Christa Davies, Chief Financial Officer (CFO) at Aon, has said that she considers inflation to be a positive trend for the re/insurance broker over the longer term.
Speaking in a Q4 earnings calls, the executive acknowledged that in the short-term, inflation would inevitably have a financial impact on the business due to wage inflation.
But she added that, looking beyond this, the knock-on effect of inflation on interest rates is “positive on three fronts.”
“We do think the macro environment is very positive for our business,” she told listeners on the call.
Aon reported an increase in total revenue of 4% to $3.1 billion in Q4 of last year and growth of 10% to $12.2 billion for the full year, driven in part by an improved performance in its Commercial Risk Solutions and Reinsurance Solutions segments.
And the broker’s leadership team are anticipating that organic growth in revenues will continue in the mid-single digits or higher over the course of this year and further.
On the topic of wage inflation, Davies explained that Aon would look to offset these costs with efficiencies driven by Aon Business Services at scale, which should enable the firm to continue to drive margin expansion.
“One of the other macro things I might add, just while you’re on inflation, is interest rates,” she continued.
“So if interest rates were to continue to rise, that is very positive for us in three key ways: fiduciary investment income increases, every 100 basis points in short-term interest rates, there’s an increase of $60 million top line and bottom line for Aon; the second is pension liability comes down; and then the third, which you may think is a negative, but is not, interest expense and our entire debt portfolio has fixed rate interest, so there’s no impact on debt.”
“So, inflation, we do expect, longer term, to be a positive for our business,” Davies concluded.
