Aon - Q1 2023
April 28, 2023
Transcript
Operator (participant)
Good morning. Thank you for holding. Welcome to Aon PLC's Q1 2023 conference call. At this time, all parties will be in a listen-only mode until the question-and-answer portion of today's call. I would also like to remind all parties that this call is being recorded. If anyone has an objection, you may disconnect your line at this time. It is important to note that some of the comments in today's call may constitute certain statements that are forward-looking in nature as defined by the Private Securities Litigation 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 Q1 2023 results as well as having been posted on our website. It's my pleasure to turn the call over to Greg Case, CEO of Aon plc.
Greg Case (CEO)
Thanks very much, and good morning, everyone. Welcome to our Q1 conference call. I'm joined by Christa Davies, our CFO, and Eric Andersen, our President. As in previous quarters, for your reference, we posted a detailed financial presentation on our website. Before we begin, as always, we want to thank our colleagues for the great work they're doing every day around the world to help our clients and each other. We continue to live in a world where volatility, complexity, and uncertainty are increasing, and in this environment, our clients are being asked to make decisions faster than ever. As a result, we see strong and ongoing demand for our advice and solutions as many of our clients realize that remaining in defensive or reactive mode is not sufficient, and in fact, a pivot to offense is ultimately necessary to win and achieve their objectives.
Clients are telling us there are two primary areas where they're urgently looking for a competitive advantage: risk and people. Addressing these challenges requires that we bring the best from across our firm to enable our clients to make better decisions, which is the core of Aon United. Given these ongoing demands, our strategy positions Aon as uniquely capable of helping clients go on offense and make better decisions that mitigate risk to their business and maximize the impact and engagement of their people. Take ESG or environmental, social, and governance as an example. These are major interconnected categories that cut across traditional silos. Our clients need a broad strategic view to understand and assess all the risks around ESG and any targeted solutions and capabilities to solve for these risks.
Our recently published ESG impact report describes our work helping clients address these issues as well as the impact across our firm. We're delighted to report on our own progress against long-standing commitments in these essential areas. First, on environmental. We're making progress toward our goal of net zero emissions by 2030 and have reduced our overall Scope one, two and three emissions footprints by 16% from our 2019 baseline and by 4% in 2022, enabled by efforts like Smart Working and supplier centralization through Aon Business Services. On social and specifically around our colleagues, Aon United is not just a strategy, it's our culture, and it reflects our commitment to inclusion, diversity, and the well-being of our colleagues.
This year, we're continuing to embed I&D principles and practices and to hold ourselves accountable with increased transparency and oversight at all levels of the organization, starting at the top with our board of directors. On diversity, for example, we reported progress in 2022 in the percentage of female people managers and U.S. ethnically and racially diverse managers. In 2022, we also enhanced focus on learning, development, engagement, and well-being because we know that supporting our colleagues is not only the right thing to do for them, but it also ensures we retain, grow, and develop the best talent to continue to support our clients. Finally, on governance, we've highlighted board review of top ESG and climate-related risks and actions from our ESG steering committee, as well as steps on cybersecurity and privacy, all aligned with our long-standing overall enterprise risk management strategy.
While we're proud to report on these steps in our report, there's still work to do. At the same time, we're even more excited about the work we're doing to help clients as many risks connected to progress on ESG align with our core businesses. On the people side, for example, we continue to develop new solutions while bringing together existing capabilities across different markets and geographies to address specific needs. One recent client facing significant organizational change realized many of their employees were unsure and unclear about titles, career ladders, compensation mechanics. At the same time, this client needed to reduce cost, increase efficiency and simplicity, which they knew would drive engagement. To address, we brought expertise from around the firm. Our commercial risk team brought deep understanding of this client's strategy and desired culture.
Our Aon Business Services platform served as a powerful example of how we could help them simplify their operations and reduce costs. Finally, our health and human capital teams brought a series of solutions, including optimization of global benefits and a skills taxonomy strategy to increase employee alignment and engagement. While the solution leverages many existing offerings, the real innovation was bringing these pieces together along with our Aon Business Services team, who provided insight and change management expertise around moving to a business services model, an essential piece of the puzzle for our client. The result? Our client is driving increased engagement with a clearer, more effective benefit structure and talent strategy and outsourcing capabilities that will help drive simplicity and efficiency, all enabled by our teams coming together as Aon United.
We see examples like this across the firm every day as we help our clients manage risk and support their people. They demonstrate the opportunity we have to continue delivering innovative solutions at scale to address our clients' unmet needs at a time when doing so has never been more important. Turning to financial performance. In the Q1, we delivered very strong organic revenue growth across our solution line, with 9% growth in reinsurance, 8% growth in health solutions, and 6% growth in both wealth solutions and commercial risk solutions. In reinsurance, our teams were exceptional in guiding our clients to the 1/1 renewal environment, demonstrating the strength of our team's advice, data-driven analytics, modeling, and execution capabilities.
In Health Solutions, we saw strength in core H&B and in Human Capital in a seasonally larger quarter for European health renewals as our team helped clients navigate the ongoing challenging environment for their people, encompassing employee health, rewards, engagement, and well-being. In Wealth Solutions, our team delivered another very strong performance with 6% growth, driven by ongoing trends around regulatory changes like GMP equalization, pension risk transfer, and the lingering impacts of the fixed income market volatility as our teams help clients reassess and potentially adjust their strategies. We would note that after two very strong quarters, Q2 '23 will be impacted by performance fees in the prior year period. Finally, Commercial Risk Solutions grew 6% in the quarter, with strength in Europe and the UK in their seasonally largest quarter. Overall, we observed the property market remains an area of increasing challenge and volatility.
Market dynamics are causing reinsurers to shift risk appetites, requiring primary carriers to accept more risk, which in turn means property placements are even more challenging for our clients. In this environment, our strength in analytics and the ability to respond to clients' need for cover in a capital agnostic way, bringing capability across reinsurance and commercial risk is essential. Our capabilities enable us to assess and analyze integrated broking options, including traditional risk placement, wholesale, MGAs, facultatives, captives, and insurance-linked securities. By helping clients assess options across capital sources, we ensure they're able to optimize their own total cost of risk and risk appetite. For example, one client came to us looking to consolidate to a single property and terrorism program across 11 asset classes with over $80 billion in property values.
Our team came together seamlessly across geographies and specialties to develop a program that leveraged traditional carriers around the world and a captive, successfully completing the program and driving significant cost savings for our clients, all enabled by the work we've done to break down barriers within our firm through Aon United. Overall, in the quarter, we're pleased with performance of the strength of our Aon United strategy and Aon Business Services platform translated 7% organic revenue growth into 70 basis points of operating margin expansion, net of ongoing investment in the business for long-term growth. In this period of ongoing external volatility and increasingly interconnected risk, the opportunity for us to help clients is greater than ever, positioning us very well to continue driving results in 2023 and over the long term.
Now I'd like to turn the call over to Christa for her thoughts on our financial performance and long-term outlook for continued shareholder value creation. Christa?
Christa Davies (CFO)
Thanks so much, Greg, and good morning, everyone. As Greg highlighted, we delivered strong operational performance in the Q1, highlighted by 7% organic revenue growth that translated into 70 basis points of adjusted margin expansion. This is a strong start to the year, and we're very well positioned to continue driving results in 2023 and over the long term. As I reflect on the quarter, as Greg noted, organic revenue growth was 7%, driven by ongoing strong retention and net new business generation. We continue to expect mid-single-digital or greater organic revenue growth for the full year 2023 and over the long term.
I would also note that reported revenue growth of 5% includes an unfavorable impact from changes in FX of 3%, driven primarily by a weaker euro versus the US dollar as Q1 is our seasonally largest quarter for euro-denominated revenues. I'd also highlight fiduciary investment income, which is not included in our organic revenue growth, was $52 million or 1.4%. Moving to operating performance. We delivered strong operational improvement with adjusted operating margins of 38.7%, an increase of 70 basis points driven by organic revenue growth and efficiencies from Aon Business Services, overcoming expense growth, including some investments in colleagues and technology to drive long-term growth and some ongoing resumption of T&E, especially compared to the prior year period when business travel was still suppressed by COVID-19.
Looking forward, we expect to deliver margin expansion in 2023 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. As we've previously communicated, we think about margins over the course of a full year, driven by three areas. The first is top-line revenue growth. The second is portfolio mix shift to higher margin businesses as we invest disproportionately in areas of increasingly client demand, supported by data-driven solutions. The third area is increased operating leverage from ongoing productivity improvements from our Aon Business Services platform. I'd highlight Aon Business Services continues to be a key contributor to margin expansion and represents a competitive advantage, especially in an inflationary market. Our Aon Business Services platform continues to drive efficiency gains, improved quality and service, and increased innovation at scale.
Related to Aon Business Services, I'd like to highlight the essential role of Aon Business Services in enabling our climate net zero goals. As a professional services firm, the biggest part of our own emissions is from our supply chain. Through the Aon Business Services organization, 90% of the spend is managed through preferred channels, which enables us to drive efficiency and also deploy decarbonization strategies. As Greg said, this resulted in a 4% reduction in emissions last year, while also allowing us to increase supplier diversity utilization to 6% of our addressable U.S. spend in support of our goals around inclusion and diversity. Both meaningful accomplishments that are enabled by our Aon United strategy. Organic growth and margin expansion translated into adjusted EPS growth of 7%. As noted in our earnings materials, FX translation was an unfavorable impact of approximately $0.14 per share.
If currency remains stable at today's rates, we would expect an unfavorable impact of approximately $0.04 per share in the Q2 and $0.14 per share for the full year 2023. I'd also note other expense had a $0.19 per share unfavorable impact in the quarter, including a $0.05 per share unfavorable impact from an increase in non-cash net periodic pension cost, in line with what we communicated previously, as well as an unfavorable impact from a gain on sale of business in the prior period and balance sheet FX remeasurement in the current period. We expect the $0.05 per share unfavorable impact from increased net periodic pension costs to continue for each quarter this year, and we currently expect gains from divestitures to be immaterial for the full year. Turning to free cash flow and capital allocation.
I'd note Q1 has historically been our seasonally smallest quarter from a cash flow standpoint, due primarily to incentive compensation payments. As we've communicated before, free cash flow can be lumpy from quarter to quarter. Free cash flow decreased 17% to $367 million, primarily driven by higher cash tax payments and a $53 million increase in CapEx. CapEx was elevated in the Q1 compared to the prior year period, as we initiated a number of projects with spend heavily weighted in Q1 across technology to drive long-term growth and real estate aligned with our Smart Working strategy. I'd note CapEx can be lumpy quarter to quarter, and we expect an investment of $200 -$225 million for 2023. As we've said before, we manage CapEx like all of our investments, on a disciplined ROIC basis.
Our outlook for free cash flow growth in 2023 and beyond remains strong. We continue to expect double-digit free cash flow growth for the full year and over the long term, driven by operating income growth and working capital improvements. Given our strong outlook for free cash flow growth in 2023 and beyond, we expect share purchases to continue to remain our highest ROIC opportunity for capital allocation. We believe we're significantly undervalued in the market today, highlighted by approximately $550 million of share repurchase in the quarter. We also expect to continue to invest organically and inorganically in content and capabilities that we can scale to address unmet client needs. Our M&A pipeline continues to be focused on our priority areas that will bring scalable solutions to our clients' growing and evolving challenges.
We will continue to actively manage the portfolio and assess all capital allocation decisions on an ROIC basis. Turning now to our balance sheet and debt capacity. We remain confident in the strength of our balance sheet and manage liquidity risk through a well-laddered debt maturity profile. In Q1, we issued $750 million of 10-year senior notes, consistent with our past practice and expectation to add incremental debt as EBITDA grows over the long term while maintaining our current investment-grade credit ratings. Factoring in this issuance, I'd note that our term debt is all fixed rate, with a weighted average interest rate of approximately 4% and a weighted average maturity of approximately 11 years. Our Q1 results reflect strong operational performance driven by our Aon United strategy.
We start the year in a position of strength and expect to continue to make progress on our key financial metrics and our commitment to drive long-term shareholder value creation. With that, I'll turn the call back over to the operator, and we'd be delighted to take your questions.
Operator (participant)
Thank you. At this time, we'll be conducting a question-and-answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from the line of Jimmy Bhullar with JP Morgan. Please proceed with your question.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Good morning. First, just had a question on your expectations for the tax rate for 2023. It was high. I think it was around 19.5% in the Q1. That's higher than the 17%-18% range you've had the last few years. What drove that, and what are your expectations for the tax rate for this year?
Christa Davies (CFO)
Thanks so much for the question, Jimmy. As you know, we don't give guidance on the tax rate going forward.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Mm-hmm.
Christa Davies (CFO)
If I look back historically, exclusive of the impact of discrete items, which can be positive or negative in any quarter, our historical underlying rate's been 18% for the last five years.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
The changes in Singapore and a few other places, should those have a material impact or, is there any reason to expect the rate to be different this year than in the past?
Christa Davies (CFO)
Jimmy, we feel really confident about our overall capital structure for the company. We're domiciled in Ireland. We run a global capital pool, and we run a global cash pooling structure, and that gives us enormous flexibility as we think about any future legislation.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Okay. Then just lastly, on fiduciary investment income, assuming rates stay where they are, is there further ramp up in that you'd expect as, like, your portfolios sort of resets to where rates have gone? Has the full impact of the rise in rates over the past several quarters Is it already reflected in your numbers?
Christa Davies (CFO)
Yeah. What we would say is, as we roll through, we really saw the pickup in fiduciary investment income in Q3 last year. You'll see the upside in, you know, Q2, and then less as we move through the rest of the year. I would note as you think about our overall fiduciary balances, we have on average $6.5 billion of fiduciary investment, of fiduciary assets. Every 100 basis point increase in the short end of the interest rate curve is $65 million top line and bottom line. You should think about those fiduciary assets, Jimmy, as split roughly 50/50 between the US and international.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Okay. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Andrew Kligerman with Credit Suisse. Please proceed with your question.
Andrew Kligerman (Managing Director and Senior Life Insurance Analyst)
Hey, good morning. You mentioned in the release that the U.S. grew modestly in terms of organic revenue growth and commercial risk solutions. You know, transaction in M&A was probably the very tough comp. It looks like as we get into the Q2 and the rest of the year, that's really not a tough comp anymore. Could you give any sense of what that impact was in the quarter and, you know, should we expect going into the next three quarters that we could see a significant contribution to organic growth?
Greg Case (CEO)
First of all, Andrew Kligerman, thanks very much for the question. We appreciate it. We would observe, by the way, across the board, if you think about sort of growth for the quarter, it's been a strong quarter for us, 6% organic across all the solution lines. It may be the first time we've accomplished that in a long time, and it's really been terrific. On the U.S. side, listen, exceptionally strong business. You highlighted a great, very, very strong comp last year, and then just very, very strong capability in the specialty areas that a few of which have been under pressure. We continue to invest in them because we know they're going to be terrific long term.
For us, listen, continuing the momentum across the board and, you know, as the market shifts a bit, on the M&A and transaction side, we're gonna obviously benefit from that. Eric, anything else you'd add?
Eric Andersen (President)
No, Greg Case, I think you covered it well. I think it's still foundationally very strong, the work that we're doing for our clients today on the commercial risk side with all that's happening in the market, whether it's risk analytics, captives, the broad suite of capabilities we can help them with as they're navigating the market dynamics are still very strong. You know, pretty positive on it.
Andrew Kligerman (Managing Director and Senior Life Insurance Analyst)
Basically, just tell me if I'm interpreting it right. You know, with all these amazing things you're doing, you had a pretty big drag from transaction M&A that goes away. We could see potentially an even better organic growth quarter next quarter.
Eric Andersen (President)
I would say the Q1 last year was a very strong quarter for commercial risk. The transaction solutions business, I think, as Greg said, great capability subject to obviously some outside market dynamics that, but we feel really strongly about that team. When that comes back, certainly holding that skill set for us is such a great value driver for clients that we're excited about it.
Andrew Kligerman (Managing Director and Senior Life Insurance Analyst)
Got it. Okay. Then, you know, Christa mentioned about $200 -$225 million of CapEx expenditure targeted for this year. You're doing so many interesting things with ABS and other technologies. Anything stand out that you're investing in right now that will drive future growth?
Christa Davies (CFO)
I mean, the CapEx that I mentioned, the $200 -$225 million, Andrew Kligerman, I would say is primarily focused on IT investments to drive long-term growth. Whether that's scale investments in our platforms to help clients innovate or whether that's in security and infrastructure to keep our clients better, you know, protected, and the firm better protected. You know, we're investing a lot in that Aon Business Services platform, better connectivity, better data analytics, better insight. And it's really helping our colleagues deliver great value to our clients.
Andrew Kligerman (Managing Director and Senior Life Insurance Analyst)
Got it. Great. Just last quickly, M&A pipeline, and any areas of interest right now, should we expect anything as the year progresses?
Christa Davies (CFO)
Yeah, thanks for the question. We have a fantastic M&A pipeline, and it is focused on our highest growth, highest, you know, margin, highest return on capital opportunities. It reflects the areas we've continued to invest in, areas of content and capability that we can scale across the firm. In areas like data analytics, you saw us do Tyche and ERN last year in that data analytic intensive area. Areas like health, you know, wellness and human capital. Areas like, you know, our core risk offerings and helping our clients be able to model and manage risk better. We've got lots of areas of great opportunity around the globe, and we're really excited about it.
Andrew Kligerman (Managing Director and Senior Life Insurance Analyst)
Awesome. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Robert Cox with Goldman Sachs. Please proceed with your question.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Hey, thanks for taking my question. Curious if there's any way you can help us, you know, quantify or help better understand the impact that higher T&E and inflation is having on the expense base?
Christa Davies (CFO)
What I would tell you is if you looked at that other general expense, which is up 20%, that is primarily driven by T&E. The thing I would note is you're comparing it against Q1 2022, which was an unusually low year in terms of unusually low quarter in terms of T&E because of COVID.
Robert Cox (Managing Director)
Okay, got it. Is there anything to sort of look into? I noticed in the presentation that you added that the margin expansion for this year is net of investment in long-term growth. Is that more of just calling out that, you know, the things you guys are doing in terms of investing, or is there something to look into that?
Christa Davies (CFO)
It's exactly the same as always. What we would say is, we grow margins each and every year. Our margin expansion for the last 12 years has been 1,120 basis points or approximately 90 basis points a year. That 90 basis points a year over the last 12 years has been a gross margin expansion higher that, than that. It nets to 90 basis points net of the investments we're making in long-term growth. That is consistent with the way we drive margins each and every year.
Robert Cox (Managing Director)
Okay, perfect. Maybe just shifting to the wealth segment, very strong and above average growth in wealth for a second straight quarter, kind of despite some headwinds in the investment business. Curious how long you expect these tailwinds could play out. Is it quarters? Is it one year? How long should we be thinking about that?
Greg Case (CEO)
Listen, as you highlight, Robert, the teams have done a terrific job and really, over multiple years, you look at the last two quarters, the overall performance exceptional, really reflecting a lot of what's going on in the world out there. The regulatory changes we highlighted around GMP and others, pension risk transfer, and we're just uniquely well-positioned to sort of address that. You know, that's really what's driving the demand from the client standpoint and the teams done a terrific job. We did highlight in the opening comments, listen, like, the comp for next quarter is going to be particularly challenging in terms of sort of where we are, but fundamentals, exceptionally strong, and the wealth teams done a terrific job. Eric, what else would you add to that?
Eric Andersen (President)
You know, the other minor point I would say, Greg, is that it's a global answer. We're seeing growth in the U.K. in particular, especially around the Guaranteed Minimum Pension piece, but also in North America and in Europe. The retirement side of wealth has been very strong for us, and really like it. You called out the investment consulting, investment advisory business. The challenges there will lap eventually, but you've described it right.
Robert Cox (Managing Director)
Great. Thanks for the color.
Operator (participant)
Thank you. Our next question comes from the line of Weston Bloomer with UBS. Please proceed with your question.
Weston Bloomer (Equity Research Analyst)
Hi. Thanks. Good morning. My first question. I noticed real estate costs were up year-over-year, for the first time, I guess, since 2021. Is that primarily just a function of the investments you're making in Smart Working? Just given the investments in CapEx that you've made, is it fair to assume that that should, you know, continue to grow year-over-year throughout the course of 2023?
Christa Davies (CFO)
Yes. you know, real estate's up 4%. It's reflecting back to us. It's in fact reflecting the investments we made in Smart Working, as you said. Last year was impacted by FX. Look, I would put this in the context, Weston, of we're going to grow margins each and every year. As I mentioned that margin expansion over the last 12 years has been 90 basis points a year. That margin expansion reflects a gross margin expansion much higher than 90 basis points, offset by investments in the business. Again, on the CapEx point, we've guided to CapEx for the full year of $200 -$225 million for the full year. That includes the CapEx investments in IT, in long-term growth, and in real estate in our Smart Working initiatives.
You should expect CapEx to grow, each and every year in line with overall expense growth.
Weston Bloomer (Equity Research Analyst)
Great. Thank you. A follow-up on the wealth performance fees. You highlighted a 2Q headwind there. Is there an associated headwind in the back half of the year as well, or is it just isolated to the Q2 and is there a margin impact from that as well?
Christa Davies (CFO)
It is just a Q2 impact. No, there's not an associated margin impact.
Weston Bloomer (Equity Research Analyst)
Great. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Elyse Greenspan with Wells Fargo. Please proceed with your question.
Elyse Greenspan (Managing Director and Senior Equity Analyst)
Hi. Thanks. Good morning. My first question, I guess goes back to, you know, tying together some of the prior discussion on margins, right? Christa, you mentioned the historical 90 basis points of margin expansion that Aon's seen over the past 12 years. I'm just trying to understand why we shouldn't expect that level. The 90 basis points in addition to the benefit that you guys are getting from fiduciary investment income, which I calculate was around 80 basis points this quarter. Or are you choosing to reinvest more in the business because of, you know, the strong tailwind we have, you know, from higher fiduciary investment income?
Christa Davies (CFO)
Thanks so much for the question, Elyse. Look, we do think about margins over the course of each year, and as you said, we've driven 1,120 basis points over the last 12 years or 90 basis points a year. That 90 basis points a year is reflecting a gross margin expansion much higher net of investments we make in the business each and every year.
we did see in Q1 70 basis points of margin expansion with 80 basis points of favorable impact from fiduciary investment income, Elyse, just as you said, offset by investments in the business, including in our people, technology, and an ongoing headwind from resumption of T&E, all of which we manage in a disciplined way based on ROIC. We think about margins balancing a number of factors, revenue growth, underlying expense growth, investment in our team, P&A, and then the puts and takes around fiduciary investment income and FX. We look at them all together and over the course of a full year and expect to drive margin expansion over the full course of 2023.
Elyse Greenspan (Managing Director and Senior Equity Analyst)
Thanks. My second question, on reinsurance. By 9% organic in the quarter, that was stable with the fourth quarter. You know, I might have thought that, you know, just with the really strong rates that we saw, during the January 1 renewals, that growth might have picked up sequentially. Can you just give us a little bit of a just, you know, what some of the trends that you saw in the reinsurance business, you know, that impacted that 9%, in the quarter and how we should think about the balance of the year?
Greg Case (CEO)
Elyse, we'll go to you with one disclaimer here. I just want to highlight, as you think about what our reinsurance colleagues have done over the last number of years, it's really been extraordinary. At least they've really driven a level of performance with clients around the globe on a very unique platform that's been terrific. Remember, again, our efforts aren't connected to rate but not tied to rate. We're helping clients understand, measure, mitigate risk, which means we're shifting programs, doing things that are unique, you know, flexing the muscle around analytics to help them make better decisions. What we want to see is client growth, which we are seeing, top line growth, which we've seen, and translate into real impact, which we've seen.
I just want to highlight that long-term piece and we see that playing out over the course of the year. For the quarter, Eric, additional thoughts?
Eric Andersen (President)
Yeah. Greg, thanks. Look, I would say at least that reinsurance has been a strength to strength story for us over the last couple of years. It was a 7% growth in Q1 2022. Honestly, the work that's been done was nothing short of spectacular around the 1/1 renewals. We had double-digit growth, in fact, double-digit growth in our SPG advisory business, significant new engine treaty. Feel really good about the performance of the team year to date. Looking forward, the work that the team is doing with their insurer clients and others is in demand, right? What the carriers are trying to do to manage their own portfolios as they navigate this marketplace has really, you know, our team is providing real value to them as they think through that.
Really proud of the work that that team has done not only this quarter, but over the last several years, and the future, looks bright for it.
Elyse Greenspan (Managing Director and Senior Equity Analyst)
Thanks. One last one. Going back to that wealth, tough Q2 comment. You guys saw 3% organic in wealth last Q2. Was it just that these performance fees were elevated and there were just other businesses that, you know, offset that? It doesn't seem like a tough comp, so I just wanna make sure I'm not missing something.
Christa Davies (CFO)
Yeah, it's simply about the performance fees, you know, literally Elyse. Performance fees are lumpy as we communicated.
Elyse Greenspan (Managing Director and Senior Equity Analyst)
Okay, thank you.
Operator (participant)
Thank you. Our next question comes from line of David Motemaden with Evercore ISI. Please proceed with your question.
David Motemaden (Senior Managing Director and Senior Equity Research Analyst)
Hey, thanks. Good morning. I just had a question. It looked like more of the discretionary, some of the discretionary parts of the business had a good quarter. Travel and events and Commercial Risk Solutions and Human Capital and Health were both singled out, in the press release and in the slides. I'm wondering if you could just talk about how the pipeline looks in those businesses, just given, you know, they do tend to be a little bit more economically sensitive?
Eric Andersen (President)
Sure. I would say our health business had a very solid Q1. The consumer solutions part of that was up 9%. Core health and benefits was up significantly. Global benefits, human capital, double digit, both in the analytics and the advisory and data solution spaces. Really solid start for the year for them with a strong pipeline as they go through the rest of the year.
David Motemaden (Senior Managing Director and Senior Equity Research Analyst)
Got it. Okay. Thanks. I'm just looking at the CapEx and appreciate the outlook this year, the $200 -$225 million. If I just look, you know, back, you know, pre-COVID, it was running at that level or above that level, and it's been, you know, around $100 million less than that in 2020 and 2021, ticked up in the H2 to 2022. I guess I'm wondering, is there, should we be thinking about a bigger ramp, I guess, as we enter into 2024? Just maybe some of those investments that, you know, would have occurred during, you know, the COVID years sort of ramp up here as we exit?
Christa Davies (CFO)
Thanks so much for the question, David. I would say we expect $200 -$225 million for 2023. Then it's reasonable to think going forward, 2024 and beyond, that CapEx will grow in line with expenses. You're absolutely right that 2020 and 2021 were lower, really just because of the COVID situation. As we return to more normalized levels of CapEx, 2023 is the right normalized level to start with and then grow from there based on overall expense growth.
David Motemaden (Senior Managing Director and Senior Equity Research Analyst)
Got it. Okay. Okay. Then maybe if I could just sneak one more in. You know, you've mentioned a lot, Greg and Chris have just on Aon Business Services. I was just wondering, taking a step back, how many employees you have located in Aon Business Services, and where you think you can get that to, you know, over the next, you know, couple years, and what sort of margin implications that might have.
Christa Davies (CFO)
Yeah. Look, thank you for the question. What we would say is we're incredibly excited about Aon Business Services as a core About our strategy. It's bringing together the firm in one organization led by Mindy Simon, our fantastic COO, bringing together an organization to drive efficiency, to drive improved service and quality, and to drive innovation at scale. A lot of the investments we're making, David, that you saw in these IT platforms and security and infrastructure are helping us scale insights and data analytics to clients to actually deliver impact. We're really excited about the potential to drive productivity and margin expansion from ABS, but equally to drive improved service and quality to clients and to allow us to accelerate innovation in one area of the business across all of our countries and all of our clients immediately.
It's proving to be an amazing, competitive advantage for us, over the next many years.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Great. Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Mike Zaremski with BMO Capital Markets. Please proceed with your question.
Speaker 12
Good morning. This is Jack on for Mike. Just had one follow-up regarding the M&A outlook. Q1 M&A volumes in the brokerage space are down over 25% according to some media reports. Wondering would Aon consider moving down market in terms of employer size into the U.S. or European insurance brokerage middle market area where Aon currently isn't a major player, given that some of the private equity players are being less aggressive?
Greg Case (CEO)
I would say, Jack, from our standpoint, as Christa highlighted before, we've got a terrific pipeline, lots of opportunities we see. We're always gonna be looking at them in terms of how they're gonna strengthen and build our business. This is really content capability we can scale around the firm. You might imagine we look across the entire spectrum, and we continue to do that, looking for these kinds of opportunities, at a return adjusted capital criteria that sort of meets the benchmark, which is really buying back, which sets the standard. We're looking broad-based and looking off at opportunities around the world.
Speaker 12
Got it. Thank you. Maybe a follow-up on the more discretionary parts of your business. Some competitors have said that clients are acting as if some project work, which used to be maybe viewed as more discretionary, is now viewed as more necessary in today's world. I guess just any thoughts on that. Is that something that you're also seeing?
Greg Case (CEO)
Yeah. We absolutely. Firstly, I just wanna highlight, we can look back and kind of overall what's discretionary and not discretionary as a baseline. Very limited amounts of our business is really discretionary when you get down to it. There's sometimes timing's affected, not this year, but if not this year, it's next year, a very low level from that standpoint. What you're highlighting is exactly correct. Complexity is driving demand and complexity and urgency is driving demand. Analytics around that, at which we have, you know, make some of the, you know, some of these what would have been, really would be nice to do almost necessary to do, particularly if you think about risk connecting with human capital and the dynamic that comes with that. Eric, why don't you add to that?
Eric Andersen (President)
Yeah, I would maybe offer two examples. One is around wellness and the human capital business that historically would have been considered discretionary. You can't have a conversation today with a chief people officer who's thinking about health overall, including wellness, as people think about return to work, how they engage their own colleagues. That is becoming more of a blended discussion than ever before. The other piece I think, Greg, that jumps out is the risk analytics and the advisory work around the commercial risk business that you would have historically said would have been more discretionary in nature.
Today, as the clients are thinking through how they navigate this challenging market, whether it's captives, whether it's risk studies, trying to understand their total cost of risk and how they can actually manage the process better, those skills that we're able to bring to clients are in significant demand and feel more a part of the process going forward than maybe on a project-by-project basis. Just to give you two examples.
Speaker 12
Thank you.
Eric Andersen (President)
Thank you.
Operator (participant)
Thank you. Our next question comes from the line of Meyer Shields with KBW. Please proceed with your question.
Christa Davies (CFO)
Great. Thanks. Two quick ones. First, can we get a little color on what actually drove the performance fees last year? Like, what was the performance that led to that fee, and when can we expect that sort of thing to recur?
Eric Andersen (President)
I would look at it as an assets under management discussion, in terms of the volatility of the markets. As that comes back around, you'll begin to see more of a stable platform on that. That's what drove it in the Q2.
Christa Davies (CFO)
Okay, fantastic. That's perfect. Second question, Greg. I think this is for Greg. We saw almost 200 basis points of improvement in the comp ratio. Should we think about that as improved efficiency, or is there a concern maybe that there are some roles that need to be filled?
Greg Case (CEO)
It's overall, I mean, sort of overall, as you think about Meyer, where we are sort of in the process, we're looking at this across holistically, what we're doing, continuing, as Christa said, make investments across the business to strengthen the business. You're seeing us do that. Aon Business Services underneath that drives efficiency, which Christa described. I do want to emphasize it's not just efficiency. Aon Business Services is so much more than efficiency. It is innovation at scale, and it is better service and capability, but it does drive efficiency. Let's be clear, it helps individual colleagues be more effective in serving clients, and groups of colleagues more effective serving clients. You're seeing that reflected in flow-through.
We have, you know, continued to make really substantial investments in talent and content capability, and we'll continue to do that. Christa, what else would you add to that?
Christa Davies (CFO)
The thing I would say, Meyer, is you're observing, you know, lumpiness and expenses in any one quarter. We really think about margin expansion over the course of a full year.
Eric Andersen (President)
We, you know, commit to drive margin expansion in 2023 and every year after that. We think about margins over the course of a full year, and we're balancing a number of factors, including investments in people, T&E and IT, as well as the impacts of FX and fiduciary investment income, all with the overall goal of delivering adjusted margin expansion net of sustainable investment and long-term growth. That's exactly what's happening in Q1 and will happen for the rest of 2023.
Jimmy Bhullar (Managing Director and Senior Equity Research Analyst)
Okay, perfect. Thank you very much.
Operator (participant)
Thank you. Our next question comes from line of Michael Ward with Citigroup. Please proceed with your question.
Michael Ward (VP and Senior Analyst)
Thanks, guys. Good morning. I think you guys implied that the T&E headwind was much larger in the Q1. Was wondering if that means you expect more margin expansion over the balance of the year.
Eric Andersen (President)
Michael, we don't give margin expansion guidance for the full year. What we can say is over the last 12 years, we've driven 1,120 basis points of margin expansion or approximately 90 basis points per year. It is, you know, we expect to drive margin expansion each and every year. It's not neatly 90 basis points per year 'cause it's lumpy. Really what it is us driving gross margin expansion net of investments. The amount we invest every year is dependent upon our opportunities for long-term growth. I would say specifically on your T&E point, T&E was a bigger headwind this quarter because Q1 2022 had a very low T&E expense given what was going on with COVID.
Michael Ward (VP and Senior Analyst)
Got it. Okay. Then a somewhat different question. I wanted to ask about the IP Solutions business. I believe it's somewhat small for you guys. I think, you've quoted like $1 billion of lending that you've helped achieve there. I was just hoping you could maybe discuss this business, and maybe quantify its earnings or revenues if possible, and maybe even size that, the market of this business.
Greg Case (CEO)
Michael Ward, first of all, thanks for raising it. Happy to address it, and Eric Andersen and I can both I think we'll get his color commentary on this too. This is a phenomenal area. If you think about sort of things we do every day that will influence the market, you know, this is an area in which you step back and think total addressable market, what could that be? Well, start to 0 right now. What could it build to? 85% of the world's value is connected back into tangible assets. My gosh, what should this be? By the way, what has our industry done to defend those assets?
Nothing to date, you know, until we started to really understand how to value IP such that it could be insured, which means it's a real tradable asset, which means you can borrow against it. You're right, we've done a number of deals over the course of the last 18, 24 months, which has amounted to $1 billion of debt, which is fantastic. It means these entrepreneurs are raising growth capital without giving up ownership. Just think about that, raising growth capital without giving up ownership. Who's interested in doing that if you're an entrepreneur? The answer is that market is massive. It's gonna, you know, take time to develop and take time to build markets, as it always does. We love the momentum, and we love the possibilities and potential. We're not gonna quantify what it means.
You know, we'll see it play out over time, but it really does have very specific application and we're quite excited about the progress. Eric, what else would you add to that?
Eric Andersen (President)
Yeah. Maybe, just to go a little bit on it. Certainly the IP lending piece is what we have been talking about the most, and that's probably the most advanced in terms of the valuation process. You've also got, you know, M&A due diligence around IP. You've got traditional IP liability, where a corporate is not actually trying to lend against it but wants to protect it. To make all that happen, you need a couple things, right? Which is what we've been building over the last period of time. You need the valuation, right? How do you actually value IP, both in an up market, in a stressed market? How do you liquidate it? How do you get insurer partners to devote capital to it, to understand the risks themselves, to trust the valuation process, to understand how you would liquidate an example?
There's a whole ecosystem that we've been building that we are very optimistic about. As Greg said, you know, we've been building it a little bit each time. The team is focused. They're connected in with our commercial risk partners as they build market. They're connected into understanding, you know, how to get it in front of clients and build the financial institution relationship. There's a lot to it that has been happening for us, and we're excited about the future of it and started to see a little bit of progress last year.
Michael Ward (VP and Senior Analyst)
Thanks so much, guys.
Operator (participant)
Thank you. Our next question comes from line of Joshua Shanker with Bank of America. Please proceed with your question.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
Thank you all for taking my question. Good morning to you. you know, Q1 is the strongest quarter for the reinsurance segment, obviously. In the back half of last year, you had a lot of acquisition-related growth in reinsurance, not so much in 1Q. I mismodeled it. I'm just looking at 2Q, which is a smaller quarter for revenues and reinsurance. I wonder if you can help me think about the acquisition revenue piece for 2Q. It really won't matter later in the year, but given that volatility over the last three quarters, trying to be smart about it.
Eric Andersen (President)
Why don't I take a crack at it? Listen, the reinsurance business is kind of almost a tale of two halves. Certainly, the H1 is much more dominated by treaty business. Think about that through the H1 of this year, as always. Still some good facultative business. Obviously with the acquisition of Tyche, the ability to do those advisory services throughout the year. The H2 is much more weighted to capital market transactions, i.e. cat bonds, as well as facultative reinsurance, and then some casualty reinsurance that tends to go through the year as well. If you're trying to think through the weighting of the year, property cat, which is what a lot of people focus on, is largely done by the end of June, if that helps.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
In terms of acquisition, is the property cat in that acquisition?
Eric Andersen (President)
I'm not exactly sure by what you mean by acquisition.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
I'm saying that you had 9% of boost to revenues in the back half of 2022 in the reinsurance segment due to acquisitions and only 1% in 1Q. I assume there's a 12-month impact on any acquisitions you make. It was less pronounced because the volumes, I guess, in 1Q.
Eric Andersen (President)
Got it. I see.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
I'm trying to think. Yep. Yep.
Eric Andersen (President)
The acquisition around Tyche was much more advisory services, less property cat, but more pricing support and data and analytics support for those clients. A lot of the activity in the H2 of last year was driven by FAC and cat bond. I would say that's how I would think about it.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
Okay. I wanted to follow up a little bit.
Christa Davies (CFO)
Josh.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
Yep, yeah, go ahead.
Christa Davies (CFO)
Well, sorry, Josh, we closed Tyche in Q1. You will see Tyche growth included in organic growth from Q2 onwards. It'll be under, as Eric said, our Strategy and Technology Group or the advisory part of reinsurance.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
That's perfect. Thank you, Christa. I just wanted to follow up on Mike's question about T&E just a little bit. Clearly there's a variance between 1Q23 T&E and 1Q22, but in my mind, I would imagine the variance would have been greater between 4Q22 and 4Q21. Maybe you'll tell us a little something about the business cycle and whatnot. If you're spending more on T&E now, is that a broad situation with regards to a resumption on how your clients are spending? 2, should we expect that T&E headwind is really a 2023 event more so than a 2022 event?
Christa Davies (CFO)
Great question, Josh. what we would say is, look, we wouldn't overly read into any one quarter. It's lumpy quarter to quarter. what we would say is think about margin expansion for the full year, which is driven by a lot of things. It's been driven by investment in people and technology to drive long-term growth, offset by some investments in T&E, a headwind from FX. There's a lot of things going into this, Josh, but really that's why we come back to margin expansion for the full year 2023, similar to the margin expansion we've driven over the last 12 years of 1,120 basis points or approximately 90 basis points a year.
Joshua Shanker (Managing Director and Senior Equity Research Analyst)
Well, I appreciate you staying on message. Thank you very much, Christa, for the answer.
Christa Davies (CFO)
Thanks, Josh.
Operator (participant)
Thank you. Ladies and gentlemen, that concludes our question and answer session. I'll turn the floor back to Greg Case for closing comments.
Eric Andersen (President)
Thanks very much. Just wanted to say to everyone, we really appreciate you joining the call and look forward to our discussion next quarter. Thanks very much.
Operator (participant)
Thank you. This concludes today's conference call. You may disconnect your lines at this time. Thank you for your participation.