Aon plc (NYSE:AON) Q2 2023 Earnings Call Transcript

Eric Andersen: Yes. Listen, I think how asset values are repriced. I think that is something that’s been sort of re-put into the business in a more consistent way, especially on the property side. I think inflation around verdicts on the liability side. So I think it is that you’re saying, impacting pricing from an insurer standpoint. I would say it also creates sort of decision-making that the client will make. So the clients may take higher retentions, they may use captives that requires different support. It may — they may take things on their own balance sheet versus transferring it. So it’s not a straight line and often, it will turn into other capabilities that we can provide clients service for, rather than just straight up insurance pricing. So the clients are reacting to inflation the way any business would. And so that gives us an opportunity to provide a broader suite of capabilities to them as they’re managing it.

Jimmy Bhullar: And then on share buybacks, the last few years, they’ve been heavier in the second half than in the first half. Should we assume a similar pattern this time and especially considering that your free cash flow is going to be higher as well? Or does the buyback activity thus far this year already incorporate the higher free cash flow in the second half?

Christa Davies: Yes. So Jimmy, what we would tell you is we think about allocating cash based on return on capital, cash on cash return and our highest return on capital opportunity remains share repurchase. And so as we generate cash, you can think about us allocating it disproportionately to buy back. Because it sets the bar for all other uses of cash. And look, what we would say is we don’t actually forecast buyback by quarter. But you can see in any calendar year, it’s the highest use of cash across the firm. And so whether that cash is coming from debt or operating cash flow, as we generate that cash, we’ll utilize it to buyback or M&A or organic investment, depending on the ROIC return. And we definitely see a huge opportunity to invest in buyback given we are substantially undervalued today, based on the way we value our business on a DCF basis.

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

Greg Case: I just want to say that thank you, everyone, for joining, and we look forward to the discussion next quarter. Have a great day.

Operator: This will conclude today’s conference. Thank you for your participation. You may now disconnect your lines at this time.