been written and talked about. Our view is, look, there's just a -- continues to be a tremendous amount of uncertainty out there. The ultimate loss is unclear kind of where they all shake out from time to time. If you just look at the ranges sort of been published, it's been -- they've been astronomical in terms of sort of how they've come in. I would say, from our standpoint, look, we still sit in a very well-capitalized industry overall. We've described, while substantial more on the -- more of an earnings event versus a balance sheet event in terms of sort of where we are over time. But I would highlight, from Aon's perspective, we see this very much on a client-by-client basis. We've invested in substantial data and analytics over time to put us in what we believe is a great position to help our clients, particularly in these kinds of environments. If you look at what we do with Aon Client Treaty, for example, these are the types of investments that, frankly, reduce risk for clients and create opportunity for them. So from our standpoint, it's going to be -- this is going to play out over time. Sarah, there's no specific answer at this point, and we're going to take it client-by-client as it evolves over time.

Our next question comes from Dave Styblo from Jefferies.

I just want to come back to operating income. So if we take the $476 million and back out the unfavorable adjustments from pension and M&A transaction costs and adjust for the $55 million of cost savings, I guess, I get a margin of around 18.6% on an underlying basis, which should be flat year-over-year. Is that sort of the right way to think about it? Or did you guys dial back some of the $55 million of cost savings? And obviously, if you did that, the core margin would show some expansion. So I'm just trying to understand what's happening on a fundamental basis when we exclude some of the larger puts and takes there.

Yes. So here's what I -- I think about this on a year-to-date basis because I think quarter-to-quarter, it's a little lumpy, and Dave. And frankly, Q3 is our seasonally smallest quarter. And so if you look at it year-to-date, you can see that OI is up 14% or $183 million. If you look at that $183 million, $109 million of it came from restructuring and $74 million of it came from core operational improvement. So you've basically got 60% of the growth in OI from restructuring savings before reinvestment and 40% of it from core organic revenue growth and margin expansion. So we feel really good about the operating income growth for the year. And margins for the year are up 170 basis points, so we're very pleased with the progress so far.

I might I add to that, Dave. If you look at it, if you just -- Christa just highlighted literally Q3 year-to-date results, Q3 2017. If you did the exact same question in Q2, we're better against each one of those metrics as you go from Q2 to Q3. So it's plus 14%, as Christa described, in year-to-date Q3. The year-to-date Q2 was up 12%. We're up 170 basis points year-to-date Q3. That was 160 basis points year-to-date Q2, up 17% EPS. And that was -- that same number is 16% in Q2. So it's actually a nice progression. And as we described it, don't overplay it, but a quarter of progress in terms of where we are. And what you're seeing is really core performance and operating leverage increasing as we continue to invest in the global business services platform.

Okay, got it. And then on your $150 million of cost savings target, it sounds like that's unchanged for the year. But if we look at how things are trending, if you just kept the same run rate from 3Q into 4Q, you're going to be above that range. And I guess, that would assume that, as you progress, your cost savings should actually increase. So are you guys in position where you might actually be trending above your cost savings target for this year? Or is there something that makes that come down in the fourth quarter?

Dave, we are exactly on track with the program estimates, and we feel really good about the progress so far.

So -- okay. So this sounds like, I mean, is there a reason why we come down? It sounds like you're holding to the $150 million.

We are holding to the $150 million, and we'll update at year-end.

Our next question comes from Adam Klauber from William Blair.

It looks like you've got roughly $2.4 billion or so of cash and short-term securities on the balance sheet. And historically, you hold more like $700 million to $900 million. So that would suggest you have roughly $1.5 billion extra cash. And then for next year, on top of that, you have what you generate. Is that the way to think about what you have to deploy for 2018 versus 2017?

Yes, I think that's right, Adam. And I guess, what I would say is, as you look at sort of the $2.4 billion, $850 million of it is committed to the M&A we did in the quarter. We did publicly announce those 2 deals, Townsend and UMG. So you have $1.6 billion left, plus Q4 free cash flow, going into 2018.

Okay. And I think you mentioned that tax payments reduced free cash this quarter. How much were those?

Yes. We haven't given that number, but what we can say is that the after-tax proceeds from the sale of the outsourcing assets were approximately $3 billion.

Okay, okay. And then you've done a couple of good size deals already in the growth areas. Does that mean you have to digest those? Or do you still have a good pipeline? And is it possible to see some more good deals in 2018?

No. Adam, from our standpoint, listen, we've actually done 19 acquisitions signed, closed year-to-date and, as Christa described, over $1 billion committed sort of on the M&A front. We see, again, real opportunities here to add content capability to the overall portfolio. As you've heard us say multiple times, so I'll repeat it here again today, we take a very, very disciplined approach to this. Christa's put in place a return on invested capital framework, cash on cash return. Nothing gets through that framework. And in essence and the benchmark is buyback, which we believe is a very, very attractive investment. But when we find opportunities that exceed buyback, we invest in those. And there's a very substantial robust pipeline, lots of opportunities out there, and we see these as kind of add-on acquisitions to the Aon family that add content capability that we can scale. Townsend's a terrific example of that. UMG's a terrific example of that, Admix in Latin America a terrific example of that. So lots of different opportunities for us out there, continue to see us invest along the framework I described.

And finally, in Townsend, will that deal be fully in the fourth quarter? And are the margins of that business generally in line, better or not as good as the overall business?

We do expect to close both Townsend and UMG in the coming months. We won't be more specific about timing than that, and they are very attractive businesses. They are high-growth, they are high-margin and they are high free cash flow generation. And that's really -- that fits with the overall story of how we are evolving the portfolio. We're exiting lower growth, lower margin, lower free cash flow generation businesses, and we're disproportionately investing. And that's what you've seen in the -- over $1 billion of M&A that we have committed year-to-date. And we're very excited about that.

And we really like, Adam, is not only do we like the financial characteristics, but what drives that is really the underlying client capability and content characteristics. And each of those bring a unique capability to the table on our behalf, and we're going to -- we can then scale that across the firm. This is back to the idea of kind of the catalyst, which is really the -- if you saw the outsourcing business, generates another level of investment we can put back into the business, both on the acquisition side as well as investing in global business services across Aon to strengthen the firm. So it really is, we think, a unique opportunity over the coming 2 to 3 years when we think about capital deployment.

Our next question comes from Kai Pan from Morgan Stanley.

It's actually Mike Phillips here in place of Kai Pan this morning. A couple of questions, one on margins. In the quarter, the 120 basis point improvement, decent improvement, I guess, with a lot of moving parts behind that. One is FX. And how much is the FX impact to the margin improvement?

So there is no FX impact on margin for the quarter.

Okay. And then same thing on margin. With the organic growth being what it was, 2%, does that mean that you can expand the margin if organic grows even more?

Yes, we can. And so what you are saying, due to the investments we've made in higher-growth, higher-margin areas over the last few years and our investments in the Aon United operating model, is we can grow margin at low rates of growth. And so, as Greg said, we do expect to accelerate growth based on the investments we've made, and that's where you should expect accelerating margin expansion.

Okay, great. One more, if I could. Lots of brokers are talking about the excitement they have with maybe possible pricing changes and how they can take advantage of that, and you guys are closing the difference. I guess, can you talk about any possible risk for you guys because of the restructuring you're doing and possible maybe disruptions to brokers and maybe not to focus on the possible opportunities coming with the possible price changes? Is there any risk there?

First of all, Mike, I would just step back. As I described when Sarah asked her question at the beginning, for us, a lot of uncertainty out there in terms of what's going on. That means there's uncertainty for our clients, and that is actually the wheelhouse of Aon. The content capability and analytics we have in invested over time. It literally puts us in a tremendous position. Our clients understand risk, measure risk and mitigate risk, and that's really what we're doing. I want to also emphasize, the investment we're making back into the firm is a substantial investment. It involves restructuring, but it's also investment in a number of areas to strengthen our firm, in technology, things we're doing on the real estate front to create greater client areas to bring our colleagues together. So a lot's going on across Aon, but it is all fundamentally to make Aon a stronger engine, a stronger firm to serve clients. So I'd go the exact opposite. What we're doing is strengthening our firm to support clients over time. And this is another example of a very high stress time for clients so we can be helpful to them. So I see exactly the opposite. To us, this is an opportunity to invest and strengthen firm. And that's, in fact, exactly what we're doing.

No, that's great. I mean, I appreciate it, but it sounds like you're pretty confident that brokers won't get distracted or whatever by the disruption -- by the restructuring you're making at all. You don't see any risk there?

Quite the reverse. Again, I think our team is fully focused on sort of clients 24/7, and that's what Aon's all about. So I don't see any concern there at all.

Our next question comes from Paul Newsome from Sandler O'Neill.

I was wondering about whether or not the goal to exceed $7.97 next year is dependent upon the current accounting system or the one that we're going to get next year with the change in revenue recognition. And maybe just a view and an update whether or not you have a view withheld that revenue recognition might change your financials next year.

Sure. So really the impact of the 2018 revenue recognition accounting changes is largely immaterial to full year revenue and margin. It's really going to change the timing by quarter. There will be a significant re-phasing of quarterly revenue within a given year, particularly within Reinsurance Solutions, but there will be immaterial changes to full year 2018. The other thing I would note is, at our Q4 full year 2017 earnings date, we will actually restate 2016 full year and 2017 full year by quarter to give you that detail for the benefit of shareholders.

Does it in any way change how you calculate organic growth as well?

Well, because we're going to restate 2016 and 2017, no.

Our last question over the phone comes from Arash Soleimani from KBW.

I just wanted to get your thoughts on the protection gap in insurance and to what extent you think the events we saw in the third quarter could actually lead to a higher insurance penetration within certain lines of business.

It's a terrific question. And we've talked about that. The industry has talked about that. And these types of events highlight literally sort of individuals and companies that are quite literally uncovered in sort of events and times of trauma. I would say, at Aon, we think about a little bit differently from kind of a protection gap. If you think about this from the side of a client or an individual customer, we're essentially saying we have a gap out there in order for you to actually be in a better position. Just buy more of our product. We look at it differently. We look at it literally as think about how capital gets deployed. Are there more efficient ways to deploy capital across the risk spectrum? And we believe there actually is, and there is different products and innovations that come with that. And so our view is, when you think about kind of the world with risk out there, and you recognize sort of how little the penetration is around the world, there's just tremendous opportunities to actually strengthen and build upon that, not just the existing risk, life flood, which is an obvious one, but the new risk like cyber. I mean, again, if you think about cyber right now, there's $450 billion of loss in the U.S. last year or a reported loss in cyber. And then $2.5 billion to $3 billion in premium of the laws in Europe, which are going to come into effect in May, June of '18, are going to create another wave of reported loss. How we respond to that to support clients is really a function of how we innovate as an industry. And then it's also true for the more straightforward coverages like flood, and which we've got to respond with innovation that actually make that more attractive, different than the current product we've got right now. So we believe there's a very strong set of opportunities to increase the penetration, really serve clients more effectively as they understand measure and mitigate risk. But it's going to require our industry to innovate in order to make that happen.

That's helpful. And just my one other question is, since you mentioned cyber, and I know we've heard a lot of industry estimates of cyber going from $3 billion up to $30 billion in just a matter of years. Just wanted to know, based on what you've been seeing in your own book, do you see demand potentially increasing at that level? Or how do you think about the potential growth opportunity in the next few years?

Well, again, we look at it. We do see substantial growth fully driven by client needs. So again, if you think about literally just the $450 billion of reported loss in the U.S., virtually, I'm saying the U.S. because most of it was U.S.-reported, that begs the question, is there just no cyber in Europe? Obviously, there is. So why is it so much smaller? It's a function of the laws. Those are going to change. Therefore, cyber's going to go to a number, which is some -- many multiples of that. So we see tremendous opportunity to help clients understand and deal with cyber. And it's been a source of growth for us, will continue to be a source of growth for us. We're privileged to be the largest placer of this around the world, and we're doubling down our investment in it. Having said that, our industry, including Aon, need to continue to innovate on behalf of clients in this category. So we see this as a substantial opportunity because it's a substantial source of risk for our clients.

Our next question comes from Elyse Greenspan from Wells Fargo.

I was hoping to spend -- get a little bit more color in terms of the Reinsurance growth. I know you mentioned that there wasn't a lot of restatements there. It doesn't -- was there any kind of onetime? Or is it to a point that it's obviously the second quarter are pretty strong growth in that business? What's the outlook there? And then as we think about the margin improvement you saw in the quarter, typically, I would think Reinsurance does run at better margins than the rest of your business. Was that helpful to the level of margin improvement you saw this quarter?

Yes. Why don't -- Elyse, thanks for the question. Why don't I start on the revenue side, and Christa, you can pick up the margin piece. First of all, on the revenue side, much like we talked about sort of the -- we don't look at the quarter, we look at kind of year-to-date. We're kind of 5% year-to-date. We think that's actually great progress. I would come back reflecting on multiple calls over the last few years and just highlight again. We just have a superb team on the Reinsurance side there, tremendously well positioned to support clients. We're agnostic on the overall approach. We're essentially helping our clients, again, to think about ways to understand and control volatility. And what you saw this quarter, Elyse, really was record in business on the treaty side. And this is with existing clients, but also with new clients to Aon as we gain market share in this arena. Also, we're #1 in treaty, #1 in facultative placements and #1 in insurance like securities, et cetera. So we've just got an exceptionally strong position. This team is also taking great efforts to expand the marketplace if you think about what we've done on the mortgage side, and literally created net new markets in an arena that hadn't existed before. So what you see on the Reinsurance front is just continued progress from an exceptional team and, again, a set of clients that have lots of need out there to understand and deal with volatility, which is increasing over time. So it's just been terrific progress from a very, very strong team in this context. In terms of impact on margin, Christa?

Yes. So Elyse, we would say that the margin growth year-to-date of 170 basis points is really across the whole of Aon. It's driven by strong growth in each of the 5 revenue lines we have and margin expansion in each of those areas. And so -- and then underpinned by the investments we're making in the Aon United operating model and the savings we're driving from that. So it isn't disproportionately driven by any particularity of the business.

Okay, great. And then you guys are a few quarters into this savings plan. I know in the past you've had several and you had a track record for seeing saves that are more than exceeded how you've initially laid out some of your prior plans. So a few quarters in, I guess, how are you seeing things as you're going along with the program? And do you think there's the potential that we could see this be revised up down the road?

So Elyse, we would say we are exactly on track, as I said earlier in the call. We'll certainly update at year-end, but we would say we're exactly on track with -- to deliver $150 million this year, $300 million next year and $400 million the year after. And we feel good about the progress.

Okay, great. And then in terms of buybacks, the free cash flow was obviously negative in the quarter. How do we think about buybacks from here given that you have these 2 acquisitions that you're going to close in the near term? And we've obviously come off of 2 quarters of pretty high level of buyback following the divestiture.

Yes. I mean, what I would say, Elyse, is we have returned, as Greg said, over $2 billion to shareholders year-to-date between buyback and dividends. And we've done $2 billion of buyback roughly so far this year, and we've committed $1 billion to M&A so far this year. I think what you'll see in Q4 is more M&A and more buyback. And it's all driven by return on capital. As you think about the amount, we can sort of deploy whether it's on buyback or M&A. You've got $2.4 billion on the balance sheet, less the M&A spend committed of $850 million. So you're left with $1.6 billion of cash on the balance sheet, plus Q4 free cash flow generation, which is our seasonally strongest quarter of the year. And so we're very excited about the opportunity to invest in organic opportunities, in M&A, and our highest return on capital opportunity across Aon remains share repurchase.

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

Just wanted to thank everybody for being part of the call today, and look forward to our conversation next quarter. Thanks very much.

Thank you, speakers. Participants, that concludes today's conference call. Thank you all for participating. You may now disconnect.