It’s not easy to talk “insurance” with Gregory Case. Although as CEO of London-based Aon he oversees one of the world’s largest insurance brokerages and reinsurers, the 50-year-old prefers to discuss “risk” and “client solutions,” reflecting in part the 17 years he spent as an executive at management consulting firm McKinsey & Co. in Chicago. Since joining Aon in 2005, Case has quarterbacked the transformation of the insurer into what he calls a professional services firm, selling off its underwriting businesses and making two big acquisitions, paying $1.4 billion for reinsurer Benfield Group in 2008 and $4.9 billion for human resources specialist Hewitt Associates two years later.
Under Case, who has an undergraduate degree in finance from Kansas State University and an MBA from Harvard Business School, Aon has seen its earnings per share more than double, from $1.69 in 2006 to $4.21 last year. Shares of the company have nearly tripled in value during his tenure, rising from roughly $22 when he started to a recent price of $62. Institutional Investor Editor Michael Peltz met with Case at Aon’s New York offices in March to talk about his plans for continuing to grow his company’s business in an increasingly complex and risky world, including the decision to move Aon’s headquarters last year from Chicago to London.
Institutional Investor: What attracted you to Aon?
Case: I had watched the financial services industry for quite some time from where I was at McKinsey and had watched Aon because it was a Chicago company. I really saw an opportunity that I thought was extraordinary. You had a firm with incredible global infrastructure — literally a physical infrastructure in 120 countries — capable of serving clients. The idea was, let’s build the preeminent professional services firm in the world, focused on risk, helping clients understand risk, measure risk, mitigate risk — by the way, you’ll notice I haven’t said the word “insurance” yet — and focused on helping them with their most important people issues around pensions, retirement, health and benefits.
So you set out to transform Aon into more than an insurance company?
Right. We had a conversation around the idea that this has to be about continuing to evolve the firm in a way that we truly are going to do something that is unique and sustainable on these two platform areas called risk and people. At the time, a third of Aon was still an underwriting company. We took the decision to completely restructure the company. We sold off all of our underwriting companies, and we focused on risk and people. And we went from the underwriting business, which was big-balance-sheet and heavily regulated, to what are now people businesses that don’t have big balance sheets.
How has Aon’s revenue mix changed?
We sold off roughly $3 billion worth of assets. You’ll see from a revenue standpoint a third of our revenue was underwriting, a large chunk after that was risk, and after that was consulting, which was the people part of the business. When you look at it today, it’s roughly 60-40: 60 percent risk, 40 percent people. And there’s no underwriting.
How far along was the transformation when the financial crisis hit?
We had announced at the time the largest acquisition in Aon’s history, which was Benfield. That was in August 2008, right before the crisis hit. But we had already sold off combined insurance, and we’d sold off warranties. We’d actually done some of the selling off to create the restructuring, and then we brought in Benfield right before the crisis. So we had to go through the crisis with everybody else, integrate and bring Benfield into the family and bolster what was our reinsurance platform.
How important is reinsurance to Aon?
It’s very important. The risk solutions segment is about 60 percent of our business. If you think about what we do in the risk business, we work with commercial companies — large, middle-size and small. We take all comers. And the beauty of it is that the companies are in 120 countries and come in every form and flavor. So it’s truly a global focus. And that group of companies oftentimes requires insurance solutions, and we help coordinate those. That’s what our retail group does. It’s called Aon Risk Solutions.
And then we also work with the insurers on how they think about their risk mitigation, and that’s what Aon Benfield does. That’s the reinsurance business. It’s the largest reinsurance risk adviser in the world, and it’s probably 50 percent bigger than its next biggest competitor. It’s been a true tour de force in investment for us around content and analytics.
Can you tell us about the analytics?
We are on an absolute mission to give people data, content and analytics and help them make better decisions. Aon Benfield has about 3,000 employees; 500 of those are kind of Ph.D. statisticians who essentially model global risk on behalf of insurers. As one of my colleagues, [Aon Benfield co-CEO] Mike Bungert, would say, if the earth moves or the wind blows on a global basis, we can tell you the impact by company at a zip code level. So if Hurricane Sandy is coming to hit the coast of New York, our guys are modeling, literally block by block, what the impact’s going to be and talking to our clients about it and talking to the insurers about it.
What’s your take on global warming, and how has Sandy and the other unusual weather activity of the past few years impacted your business?
I can’t speak to global warming, but what I can tell you is that the magnitude, complexity and scrutiny of risk are going up. In our view there’s more risk out there facing clients than ever before. Just think about the impact of urbanization around the globe. In 20 years two thirds of the planet is going to be urbanized. Urbanization is going to have a tremendously powerful influence on the classic risks: property coverage, casualty — all the different things.
But beyond the basic risks, there’s also global warming — sustainability, to your point — the impact of cyberrisk, pandemic, identity theft; literally the level of risk in the world is going up dramatically. And if that isn’t enough, it’s also becoming more intertwined.
Take Thailand. The Thai floods [in 2011] were a tragic event. But they were also a global supply-chain event. Because so much was being manufactured there, the floods were impacting our client P&Ls all around the world. Now everybody cares about this stuff. CEOs, boards of directors, CFOs all care about this. If we can help a client strengthen its operating performance, improve its balance sheet or reduce volatility through taking actions around risk, risk assessment, risk understanding, that’s powerful. Again, I haven’t said the word “insurance” yet.
Where does insurance fit into this?
Insurance is one solution. So what that means literally is, if you think about helping a client understand, measure and mitigate risk, there are specific periods of time — in fact, a lot of what we do is, we say to a client, “Listen, we can actually use somebody else’s balance sheet to help you take the volatility away from your earnings,” and that’s called insurance. And we’re very fortunate; we place more premium than anyone in the world. On the retail side it’s about $80 billion; it’s about $25 billion or $30 billion on the reinsurance side. We place over $100 billion of premium per year, and we’re about 23 percent of all of Lloyd’s of London. We’re the largest provider into Lloyd’s.
Was that part of the reason you moved Aon’s headquarters to London?
As we thought about leading a global firm and where we wanted to do it and the places we wanted to look at, London was a very logical place. It does create more connectivity to our global opportunities around the world, in Asia and Europe, in some respects even in Latin America. Lloyd’s is obviously a very big part of the London marketplace, and as I said before, we are the single largest provider into Lloyd’s. For us the opportunity to be in London sent a message of being more global and was powerful from a strategic standpoint. The other aspect is capital management. Operating as a London PLC gives us the ability to manage our capital in a much more fluid way around the world.
How so?
Just by having one global pool of capital. You can actually move it between countries and you don’t have penalties or taxes and things like that. So, ironically, we can invest more back into the U.S. — and have invested more back into the U.S. — since our move to London.
Let’s discuss the people side of the business.
At the time we bought Benfield, we had a consulting business that was successful, but it wasn’t as strong as it could be. We took the decision that we really wanted to have a global platform that was compelling and we could truly do things on behalf of clients both from an advice standpoint and an execution standpoint. Hewitt was the perfect fit for that. In 2010 we made the same kind of investment in Aon Hewitt that we had made with the risk part of the business.
Are there similarities between the two businesses?
I often get asked, “How do risk and people fit together?” I would ask you, just pick a major company in the U.S. that has a huge underfunded pension. Is that a people issue, or is that a risk issue? And the answer is, yes, it’s an HR problem, and it’s a CFO problem.
The second major area is health care. If you think about the one area on a client’s P&L in the U.S. that went up 10 to 15 percent every year during the recession, it’s that little line item called health and benefits. This is an area of the P&L that’s going to continue to get worse, in fact. And if there are ways we can actually help flatten the curve of increase, it would be hugely powerful.
How are you trying to do that?
One is something we call health care exchanges. We launched the first corporate health care exchange last year. What you’re really doing is giving your employees a fixed amount and saying to them, “We’ve created a platform for you to secure your health care coverage” — with a lot of structure, by the way. It’s a lot of information, a lot of comparative approaches, so they literally can go on the exchange and buy their health care coverage.
What are the benefits?
What that does for a CFO is, you now actually know the amount of increase you’re going to have every year. So you’ve literally controlled your volatility in terms of what you’re doing. That’s incredibly powerful. The great thing is, when we’ve actually started to do this, employees are making choices that better fit with their lifestyles. This is actually a really important thing, and a lot of times younger families buy too much health care coverage, and a lot of times older families buy too little health care coverage. When you think about making that choice, if you’re a younger family and you’re buying the right health care coverage and you’re investing the difference in your retirement, you’re actually addressing two issues. That can be powerful over time.
