Morning, everybody. Welcome to the RBC Financials Conference. We're fortunate to have today Aon with us. Greg Case and Christa Davies, CEO and CFO, respectively, are going to present a little bit about the company. We've been following Aon for a long time, probably just past the financial crisis. Greg actually is one of the longest-tenured CEOs in the, what we call business services or insurance brokerage market. Greg started there in 2005, and I looked this up just yesterday, he began on April 4th of 2005, and since then, share price has been up almost 500%. I don't think you'll see a lot of other CEOs with that kind of track record. We're pleased to have him tell you about what's next and what happens from here.
I can't beat that introduction, Mark. Thank you very much. I appreciate it. Listen, Christa and I are delighted to be here with you today just to share a few thoughts about Aon and our progression. The story in many respects is not complex. It's the same conversation we've had for the last decade. I'm going to hit a couple of these slides. Our mission is the same. If we'd had this conversation 10 years ago, the mission is to be the preeminent firm in the world, focused on the topics of risk, retirement, and health, underpinned by data and analytics. This is really insights we create through data analytics delivered by experts. That focus, that perspective, has served us exceptionally well.
Our view is, by the way, if you think about those three categories, there's more risk out there in the world than ever before, and it continues to grow. This is all the traditional risks you see every day. As populations age, as populations urbanize, as populations shift to the coast, those traditional risks increase. Then you throw into that mix the new set of risks around cyber, global warming, pandemic, identity theft, et cetera. In essence, there's a massive pool of risk out there. Our aim is very simple and very straightforward. We're helping clients understand, measure, and mitigate that risk. The second category around retirement, equally compelling when you think about it on a global scale. Give or take, maybe 15%, 20% of the population is prepared for retirement.
How that evolves over time will be absolutely epic, when we think about it through the lens of our clients and how we support and serve them in the context of addressing that issue for themselves as companies, but also for their employees. It's usually not that humorous, but you know. The third topic around health, maybe one of the most dysfunctional parts of the global economy, if you think about it. Maybe no more so here than in the U.S., but it's certainly true around the world. This is roughly 17%, 18%, 19% of our GDP in the U.S. The fifth or sixth-largest economy in the world in terms of spend, depending on who you talk to, some quote around up to a third of waste in the system.
As we help clients think about that challenge and help them deal with that challenge for themselves and their employees, tremendous opportunity. All of them surrounded by this topic and view around data and analytics. In our view, data and analytics continues to be very compelling, but it's also a fool's errand if you don't actually have it focused in the right way. Our view is a lot of data out there, certainly a lot of data in the risk world, very little information and even precious less insight. Our view is if you can translate that data into content. That content will enable clients to change behavior. That's still not enough. That behavior needs to drive economic performance. Our view is improve operating performance, strengthen balance sheets, or reduce volatility. That happens, that's an equation which is pretty special.
That has served us exceptionally well. Christa will talk about the financial results over the last decade. That, candidly, is hopefully the credible part of the Aon story because you can look at that strategy and look at the results. The exciting part of the story and why we're here today is to talk about our continued investment in that strategy and the catalyst we put in place last year that we believe is another double down on that strategy, which we think will serve us well. Our view, by the way, is on a scale of 0 to 10, if 10 is the completion of the journey, the story of Aon, as Mark teed it up, is at about a five.
We're about halfway through the journey. Our view is we have very specific line of sight on where we're going next to try to progress and drive that journey forward. That catalyst, by the way, was the sale of our outsourcing business. We brought Hewitt into the Aon family in 2010, paid $4.9 billion overall for that business. We sold about 40% of that business last year for $4.8 billion. That financial result was important, compelling even, but not nearly as important as what it enabled us to do as a firm. What it did is it continued to focus our efforts around professional services. Also created a firm, pure math, which was higher growth, higher margin, higher return on invested capital, higher free cash flow, less capital intensive.
The business we sold consumed about 30% of our capital, and it was about 18%, 19% of our revenue. The most important piece is it enabled a further investment back into the firm as we focus on these topics of risk, retirement, and health. The enablement to create Global Business Services, which Christa will talk about. Creating an operating platform much stronger than the one we had before. The opportunity to build more operating leverage into our business and to reinvest it back into the top line of our business. In many respects, this is a true catalyst to accelerate our strategy. Oh yes, one last thing is we had left over when we were done a business that makes the same amount of money. As I said, higher growth, higher margin, higher return on invested capital, higher free cash flow.
We also had $3 billion to invest back into the business we didn't have before. That's why this story is not just a continuing story of history, but also a story of the catalyst that we believe fundamentally changes the performance profile of our firm over the next number of years. In many respects, that changing of profile is all around growth, organic growth. You've seen us invest back into our business in a very organic way and have results in that regard. You see us from a growth standpoint, 3% in 2014 and 2015, going 4% in 2016 and 2017 with greater operating leverage built in. The single operating model that Christa will talk about and the portfolio of capabilities that we think are substantial.
That's why the story in many respects, as Mark teed up, has elements of the same, which we hope is a lot of credibility and performance, but the exciting part is the catalyst moving forward. Fundamental to that are five revenue lines, five investment areas that we are continuing to invest behind that we think have already served us well and will continue to do so. We're creating a great deal more visibility into these. You can see exactly how we're progressing from the standpoint of organic growth. Look at the Commercial Risk Solutions platform. Again, I described the riskier world and all the different complexities around it. Against that riskier world, we have the single most significant platform in the world, placing more risk than virtually anyone on the planet. $60 billion plus of bound premium annually. You can see the different points on this.
A 90% retention business overall. The Reinsurance Solutions business, which is number one in treaty, number one in fac, number one in insurance-linked securities. You will have seen us make investments around this business and innovations around this business, which are quite substantial, much as we've done on the Commercial Risk side. You just looked a couple of weeks ago, and you saw the cat bond we did for the World Bank. These are truly innovative steps forward driven by analytics and capability. Quite exceptional. Also in this category of what we did on the mortgage side, creating a $10 billion business into the mortgage world for Freddie Mac and Fannie Mae. A lot of innovation around each of these categories. Same on the Retirement Solutions side, and you see what we're doing there on the investment side.
In particular, in delegated, where we had less than $100 billion under advisement a very short time ago, now up to $150 billion over the last quarter. Next is around Health Solutions. Again, I described before the opportunity set here for us, one of the single biggest advisors on this topic of anyone in the world. Certainly in the U.S., but also globally. First ever fully insured multi-carrier exchange. Still the only one that exists on the market for large companies. A lot of innovation here, a lot of opportunity. Finally, around data and analytics. For us, data and analytics, as I described before, is a tremendous opportunity. Want to emphasize, we've got a huge amount of data and analytics inside of each of our businesses. We're spending $400 million plus a year on data and analytics. Singapore Innovation Center, Dublin Innovation Center.
A lot of capabilities around the world. A lot of it's embedded into our business, but a very specific amount, substantial amount, is outside of our business. That's what's being described here around Data & Analytic Services. In excess of a billion-dollar business growing substantially with high margins. The picture of our firm are these five revenue lines, these five capabilities driven by a single P&L. One of the fundamental pieces around Aon is around the idea of Aon United. When we connect our global firm and we deliver to our clients in a local way, we do exceptionally well. Our clients are exceptionally well-served. Aon does exceptionally well.
Our view is we're going to double down and invest in these growth areas, then we're going to bring our firm together a la Aon United, so that our colleagues around the world are absolutely vigilant around how they bring capability together to serve our clients effectively. All these things are coming together why, as you think about Aon and the journey of Aon, we're about halfway through that journey with very clear line of sight on how we continue to progress against that journey. Christa can talk about sort of how far we've come along the way. Last thing I want to do before I turn it over to Christa is just highlight a few specific areas we've invested in in each of the categories.
What you'll see here, last year, I think, Christa, we did 24 acquisitions, give or take, over a billion-dollar investment. We don't invest to get bigger. We invest to get better. This is content and capability that we can actually bring into Aon and then scale around the firm. If you look around these, The Townsend Group closed just before year-end. Tour de force in the delegated world. Tour de force, particularly on the real estate side. Absolutely tremendous asset we brought into the firm. Admix, one of the largest health providers in Brazil. We're literally taking this content into a part of the world we believe and know we can scale. Tremendous opportunity. Henderson, great capability in the U.K. we brought in. UMG in the Netherlands. cut-e, great capability and talent we brought into the firm. Finally, I'll just mention on Stroz Friedberg.
When you think about areas like cyber is an area that we believe is woefully underserved. Our clients are experiencing great stress in cyber. Our ability and our industry's ability to serve them is limited. Let me describe. We happen to be the number one provider. We feel very privileged. We've got great capability. Net-net, the insurance world did about $3 billion of premium last year. $3 billion, give or take. Again, we're the leader, growing very fast. Very excited about it. That by itself should be a success story until you compare it to our clients or companies around who experienced over $450 billion in loss. I didn't say insured loss, I said loss. $450 billion, $3 billion in premium. We're not serving them. We're not bringing enough capital to bear on their issues.
If you think about GDPR, which is what's happening in Europe, that $450 billion included very, very little of European reported loss. GDPR, which is really around how you have to report losses and the penalties thereof if you don't, as it relate to cyber, means that's going to go to a trillion plus. The industry, trillion, huge opportunity to focus on cyber. We brought Stroz Friedberg into Aon not because they were experts on insurance. They really did no insurance. We had 500 colleagues, now part of Aon, across the globe who know cyber better than anyone in the world. They're in a perfect position to help underwriters understand cyber more effectively to bring more capital to bear on behalf of our clients. You get the idea. The Aon story continues to march along, does exceptionally well.
2017 was a milestone for us. It was a true catalyst as we think about future growth of the firm, and you know exactly where we're going to put it in the five revenue lines and the five capabilities. The kind of content we're bringing into the firm is truly around bringing in content and scaling content. That's what we're doing from the standpoint of capability and acquisitions. Fundamental to all this, which is what I want to turn it over to Christa to talk about, is how we think about measuring success. This, for us, very much is around return on invested capital and free cash flow. If you take away nothing else from this story, understand the engine around free cash flow and how we've carefully constructed it to translate revenue into free cash flow and how to build that over time.
With that, I'd love to turn it over to Christa to talk more about Aon.
Thank you very much, Greg, and thank you for having me here today. I really wanted to start with, Greg's talked a lot about the growth of Aon, what we've done in terms of investing in growth. I really want to talk about the investments we're making in the operating model of Aon, because I think they're incredibly important in terms of driving future operating leverage for the firm. One of the things Greg mentioned is, we did have a catalytic event in 2017. We sold our outsourcing assets of $4.8 billion to Blackstone. That enabled us to We used to have two segments of Aon, Risk Solutions and HR Solutions. It really enabled us to bring together Aon under one operating segment, Aon United. Greg's talked about how when we serve clients in one way, called Aon United, we actually win more often.
We're now bringing together the operating model, whether that's the IT or the finance or the marketing or the HR or all the shared services, a lot of the back office services, into one operating model to serve the firm. It'll encourage much greater cross-sell. It'll actually create a much more scalable platform for Aon to drive much greater operating leverage. As we think about that, we're really investing in three primary areas, IT, real estate, and people. In the IT area, it's things like moving our data centers to the cloud. Prior to the outsourcing divestiture, we really had a lot of federal government clients, defense contractors, things like that, who really didn't want their data in the public cloud. That was very difficult to do. Today, we're able to do that with much greater ease. Obviously, a lot of companies do this.
It's much more secure, it's much lower cost, it's much more scalable for us. Rationalizing our IT application. We don't have one application of everything or two applications of everything. We have hundreds. Rationalizing those into best of breed, rationalizing our procurement agreements into preferred supplier agreements and developing much more strategic partnerships with those suppliers. We're doing a lot of those things on the IT side, led by John Bruno and his team, who are absolutely fantastic. On the real estate side, we've really been, because we now, post the outsourcing divestiture, have a group of colleagues, 50,000 colleagues, who are predominantly client-facing colleagues, professional services colleagues, who are out seeing clients every day.
For us, we're actually redesigning the space to suit that group of colleagues, to have much greater client facilities to actually encourage our client meetings, much better technology and collaboration areas to enable colleagues to collaborate, and more open plan spacing, really predominantly open plan throughout the environment to encourage learning and development from younger colleagues to older colleagues, because that's really how 70% of learning happens on the job in professional services firms. A very big change in the real estate footprint. The last area is really around people. We're investing in shared services centers of excellence in low-cost locations. We're investing in outsourcing relationships with strategic partnerships.
We're getting much more efficient and scalable in one way for Aon, as opposed to different ways by business unit, and that's creating much greater operating leverage, allowing us to bring firms in through acquisition much more efficiently, to divest much more efficiently. Really, as we grow revenue, we'll grow expenses at a much lower rate because we'll have productivity built in. The economics on this, we're investing about $1.175 billion over a three-year period, 2017, 2018, and 2019, and that's generating $450 million of annual savings. So you're really getting a 2.6 times return on that. The savings are coming through, $165 million in 2017, $300 million in 2018, and $450 million in 2019 before any reinvestment. We feel really good about the operating leverage we're building into the business with those investments.
Let me talk a little bit about the cash flow story, because Greg talked about this. We run the firm on cash flow, and we are positioned for accelerating cash flow in a meaningful way in 2018, 2019, and beyond. What I would say is we've continued to make investments over the last 10 years based on return on capital, cash on cash returns. You've seen over the last seven years, return on capital increased by over 600 basis points to 17.8% in 2017, a very impressive return on capital trajectory. Possibly even more impressive than that is the performance we've actually generated in improving free cash flow margin. Every dollar of revenue translating into the highest percentage of free cash flow. We're doing that through improving operating margins, improving working capital, decreasing CapEx, decreasing the cash to pensions. I mean, decreasing cash taxes.
We can go down the list. It's an incredibly robust and thorough process to improving that metric to 17.8%, as you can see, in 2017, which means every dollar of revenue we get, we get a much higher leverage in terms of operating income and free cash flow. It is the way we run the firm. As we look at free cash flow going forward, we see two big sources of free cash flow growth. The first is continued operating income growth, and we're accelerating that. You've seen the acceleration in 2016. In 2017, operating income growth grew 15%, we're continuing to accelerate operating income. The second big source of growth is working capital. We do have about $500 million of receivables sitting on our balance sheet in working capital, which we intend to free up over the next eight to nine years.
The way to think about this really is it's about $50 million a year over a 10-year period of time, that gets us to working capital neutral. In our best run countries today, we're actually working capital positive. We think there's more upside than the $500 million in working capital, but we're very confident about getting there over time. They're the big sources of growth. As we think about our performance in this calendar year, 2018, we did say we'd be accretive to the original analyst estimates of $7.97 before we divested the outsourcing assets. We will exceed $7.97 in EPS this calendar year, and we will deliver double-digit free cash flow growth on a CAGR basis going forward.
We're very excited about the acceleration of free cash flow, that the investments Greg described will accelerate revenue, that we're building operating leverage into the platform to accelerate operating income, and there are additional sources of free cash flow, like working capital, which allow us to accelerate free cash flow at greater rates than operating income. Talk's cheap, but look at the proven track record. Over the last 10 years, we've grown revenue 6% CAGR. We've grown operating income 10% CAGR. We've grown EPS 13% CAGR. If you look at 2017, these numbers are actually better. 2017, 6% growth in revenue, 15% growth in operating income, and 17% growth in EPS, are very impressive. You can start to see the acceleration of operating income and EPS.
I think probably the most impressive number on the page is the free cash flow number, 25% growth in free cash flow, 25% CAGR in free cash flow over the last 10 years. An unbelievably impressive result. One of the things I'd note to you, which is built into our operating model, is the leverage. 6%, 10%, 25%, it's not an accident. We're building that in because what you're seeing on the top line at 6% is a mix shift towards higher margin, higher free cash flow businesses, as we disproportionately invest through the acquisitions Greg described in those sorts of areas. We do expect free cash flow to accelerate in 2018, 2019, and 2020 as a result of the organic and inorganic investments we've made in growth and in the operating model.
We're very excited about the future of the firm and the catalytic event that 2017 was for us in selling our outsourcing assets, which allows us to invest so much more into higher revenue growth, higher margin, and higher free cash flow businesses. With that, we'd be delighted to take your questions.
Anybody in the audience want to jump in? This guy over here.
Yeah. Thank you. I'm not terribly familiar with the business, so apologies if this is very basic. What sort of opportunities exist for continued inorganic growth? Do you have to move far outside of your existing set or can you continue?
We don't. Remember this, our background, this business, while we are the leader in this, the top three competitors maybe have a 30% share. This is a highly fragmented business. From pure business economics, this is best case scenario. We're the leader, growing as the leader in a highly fragmented business. It's fragmented in the U.S., still thousands and thousands of smaller brokers, by the way, under more and more pressure as companies actually demand more, more transparency, more compliance, more capability. By the way, also fragmented globally. This is an opportunity to grow both organically and inorganically. It's quite substantial.
Anybody else in the crowd here? All right, I'll ask one then. I know when I look at Aon, the thing that I get most excited about is the data analytics business. Obviously, that's been an area that you've been investing in. What do you get the most excited about when you think about Aon?
We love the data analytics business, although if you think about Aon over time, why aren't we both, it's an and not an or. Why aren't we doing what we're doing, but also you add the capabilities like of AIR Worldwide, somebody who actually sort of takes the data and the content and actually uses it as a way to help other companies succeed. This is in our wheelhouse. We again, have more access, more content than anyone in the world. Mark, we see tremendous opportunities like you to sort of continue to evolve that and package that. I would say just from my standpoint, as we continue to connect the global firm, we call it Aon United, that is an engine that will be an engine for growth for us, quite substantial.
Again, this is an area of development we think it's got a lot of potential. Christa, what do you think?
I think Mark, you're right. I think data analytics is a huge area of investment for us, not just as a standalone revenue source, but actually as an underlying driver of growth in every line we have. It's driving cyber investments. It's in Commercial Risk. It's driving the mortgage investments we're making in Reinsurance. It's driving the healthcare investments we're making in Health, and it's driving the delegated investments we're making in Retirement. I think it's driving all of our business growth. I would say we're investing more than anyone else in our industry, and we certainly believe it's a huge catalyst for growth for us.
It just seems really fit on point in that it's usually pretty high margin. While there are capital expenditures, obviously, to drive that type of capability, it's not for free. It ties directly into the whole cash flow engine, reinvestable at a compounding rate of growth. It seems to me like I hate to say no-brainer because that makes it seem so obvious, but it's kind of a no-brainer, right?
The other piece is, again, it requires scale, it requires effort, which means there's thousands of brokers or thousands of others who it will be more and more challenging for them to meet that level of effort. To the extent we have advantages you're describing, our ability to sustain that advantage, we believe is quite substantial.
Anybody in the crowd? Well, I'll keep going then. I'm going to put you on the spot.
Please.
$7.97, that's your guide. I like round numbers. Can we call it $8, please?
We can say exceed $7.97.
Is that your question?
It's a nudge, right?
Okay.
Maybe next quarter. I know you can't do it in this session, right? $8, let's call it a nice round number. No, that wasn't really my question. That was just something I thought of as Christa was going through the details. Let's talk about cyber a little bit. I share your view that this is an area that, A, number one, I think it's the insurance industry that needs to step up to the plate with the products and solutions. It's obviously a growing concern for businesses large and small. Then, of course, people like Aon, your job is to bring those relationships to the people that can help with the solutions. Expand a little bit on your comments earlier, and what you see there, how you see that evolving, what the opportunities are.
Fundamentally, what we want to highlight is, look, this is all about client need and client demand. This is not about any carrier or any underwriter or any broker. It's about clients. Clients, as you know, Mark, have a greater and greater need to understand this, deal with this, mitigate this risk. This is at the board level and throughout the organizations. If you ask yourself, is the capital of the world, insurers or alternative capital, are they ready to sort of take on this volatility on behalf of clients? The answer has largely been no. To the extent they offer it's at a high cost. We don't put that candidly on the carriers. I would ask all of you, anybody in the room right here dealing with us in cyber, if you are, we got a place for you.
The answer is people are worried about it. Our view is we needed to inject content into that. This was not going to be wait 20 years for the actuarial tables to tell us sort of what we should price cyber at or what cyber is. This required an understanding of cyber at a different level. It's why we brought in Stroz. Stroz actually has an insight around, they don't know insurance as I described before, but they've worked on virtually every cyber attack you've ever read about globally. True content. We also have a colleague who used to run cyber for the FBI. Wasn't an agent, ran cyber for the FBI. Our view is if we can actually help clients narrow the definition of what cyber means, maybe it's your ability to protect innovation spend.
If you're a financial institution and you have a cyber attack, your innovation spend and technology's going away. Maybe we can protect that. By the way, if you're willing to adhere to a set of standards, which we have a 45,000 incident database on all things cyber, we know what organizations look like in the top decile. If you'll operate in the top decile, we can get you a specific piece of coverage. No one else can do that. Our view is that's how we begin breaking down barriers. That $3 billion I described against what will be a $1 trillion needs to be $50, $100, $150. If it becomes that, we're serving clients. By the way, we will take a disproportionate share of that. Happy to do that. We'll have created the market, and that's really what we're trying to do.
I think that's really the long-term opportunity. I mean, we're at the point 0 of this ladder, and I think it'd be really interesting to watch just how both the coverages and the responses to these types of things evolve as people get more familiar.
There's a question there.
Back there.
We're getting sort of more maybe the second half of the cycle. At least that's what I think about it when I think of the product. How did your business behave? I noticed, because you're going to get 2005 as a pre-data point on there. How did your business behave through the last downturn, and how would you expect it to be different or the same?
Yeah. I would say, the last downturn for us was probably the worst economic environment you could have described for our firm. Because in addition to our business in terms of macro factors is most sensitive to GDP. You've got GDP declining, unlike most other recessions, you don't have inflation. You really have GDP declines, your interest rates at an all-time low, inflation at an all-time low. At the worst of the economic recession, our organic revenue growth was minus 1% and margins expanded. What I would say is, it's a very robust business because it does have 90-plus % retention rates. It's not like you can opt out of giving your employees health insurance or opt out of getting your pension valued or opt out of getting your building insured each year.
We did have, we did a lot of work for clients around how to cope with the economic recession and manage their risk well. How would it be different this time? I would say the investments we've made in the operating model will allow us to expand margins more. I'm not necessarily sure. I think we have more opportunities to grow revenue, so maybe revenue is flat to up slightly. I think the biggest difference is we have much greater operating leverage built into the platform today than we did 10 years ago.
Yeah. One that we would say, if you're thinking about Aon, understand our management team doesn't believe in, has never experienced, whatever you call tailwinds. We haven't seen it, right? In our decade together, global economic recession, check. Insurance pricing tank, check. Interest rates, which by the way, cost us $45 million a point when they go down, tank, check, right? We've had all those. We don't want you to sort of think about Aon as a partner because the trends are turning. By the way, if they do, we're massively leveraged to them all. Beautiful. We're going to produce the next set of Aon irrespective of that. Again, back to that Christa's point, go back to 2008. We help serve on growth and grew margin. This is a very robust business at its face, and we've done things over the last 10 years to make it even stronger.
No guarantees, we feel pretty good about the position.
Well, that's the beauty of a cash flow driven business, right? Is when times get tough, you got the cash to invest, to grow, to acquire, dig your way out, whatever is necessary. That's a great tool to have. We're pretty much out of time. Like to thank Greg and Christa for sharing some time with us today. Thanks very much.
Appreciate it.
Thank you, Mark.