Good morning, and thank you for holding. Welcome to Aon Corporation's fourth quarter earnings conference call. At this time, all parties will be in a listen-only mode until the question and answer portion of today's call. If anyone has any objection, you may disconnect your line at this time. 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 on 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 fourth quarter results, as well as having been posted on our website.
Now it is my pleasure to turn the call over to Greg Case, President and CEO of Aon Corporation. Thank you, sir. You may begin.
Thank you, Leslie, and good morning, everyone, and welcome to our fourth quarter conference call. Joining me here today is our CFO, Christa Davies. To begin, we finished the year with a quarter that was both challenging and exciting for our firm. Challenging in a sense that the macroeconomic and industry pressure continues to be felt in many markets around the globe, albeit at a lesser pace. Exciting in a sense that we took significant steps to substantially strengthen our global firm for long-term growth and value creation, including the proposed relocation of our corporate headquarters to London. Consistent with previous quarters, I'd like to cover three areas before turning the call over to Christa for further financial review. I would note that there are slides available on our website for you to follow along with our commentary today. First is our performance against key metrics we communicate to shareholders.
Second is overall organic growth performance. Third is continued areas of investment across Aon. On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the three metrics we focus on achieving over the course of the year. Grow organically, expand margins, and increase earnings per share. Turning to slide four. In the fourth quarter, organic revenue was 3% overall, with growth across risk and HR Solutions highlighted by 4% growth in both reinsurance and outsourcing. Adjusted operating margin decreased 70 basis points, driven by an increase in intangible amortization expense over the prior year. Finally, EPS increased 15%, driven by strong underlying performance and effective capital management. For the full year, organic revenue growth was 2% overall, an improvement from flat in 2010 and -1% in 2009.
Adjusted operating margin decreased to 180 basis points, which includes 140 basis points of intangible amortization impact and the inclusion of Hewitt results. Finally, EPS increased 5%, driven by strong underlying performance and effective capital management. Overall, we finished the year with improved organic revenue across our business, delivered cost savings, took significant steps to strengthen our firm, and are effectively allocating capital, giving us both excitement and confidence in our ability to drive improved performance across our key metrics in 2012. Turning to slide five, on the second topic of growth. I'm going to spend the next few minutes discussing the quarter for both of our segments. In Risk Solutions, overall organic revenue growth was 3%, with growth across all major businesses.
As market-related conditions continue to stabilize, we're driving a set of initiatives that are strengthening underlying performance and positioning our Risk Solutions segment for long-term growth and leverage to an improving economy. With management of our renewal book through Client Promise and retention rates of 90% or better on average, highlighting strong client satisfaction. New business generation of nearly $280 million across our retail business, with solid growth across many markets, including China, Latin America, New Zealand, and the Netherlands, just to name a few, highlighting the strength of our global client-serving capability. Investments in new product and service capabilities with the rollout of GRIP, Aon Broking, and Client Promise globally. In our core treaty reinsurance business, net new business trends have now been positive for three consecutive quarters. Reflecting on the individual businesses, in the Americas, organic revenue growth was 3% as pricing and exposures were relatively flat.
We saw solid new business growth in both Canada and Latin America and strong management of the renewal book portfolio utilizing Client Promise in Latin America and the U.S. Results reflect strong performance, overcoming continued market weakness in the commercial construction sector. On the international side, organic revenue growth was 1% as pricing was flat to modestly down on average with firmer pricing in catastrophe-exposed regions. Really a strong performance given the +6% in the prior year quarter. We saw strong growth in emerging markets and across Asia Pacific, including double-digit growth in areas such as Thailand, China, Japan, and Malaysia. U.K. and Continental Europe continue to be pressured as economic conditions remain fragile across many core markets in the region. In reinsurance, organic revenue growth was 4%, an improvement from -1% in the prior quarter, and a level of organic revenue performance not achieved since Q2 2009.
The results reflect strong growth in our capital markets and advisory business and modest growth in our global facultative placements. In our core book of treaty reinsurance, the impact of the market from pricing and cede and retentions was stable, and the underlying strength of the book continues to improve as net new business won was positive for the third consecutive quarter. This trend in new business generation reflects Aon Benfield's strong value proposition for clients of strengthening operational performance, reducing volatility through unmatched data analytics and advisory capability, a central thesis in the Benfield acquisition we announced roughly three years ago. Overall, annual organic revenue was -3% in 2010, now flat in 2011. We're firmly on track for growth in 2012. Reflecting on HR Solutions, overall organic revenue growth was 3%, with growth in both businesses, a solid improvement from -2% in the prior quarter.
Performance primarily reflects strong growth in areas where we're making significant investments in the business, in areas such as investment consulting, healthcare exchanges, and HR BPO. Turning to the individual businesses. In outsourcing, organic revenue growth was 4% compared to minus 2% in the prior quarter. We saw a growth from both new client wins in HR BPO and from our healthcare exchanges. Results were partially offset by a modest decline in benefits administration due to price compression within expectations and client losses. On the consulting side, organic revenue growth was 2%, with improved growth across most major practices from the prior quarter. Overall, a solid improvement from minus 2% in Q3. We saw a growth globally in health and benefits and in investment consulting, and results were partially offset by a decline in demand for retirement consulting.
Overall, in HR Solutions, we're pleased with our growth performance in the fourth quarter and would expect modest growth in 2012 across both businesses. While encouraged that we're beginning to deliver growth from our investments, our priorities for 2012 focus on driving improved profitability for our investments and improving the growth profile in our core benefits administration and retirement consulting businesses. Slide six highlights the third topic, further areas of investment. We believe Aon is in a unique position. Solid long-term operating performance, combined with expense discipline and strong cash flow, continues to enable substantial investments in colleagues and capabilities around the globe.
A few examples include in Risk Solutions, we're investing in client leadership to drive greater productivity and efficiency with the rollout of the revenue engine in EMEA and Asia Pacific, as well as the rollout of Client Promise, which is driving greater retention and rollover rates across our client base. We continue to invest in innovative technology such as our Global Risk Insight Platform, which is the world's leading global repository of risk and insurance placement information. We now have 1.3 million trades, more than $65 billion of bound premium, and a growing list of 25 insurance carriers utilizing the platform's analytics and service capabilities. We're driving our Aon Broking initiative to better match client needs with insurer appetite for risk, resulting in better economics for all participants, as highlighted by our ability to package similar risks and place substantial programs and facilities into the market on behalf of clients.
Finally, effective January 1, 2012, we're aligning our global health and benefits platform under Risk Solutions to better leverage a broader global distribution channel and to strengthen the deep brokerage capability in data and analytics with clients and insurance carriers. As we've discussed previously, we have proved the concept of these investments in 2011, as we move into 2012 and 2013, we're going to continue to drive greater scale, increasing operating leverage as a result of these investments in our Risk Solutions business. In HR Solutions, we're expanding our international footprint as the workforce is increasingly becoming more global with investments in key talent and capabilities across emerging markets. We're continuing to invest in expanding our core HR BPO offerings through point solutions opportunities such as dependent eligibility audits and absence management diagnostics. We're expanding our industry-leading benefits services platform from large market to middle market.
Finally, we continue to strengthen our industry-leading position in healthcare exchanges, enabling clients to prepare for ultimate changes in healthcare legislation with design, purchasing, and administration capability. In summary of our fourth quarter and full-year results, we delivered organic revenue growth across both Risk and HR Solutions, made significant investments in long-term growth opportunities, and took important steps to strengthen our global firm. Our fundamental client-serving capability continues to strengthen substantially around the globe, and the firm is positioned for increased growth in 2012. With that said, I'm now pleased to turn the call over to Christa for further financial review.
Thanks so much, Greg, and good morning, everyone. As Greg noted, our fourth quarter and full-year results reflect continued progress to strengthen our industry-leading platform, and the firm is positioned for increased growth in 2012. We are managing expenses through savings from our restructuring programs, generating strong cash flow, and effectively allocating capital, as highlighted by the repurchase of $828 million of common stock in 2011. Now let me turn to the financial results as highlighted on page seven of the presentation. Our core EPS performance, excluding certain items, was $0.97 per share for the fourth quarter, up 15% from $0.84 in the prior-year quarter. Strong underlying performance and effective capital management more than offset a $21 million increase in intangible amortization in the quarter. Certain items that were adjusted for in core EPS performance are highlighted in the schedules of page 14 on the press release.
In addition, foreign currency translation had a favorable impact of $0.01. If currency were to remain stable at today's rates, we would expect a modest unfavorable translation impact to EPS in the first quarter of 2012. Starting in the first quarter of 2012 and going forward, the company will provide adjusted results that exclude the impact of non-cash intangible amortization and certain one-time items. We believe the exclusion of non-cash intangible amortization will more closely align external audiences and the company around cash flow generation. We drive capital management and shareholder value creation through cash-on-cash returns. The schedule on page 15 of the press release reflects this disclosure. I would note that EPS in the fourth quarter, excluding certain items and intangible amortization, was $1.16, up 20% from $0.97 in the prior-year quarter. Now let me talk about each of the segments on the next slide.
In our Aon Risk Solutions segment, organic revenue growth was 3%, and we delivered an operating margin of 21.8% on an adjusted basis, essentially flat with the prior-year quarter, including a 20 basis points unfavorable impact for costs related to the integration of the Glenrand acquisition. On an adjusted basis, operating income increased 3% or $10 million to $397 million. The year-over-year improvement was primarily driven by an increase in organic revenue and modest benefits related to the restructuring programs. Let me spend a moment on each of the restructuring programs, key initiatives that have enabled concurrent funding of investments and long-term structural margin expansion. With respect to the 2007 restructuring program, we have incurred 100% of the charges necessary to deliver savings. Restructuring savings in the fourth quarter are estimated at $134 million, compared to $128 million in the prior-year quarter.
Approximately $113 million of savings were related to the Risk Solutions segment. The program is now complete, having delivered an estimated $536 million of cumulative savings in 2011. With respect to the Aon Benfield restructuring program, we incurred $21 million of charges in the fourth quarter and have now completed 96% of the charges necessary to deliver the remaining savings. The remaining charges of $7 million will be incurred in the first quarter, which will complete the charges under this program. Restructuring savings in the fourth quarter are estimated at $33 million, compared to $27 million in the prior year quarter. The Aon Benfield restructuring program delivered $122 million of cumulative expense savings in 2011 and is expected to deliver cumulative expense savings of $144 million in 2012. Turning to the HR Solutions segment, organic revenue growth was 3%.
We delivered an adjusted operating margin of 12.4%, down 120 basis points compared to the prior year quarter, including 190 basis point unfavorable impact related to intangible amortization. On an adjusted basis, operating income decreased 6% or $10 million to $147 million. The year-over-year performance was primarily driven by a $22 million increase in intangible amortization, significant investment in long-term growth opportunities, including our healthcare exchange business, and an unfavorable revenue mix shift due to an organic revenue decline in benefits administration and retirement consulting. Excluding the impact of non-cash intangible amortization, operating income increased 6% to $209 million in the quarter, reflecting savings from the restructuring program. With respect to the Aon Hewitt restructuring program, we incurred $25 million of charges in the quarter, primarily related to workforce reduction.
Cumulative savings related to the restructuring program in the fourth quarter are estimated at $43 million, compared to $4 million in the prior year quarter, with additional synergy savings of approximately $27 million achieved outside of the formal restructuring program. For 2011, we achieved an estimated $233 million of cumulative restructuring and synergy savings, compared to $4 million of savings in the prior year. Of the achieved savings in 2011, we estimate approximately 75% were realized in operating income before intangible amortization. Realized savings were less than 100% due to approximately $40 million of investment in long-term growth opportunities and weaker performance in certain core businesses. We are not satisfied with this performance, and as Greg noted, our priorities for 2012 are centered on driving improved profitability for our investments and certain of our core businesses.
As we think about 2012, we would expect to deliver improved performance as we progress throughout the year. Before any adjustments related to the transfer of the health and benefits business, we would expect to realize approximately 75% of incremental restructuring and synergy savings, expect to invest an additional $35 million in long-term growth opportunities across HR BPO, healthcare exchanges, and additional talent to expand our distribution, and would expect intangible amortization to increase approximately $63 million. In short, including intangible amortization, we would expect operating income to be down modestly from 2011. Excluding intangible amortization, we would expect operating income to be up modestly. Turning to the next slide on our long-term operating margin targets. Effective January 1, 2012, the company moved the global Aon Hewitt health and benefits business from the HR Solutions segment into the Risk Solutions segment.
This move will allow the business to benefit from broader global distribution channel and to promote the company's deep health and benefits capabilities with clients and insurance carriers. Additionally, as we noted last quarter and mentioned earlier, the company will begin reporting adjusted results for Q1 that exclude the impact of intangible amortization and certain one-time benefits. Historical selected financial information for the years 2009, 2010, and 2011 that reflect financial reporting changes for both the health and benefits transfer and for intangible amortization are provided in the press release this morning. This financial information will provide comparability to results reported in the first quarter of 2012. We recognize there are significant changes this quarter but believe these reflect greater transparency and focus our results on cash flow growth, which is how we run the company.
Adjusting for these reporting changes, our new long-term operating margin target of 26% for Aon Risk Solutions reflects significant opportunity for margin expansion in the following five ways. First, remaining restructuring savings and other operational improvements. Second, continued rollout of the revenue engine internationally. Third, Aon Broking and group-related initiatives. These three are fully within our control. In addition, there are two additional macro drivers that provide significant operating leverage based on improvements in the external market. Fourth, increases in short-term interest rates, and fifth, industry improvements driving higher insured values or insurance pricing. Similarly, for HR Solutions, adjusting for these reporting changes, our new long-term operating margin target of 22% reflects significant opportunity for margin improvement in the following three ways. First, deliver $335 million of synergy savings in 2013. Second, growth in the core business and return on incremental investments. Third, improvement in HR BPO.
Now let me discuss a few of the line items outside of the operating segments on the next slide. Unallocated expenses increased $5 million to $43 million, including costs for project-related work. Interest income decreased $2 million to $4 million due to lower average interest rates. Interest expense decreased $6 million to $59 million, due primarily to a decline in the average rate on total debt outstanding. Other income of $4 million in the fourth quarter includes gains on certain company-owned life insurance plans, partially offset by losses on the company's ownership in certain private equity securities and other long-term investments. Going forward, we continue to expect a run rate of approximately $5 million per quarter of interest income, $35 million-$40 million of unallocated expense, and $60 million of interest expense per quarter.
Minority interest was $3 million compared to $10 million in the prior year, due to lower performance of certain joint ventures and partnerships. We would expect minority interest to be approximately $8 million-$10 million per quarter going forward. Turning to taxes, the effective tax rate on net income from continuing operations declined to 27% in the quarter, compared to 32.8% in the prior year quarter. The prior year quarter was impacted by certain deferred tax adjustments, and the improvement in the current quarter was primarily due to certain discrete items. The company anticipates an effective tax rate on net income from continuing operations of 29% for 2012. Lastly, average diluted shares outstanding decreased to 337.9 million in the fourth quarter compared to 346.7 million in the prior year quarter, due primarily to the company's share repurchase program throughout 2011.
The company was not able to repurchase shares in the fourth quarter due to the subsequent announcement of the headquarters relocation. Actual common shares outstanding on December 31st were $324.4 million, and there are approximately 14 million diluted stock equivalents. The company has approximately $1.2 billion remaining under the share repurchase program previously authorized in 2010. Now let me turn to the next slide to highlight our strong balance sheet and cash flow. At December 31, cash and short-term investments were $1.1 billion, and total debt outstanding was $4.5 billion. Overall debt to capital was 35.7% at December 31, 2011, compared to 35.3% at December 31, 2010.
Cash flow from operations for 2011 was $1 billion, up 30% from $783 million in the prior year, due primarily to an increase in net income resulting from the inclusion of Hewitt and improved operational performance, partially offset by pension contributions and restructuring payments. Free cash flow, as defined by cash flow from operations less capital expenditure, was $777 million, up 29% from $603 million in the prior year. Strength of the firm's free cash flow generation enabled more than $1 billion of capital to be returned to shareholders in 2011 through $828 million of share repurchase and $200 million of dividends. Turning to the next slide to discuss our long-term financial flexibility. Regarding our underfunded pension plans, we have taken significant steps to reduce volatility and liability as we've closed plans to new entrants, frozen plans from accruing additional benefits, and de-risked certain plan assets.
In 2011, we contributed approximately $477 million to our plans and would expect to contribute approximately $541 million in 2012 before any discretionary contributions. Higher contributions primarily reflect a decline in discount rates. We would expect contributions to decline annually beginning in 2013, resulting in fully funded plans on a GAAP basis in 2016. Regarding non-cash pension expense, we incurred $87 million of expense in 2011 and would expect a modest decline in 2012. Regarding our restructuring plans, cash payments were $178 million in 2011. As our restructuring plans continue to wind down, we would expect cash payments to decline $23 million to approximately $155 million in 2012 before declining further in 2013. As our required uses of cash decline over the next several years and free cash flow increases, we expect it to be a significant source of value creation for shareholders.
As an important step in unlocking that value for shareholders, the company announced it will change its jurisdiction of incorporation from Delaware to the U.K. and move its corporate headquarters to London. The transaction requires a shareholder vote to approve and is on track to close in the second quarter of 2012. We believe the relocation will help drive shareholder value through providing greater global access to expected increases in future cash flow, enabling us to access approximately $300 million of excess capital held internationally on our balance sheet upon consummation of the transaction, and increase future cash flows through a significant reduction in our global tax rate over the long term. In summary, we delivered improved organic revenue in 2011, placing us firmly on track for increased growth in 2012. We have significant leverage to an improving global economy.
We are managing expenses and fully on track to achieve our long-term operating margin targets. Our balance sheet and strong cash flow continue to provide significant financial flexibility as we return more than $1 billion of capital to shareholders and took significant steps to increase long-term shareholder value in 2011, highlighting our belief in the underlying strength of the firm. With that, I'll turn the call back over to the operator, and we'd be delighted to take your questions.
Thank you. Our first question comes from Ray Ardella of Macquarie.
Good morning, guys. Congrats on the quarter. Just a quick question, I think first, surrounding Europe. I know, Greg, you had mentioned in your commentary there was some weakness in the international brokerage segment from that. I'm just curious, was there any headwind on the consulting or the HR Solutions side?
Ray, as we look at Europe overall, again, the natural expected sort of headwinds are there as you think about how the economy is evolving. We've been able to actually fight through those reasonably well, really across the board when you think about where we are. We've seen, on the HR Solutions side, consulting growth in multiple places across the region, especially when you compare to the previous quarter. We feel pretty good about that. The headwinds are real from an economic standpoint, where we're fighting through those. Same on the risk side as well. While we reported 1%, when you think about where we were in the same quarter of last year, it was really an incredible, almost unprecedented quarter in terms of overall organic growth. Net-net, we're cautious about what's going on in the economy.
We feel good about our ability to kind of fight against that and serve our clients.
Thanks. Quickly on the reinsurance brokerage, I guess part of the growth there has been driven by the capital markets business, I know 4Q10 was a pretty tough comp, and certainly delivering 4% growth there was quite impressive. Could you give a little bit more color on maybe, was it cat bonds? What else might be driving that growth there?
Yeah, look, I think as you reflect back on Aon Benfield overall, we feel good about where we are. The quarter specifically we highlighted was capital advisory and some facultative side, which by the way, drove a good portion of the growth. If you reflect on kind of the evolution of Aon Benfield, reflect back when we actually brought together Aon Benfield in the fourth quarter of 2008, we essentially said, look, this business is going to because so much of it renewals January 1, there wasn't going to be a lot of movement in 2009. In fact, overall growth was about 0 for 2009. We were roughly flat. We were down roughly 3% in 2010 when a lot of the adjustments occurred as some of the rebalancing happened.
Now in 2011 for the year, we're at 0% overall and 4% as you reflect in the fourth quarter of 2011. As interesting to us as literally over the last three quarters, when we looked at business won, net new business versus business loss, we've been strongly positive for the last three quarters. What this just highlights for us is exactly the thesis we had going into this transaction and this combination was that the client-serving capability of Aon Benfield is just incredibly substantial to help clients improve operating performance, strengthen balance sheets, decrease volatility. We simply just have a greater array of analytic capability than anyone in the world out there at this point, and that's served us very well. After the adjustments that I've just described, the platform is actually fully in place and established for long-term growth.
Great. Appreciate the color.
Thank you. Next question, Keith Walsh of Citi.
Hey, good morning, everybody. First question for Greg, just around brokerage margins. Just maybe a broader question. Since you arrived in 2005, you've grown margins every year except 2011. I guess, when we think about the things you can control, such as GRIP, Aon Broking, why aren't they moving the needle now that the cost saves are winding down? We're a couple of years into those. Then I've got a follow-up.
Sure, Keith. Listen, from our standpoint, we step back. We feel very good about the program and the progress sort of driving to what is a 25% margin, as we described before, increasing now that we're going on from a cash perspective to 26% margin. As Christa described, the specific investments we have in place have, we believe, have been proven in 2011, are really able to be scaled up in 2012, 2013, and that's working exceptionally. That's working very well for us. We'd highlight, by the way, as you described, while we were able to improve margins over the last five years, we did it against significant headwinds, and we made significant investments in the business. By the way, we're doing the same thing on the HR Solutions side when we saw opportunities.
Things like GRIP and others sort of were drags from a margin standpoint, but were very positive from a capability-building standpoint. We are confident as we proceed in 2012 and 2013, 2014, in our ability to actually drive improved margin going forward. I think there's some specific things for the quarter. Maybe Christa, you could comment on some of those that actually highlight some differences there as well.
If we look at 2011, Keith, in terms of Risk Solutions margin, there are obviously two big impacts. One was leases, which was a 50 basis point impact, and the other was the integration cost from Glenrand, which we believe is a fantastic investment for us in emerging markets and is going to generate a great return, and that was a 20 basis point impact. We look forward to 2012, we do believe we'll expand Risk Solutions' margin, and the growth in Aon Benfield that we believe we'll deliver will certainly contribute to that. We feel very good about the progress of 2012.
Just to follow up to Christa on the HR Solutions business, I guess, going back to the July 2010 presentation, you guys expected adjusted GAAP accretion of 1% plus in 2011 and 5.4% in 2012, and now you're telling us GAAP earnings are going to be down in 2012. I guess relative to the original targets, what specifically is causing this deal to underperform the original metrics? Thanks.
What we would say, Keith, actually, is that we feel better about the long-term outlook for our HR Solutions business than we did when we originally did the transaction. Evidence of that is the fact that we are investing significantly more than we had originally anticipated. We did mention that we've done $40 million of investments in the business in 2011, and we will increase that by a further $35 million in 2012. Those investments span healthcare exchanges, and we believe the opportunity for growth in healthcare is just enormous. Our HR BPO business, which we are extremely pleased about, and areas like investment consulting. We feel very good about that. As we look at the performance in 2011, as we said, there is some underperformance in certain core businesses which we aren't happy with.
We would say there's some economic pressure from Europe. We have some work to do to continue to improve our performance.
Okay, thanks.
Thank you. Next question, Brian Meredith of UBS.
Yeah. Good morning. A couple questions here. First one, on the HR Solutions business, you did mention that one of the reasons for the weaker growth had to do with some client losses. What's that impact you think going to be for 2012? Was it significant or is it something that shouldn't cause all that much of an issue in 2012?
No, Brian, this is really the natural progression of the business. We feel good about the overall growth prospects for the business really across the board. We're cautious about the economics and the economic environment, I should say, that Christa described, but feel good about the fundamental client-serving capability. On the consulting side, and on the outsourcing side as well, really when you step back, think about consulting in particular in this quarter, we really had growth across the board on almost every category, health and benefits, global comp, investment consulting, talent rewards. The pressure a little bit was on the retirement side as expected, but really across the board. The net new news here is what Christa just described. The net new news is really the investments we're making against the opportunities we see.
We just simply see greater opportunities than we anticipated on the healthcare exchange side and the HR BPO side and the investment consulting side. We'll make those investments as a way to build long-term value for the business. That's what we're going to look at. Then work against the natural sort of characteristics and price compression characteristics on the Ben admin side, which we fully expected as well.
Great. Next question. Given the pricing dynamics going on right now in the commercial insurance pricing environment, do you expect that to potentially be a tailwind for you all from an organic revenue growth perspective going to next in 2012?
Well, listen, we've seen, as we described, and we've been very careful on this, and we look at it, Brian, as you know, quite analytically here. As we look at GRIP, and literally this is sort of the kind of numeric reflection of exactly what's going on in the context of the overall marketplace. I'll just go back through, maybe I'll give you five numbers here. In Q4 2010, the overall market, this is across Aon's placements across the globe, -5.3%. Q1, it was -3.5%. Q2, it was -2.5%. Q3, -1.9%, and now flat in Q4. We're seeing progression. That's against across the overall system. Some ups as you would expect in cat exposed areas. Some downs in areas like D&O, et cetera, but that's literally what's happening across the system.
When we think about Aon overall, we've made significant investments to build a platform for growth long term. If you think about where we were in 2009, 2010 and 2011, we were at minus 1%, zero, now plus 2%. We feel good about sort of continuing that trend moving into 2012.
Great. Thank you.
Thank you. Next question, Michael Nannizzi, Goldman Sachs, your line is open.
Hi, Michael.
Hi. Sorry about that. Just if you could talk a little bit about the move of the benefit segment over to the brokerage side. Just trying to understand from a distribution perspective, how does that work? Or do some of the same brokers distribute both insurance product as well as health and benefits? Just a follow-up.
This is really for us, we're quite excited about this. It's an opportunity with great capability we have on the health and benefits side, that really was proven on both Aon Hewitt and Aon Risk Solutions, to bring those together. Really it is about much stronger, greater access to clients around the world. In essence, the health and benefits capability now being brought to many Aon Risk Solutions clients. In some respects, particularly in the middle market, they have the same buyer. That's very much a CEO, CFO. It's a great opportunity there. In addition to that, it gives us the opportunity to continue to work. If you think about sort of what we've done with GRIP on the risk side, now we're adding health and benefits into that context. We've talked about a $60 billion overall flow across the Aon system.
Now it's closer to $78, almost $80 billion. The opportunity to take very proven approaches on the Aon broking market side now get amplified doing this. The access to clients gets amplified, particularly in the middle market and smaller commercial. We are, by the way, going to continue to keep investing behind the large corporate arena. We very strongly position there, and we'll keep doing that. We see this as really an opportunity to serve clients more effectively and are excited about it.
From a just kind of feet on the ground perspective, does that mean that you'll have a broker kind of going into his client as well as someone who will be representing health and benefits sitting down, so it'll be three people instead of two people? I'm just wondering just kind of how does it work just from a feet on the ground perspective?
Yeah. The mechanics really don't quite work that way, although I could see where you're coming from. Literally, the mechanics are, at the end of the day, this has to actually ultimately get designed and then placed, broked and then placed. A lot of our ARS colleagues sort of reach out for that capability. Now they've got greater access to fully branded Aon Hewitt capability than they would have had access before. We just got a much more introduction. It literally is like this, we're in a middle market where we've got the strongest position in the world. The largest portion of our book is middle market, small commercial. Our brokers are sitting across the table saying, "Wow, I'm doing everything for you on the risk side. I know you've got people challenges and health and benefits challenges.
I see that cost is going up on your P&L," which by the way is a big deal in the middle market, big deal in large corporate too, and said, "Listen, I'd love to introduce you to what we believe is the best client-serving capability in the world in health and benefits if it's helpful." That's really how it's taken off. Again, this is something we've seen work quite effectively in multiple regions around the world. It's exactly, by the way, how it works in Latin America and has for many years. It's exactly how it's worked in some of our offices in the U.S. already. This is, again, in many respects, taking a proven approach, which we've seen work and now scaling it quite substantially around the world.
I would say and observe is we've actually made the transition already, where we're beginning reporting it in January as Christa described, but we saw H&B growth overall in Q4, even as we were going through the transition. We feel very good about it.
Just one last one. You mentioned Europe before, can you talk a little bit about pipeline? You said you're kind of fighting through the headwinds there. What is your base case for Europe as you think about your business there, particularly on the consulting side, and where is your pipeline for business now versus where it was maybe three or six months ago? Thanks.
Yeah. We're still seeing good, strong, robust demand on the pipeline side. It's just, you can imagine in Europe, clients are cautious. They're concerned about what's going to happen next. They might delay some projects that they would otherwise actually have done if they had a little more confidence or a little more certainty about what was going to happen. In terms of sort of engaging with clients, seeing activity, that's remained quite robust. It really is just how we're actually serving them. Our sense is we're going to grow flat to low single digits in 2012, sort of in the European theater. We're going to push that across both the risk side and on the HR Solutions side.
You know our commitment is to grow organically, while there are headwinds out there, whether they're in pricing or economics or anything else, we're going to work hard to push against those and feel like we can do that in 2012.
Thank you. Next question, Dan Farrell of Sterne Agee.
Hi, good morning.
Hi, Dan.
I was wondering if you could just talk a little bit more about the HR BPO business. This is a business that seemed like what it needed to do is get profitability fixed. It was not making much in a margin perspective. Now you're putting more into the business. Clearly, you must think it's something that can be corrected very much on the margin, but also grow. I'm just wondering if you could talk about what trends you're seeing there that give you the increased confidence to invest in it, and then also sort of what stage are we in the turnaround of that business from a margin perspective?
Yeah. We would say we are very pleased with the progress in this business. New client wins are up significantly. The performance in this business is exceeding our expectations. We would say that it is a low but positive margin business today. It will get to a mid-teens margin by 2015, and we are well on that path. It's growing organically as we saw in Q4, and we expect that trend to continue into 2012. It's well on track to get to mid-teens margin by 2015.
I might just also add, as you think about sort of like this is Christa's describing literally the core offering. That's progressing very well as she described. We anticipated that, we've seen that throughout the year, and the team's done a very good job on that front. In addition to the core product, you might imagine there are lots of additional ancillary offerings that come with core HR BPO, on the consulting side in particular. We're seeing that benefit as well, which is why we feel good about this business and look forward to continuing to grow it.
Thank you. Just one other quick question. I apologize if you've mentioned this already, Christa, but the pension contributions on a cash basis, are those even throughout next year, or are they more front-end loaded?
They're fairly evenly throughout the year.
Okay. Thank you very much.
Sure.
Thank you. Next question, Adam Klauber of William Blair.
Hi, Adam.
Good morning. Thank you. Could you talk about uses of cash next year? Are share repurchases still the priority? As cash increases, do significant acquisitions become a possibility again?
Yeah. The first thing I would say, just answering your M&A question is, we do not believe there's a significant acquisition on the horizon. We believe M&A is going to be in the $200 million-$250 million a year range. It's traditionally smaller acquisitions. That would be sort of the M&A. As we think about uses of capital, and you refer to slide 12 of the slide deck we posted, you can see that there are really sort of six main uses of capital. Pension contributions, which is going to be $541 million in 2012 before any discretionary contributions. The second one is restructuring cash, which was $155 million in 2012. The third is CapEx, which is $270 million. Then we have M&A, which I talked about, sort of $200 million-$250 million, which then leaves return to shareholders of dividends and share repurchase.
Obviously we did over a billion dollars a year this year. As we think about uses of capital, return on capital on a cash-on-cash basis is the metric we use to allocate capital. We think that share buyback is the highest return on capital across the firm. Frankly, as we look at our long-term growth of the business and hitting our revenue growth and long-term margin targets, and uses of capital decreasing over time, substantially over the next five years, we actually see that the cash characteristics of the firm are going to grow substantially, and therefore, share buyback's even more attractive. As we think about the right level of share buyback in 2012, it is going to remain our primary use of capital.
$150 million a quarter is probably the right number to think about with a lower number in Q1 because it's our lowest cash outflow quarter.
Okay. Great. Thank you very much.
Thank you. Next question, Jay Gelb of Barclays Capital.
Thank you. On the retail risk solutions business, as we get into a pricing environment here that moves into positive territory, how will clients react to that? Will they buy less coverage? Within the retail business, how much of your revenue stream is commission-based rather than fee-based?
What we've seen, Jay, is, we step back, we solve the risk issues, challenges of our clients really very holistically. We actually help them balance both the cost of that including the core pricing as well as coverage, all the different pieces that go with that. You'll see some adjustments certainly it's a mitigating factor as prices increase, clients think about it. So is the range of coverage that they're having to think about now when you think about all the traditional risks that clients have to deal with now adding to that kind of non-traditional risks and the impact of cyber risk and sustainability and all the different pieces that go with that. For us, it's a pretty kind of holistic picture.
On the margins as prices change, it does impact kind of what happens with our book of business, and mitigated by things as you described like client retentions. About 70% of our book is commission-based and about 30% is fee overall. If you think about that, changes in price will have an impact. Again, we look at it from a purely a client perspective on how we can serve them best.
On the reinsurance organic growth in the fourth quarter, how much of that should we consider recurring? It seems like a lot of these capital markets transactions are sort of one-time in nature.
Well, as we described before, listen, the capital markets advisory businesses are lumpy. They go up and down, by the way, help us in some quarters, don't in other quarters. We have an exceptionally strong capability here. When you think about what we're doing on the cat bond side and the capital advisory side, it's exceptional. We're the number one player in the world, lead the market very much at the forefront there. Same on the advisory side, that helps us. Facultative can be a bit lumpy too, up and down. What I do want to emphasize is we feel good about our growth prospects, positive organic growth in 2012.
Most important as you reflect over the last few years, sort of the natural adjustment that occurs when you bring these two businesses together, given our size, 2011 we believe has set the stage very well in treaty, in capital advisory and in fact, for growth.
Thanks for the answers.
Thank you. Next question, Yaron Kinar, Deutsche Bank. Your line is open.
Hey, good morning.
Morning.
Can we talk a little bit about GRIP, Aon Broking, Client Promise? How should we think about quantification of those, both in terms of top line and maybe margin impact?
Well, if you step back and think a little bit, Yaron, about how we've talked about this overall, when you think about sort of driving performance in the risk solutions arena, number of clients, how we're doing on new business, our wins, losses, et cetera. We've got a great deal of focus around that and a lot of efforts around the revenue engine. We think about share of wallet, literally, what's the cross-sell? How many products are we selling? How are we doing it in a way that, again, back to Jay's question, is holistic and really represents the best interests of our clients? Then we look at yield per dollar of premium paid. Really, that's the other piece that's absolutely critical in the context of this. All the initiatives you're describing kind of fit into that framework.
This is really back to kind of Christa's point on getting to the 26% now margin and how that's actually going to play out over time. In our view, the investments we've made, which have been true investments, they've been drags on margin, are really starting to show what we thought they would and seeing progress on yield per dollar of premium placed on Aon Broking and on GRIP, as well as kind of client wins and losses sort of on the revenue engine. Client Promise, by the way, has been fantastic. We've been very pleased with sort of the results. When we do Client Promise surveys and really understand holistically how we've performed, our retention goes up substantially and our new business goes up substantially. Again, we're just systematically listening to clients and responding with the full capabilities of Aon.
On the Aon Broking side and GRIP side, as I described before, on the yield per dollar premium paid, we believe there's substantial potential here as we kind of organize our firm to deliver for clients. One great example is over the past few months, we've actually pulled out a kind of a tranche of risk, call it middle market D&O for private companies, and been able to bring that to market in a way that we've got clients a much better outcome in terms of terms and conditions, et cetera. In the context of that, also done well for Aon. We have a high expectation for where we think this is going to go and continue to improve Aon's performance. All these things are in Christa's controllable categories, the first three she talked about.
Those by themselves, we believe can get us to our target margin over time. If we get help by some tailwinds, either on the investment return side or on the pricing or insured value side, that actually accelerates it.
Just so I understand, looking into 2012, would those initiatives be a drag or a boost to margins?
Yeah, they're going to begin to drive up. As we said before, through 2011, on the investments we've really made in kind of end of 2009, 2010 into 2011, we said we'd really start to offer some potential in 2012, and we fully expect that to happen.
Okay. Then on the benefits administration business, clearly still seeing some ongoing price compression and pressures there. Is that kind of the new normal for that business, or do you expect something to change there, and if so, what do you see the catalysts as being?
This has been as expected. This is a business, particularly on the large corporate side, that continues to experience compression in line with what we thought as we came into the combination with Hewitt. Important, we take note of it, and we really spend time with our clients to make sure we're helping them understand the value we can bring to the table and we're getting paid for that and we're delivering value. We're looking for things, evolving that capability into the middle market. Imagine middle-market companies now that actually have much more compliance-related activities they've got to come up to speed on, et cetera. We can actually help in the middle market. The compression is real and meaningful, as we said before, offset by growth in new areas that we're trying to bring to bear to kind of offset that.
That's really what we're addressing as we go into 2012, and thinking about how we drive the business. It's project revenue, what we're trying to do in the middle market, thinking about how we actually continue to improve productivity, things we call point solutions, which are specific, targeted areas where we can help clients get better. Absence management is an example of that. Those are the things we're trying to do, as we would always do, to improve the performance of the business through helping clients succeed.
Okay, thank you.
Thank you. Next question, Meyer Shields of Stifel Nicolaus.
Thanks. Good morning, everyone.
Hey, Meyer.
Good morning.
Sorry. I was hoping you could take a couple of minutes and talk about year-over-year benefit or year-over-year changes in Aon Benfield's 1/1 renewals performance. I'm just thinking that that's particularly important over the course of the year. I was hoping to get some color on that.
I would say, Meyer, what we would describe is we feel good about the program, the progress for our clients on the 1/1 side. You would, as expect, would've seen some movements, particularly in the cat exposed areas of the world around the globe in which we have significant shares. What we're not doing now at this point is on the Aon Benfield side. We believe that the capability we've got puts us in a pretty unique position to serve clients. We're actually not sharing detailed forecasts and sort of what's happened in 2012. Again, cat exposed zones are up around the world. The policy we adopted was really not giving out pricing forecasts. The reason for this is our ability to deliver better prices per unit of cover is, we believe, unique in the industry.
We're not sharing that with anybody except our clients. By the way, we're sharing it with them in some detail. Again, you can imagine the overall trajectories, particularly in the cat exposed areas around the world.
I understand that. I guess what I'm pushing for and may not get is performance for shareholders. In other words, how Aon Benfield itself did.
Aon Benfield itself. I think the best way to grab that is looking at literally the win-loss. If you think about net new clients won versus clients lost, and we're very pleased. As we expected, we believe once the overall set of adjustments were made as people readjusted their books, which by the way, in the insurance world would take 18 months in the context of that because it takes 12 months to flow through by the way we actually do the recording of this. Our win-loss over the last three quarters has been up on a dollar basis and up on a client basis for three consecutive quarters as we're into 2011. We feel very good about that for 2012.
Okay. One other question. I know with the restriction of the outside wholesale brokers, is there any economic benefit that you expect in 2012 from that, or is that already in the books?
Well, listen, the U.S. wholesale piece was really around serving clients more effectively, focusing around some preferred wholesalers who were bringing value to our clients in a very specific way. We've got two who are in that category doing very well from our standpoint. It really is about how we serve clients more effectively and less about sort of the basic economics.
Okay. Thanks so much.
Thank you. Our last question comes from Michael Zaremski of Credit Suisse.
Hi, good morning. Thanks for taking my question. In terms of the share buyback authorization, will you be waiting until the second half of the year when the headquarters change is completed to resume repurchases? Related, the tax guidance of 29% doesn't appear to show a tax benefit. I have a follow-up.
Right. On share buyback, I did say that I think $150 million a quarter is probably the right level with a lower level in Q1 because it's a higher cash outflow quarter. That does not assume the relocation of headquarters, which would give us access to an additional $300 million sitting internationally on the balance sheet. In terms of, answer your question, share buyback will continue throughout the calendar year with Q1 being lower because it's our seasonally highest cash outflow quarter. Next, on the tax rate, we are giving guidance for 2012 of 29%. As we mentioned, the 27% we reported for 2011 had some one-time returns that will not continue.
Okay. Lastly, if I look at slide nine, the long-term operating margin targets, tell me if I'm thinking about this the wrong way. If I strip out looking at the change in intangibles, if I look at the Risk Solutions operating margin target of 26, I take out the intangibles, it's going to be 25. If I look at HR Solutions, it looks like it's 22, but if I take out the intangibles, it's 18. I'm just kind of curious, do the margin targets ex intangibles go down incrementally all in?
No, this is literally a math equation just to back out intangibles and to account for the transfer of health and benefits. There's no change in our long-term margin targets.
Okay. Thank you very much.
Thank you. I would now like to turn the call back over to Greg Case for closing remarks.
Yes, thanks very much, everybody, for participating on the call. We look forward to our next discussion. Thanks so much.