Aon SWOT & PESTLE Analysis

Strength

1. Strong growth in Reinsurance solutions: Reinsurance solutions is becoming the strength of the business and it achieved the organic growth of 7% in Q3 2017 ($355 million) as compared to 0% in the prior year(2016) quarter Q3 ($329 million) which is tremendous. There has been growth across every major product line, but Treaty placements has been the strength driven by the record growth in new business generation with inclusion of many new clients to Aon which has increased its market share significantly.

2. Double-digit growth in earnings per share: A share price analysis of Aon shows that earnings per share grew from $1.09 to $1.29 showing a strong growth rate of 18% in 2017 Q3 compared to 2016 Q3 which has been a highlight considering the industry wide and overall growth. This double-digit growth is driven by strong operational improvement, effective capital management and strong revenue growth. Also, with the firm being valued based on free cash flow, it has made a substantial progress since introducing cash flow as key metric in 2010. It recorded a free cash flow of $2.1 billion in 2016 with its disciplined capital management approach focused on returning maximum returns on capital invested. Since 2010, Aon has increased its free cash flow margin by nearly 1,000 basis points to 18.1% in 2016.

3. Strong growth in Data and Analytics service: The investments in high growth areas like Data and Analytics has started to strengthen and improve Aon’s long term growth profile with third quarter result of 2017 showing organic revenue growth of 3% with Affinity business being the strength, showing highest growth in U.S.

Weakness

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Opportunity

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Threat

1. Increase in number of natural disasters: With increase in number of natural disasters around the world, it has led to some of the costliest months recently for the insurance industry that has ever been registered for natural disasters and it poses a serious threat to it in terms of profits. A recent example of this is Hurricane Irma and Maria which have led to payment exceeding $10 billion by the public and private insurers.

2.Reduction in US vehicles insuranace premiums due to Autonomous vehicles: With the innovation of Autonomous vehicles, the world is moving towards safer transport and less accidents. The report ‘Riding the innovation wave’ reveals that even if it is adopted at moderate pace, there would be a decrease in level of insurance premiums by around 15% compared to their levels in 2015 and by the time it is fully adopted in 2050, there would be a reduction of more than 40 percent.

Political

1. Impact of Brexit: The referendum of Britain to exit Eurpoean Union has created unexpected volatility among the businesses. Organizations will have to rework on their strategies which were earlier pan-European. Although, current signals suggest limited and cautious adaptation by the market, but Brexit may lead to series of other legislative acts in a wave of nationalism around the world and such a wave would constrain the growth and social mobility which the companies have been enjoying for the past few decades to grow.

Economic

1. Insurance Relevance to the Economy: Globally, the insurance premium has decreased over the decade and as of today it stands to being 2.0 percent of the GDP which was 2.2 percent a decade ago- The reason for this being the significant drop among the countries in Europe. However, countries like India, China and Latin America are some of the bright spots and show a growth. The chart below compares the property-casualty premium and GDP for the top 50 countries over the last 10 years.

2. Need for insurance in Emerging Economies: Emerging Economies like India which are undergoing the Economic transition there is tremendous potential for growth because there is need for insurance of health, property etc which is still at a very nascent stage. For example, around 40 million people in India suffer financial crises due to health issues. Aon can capitalize on this opportunity by creating products for these markets.

3. Reduction in interest rates leading to decline in premiums: The interest rates are decreasing continuously in some of the economies where Aon is operating leading to recution in interest oin the products that are offered which in turn has led to lower premium growth. Also, some of the major economies are experiencing slowdown which has resulted in lower growth for products other than life and health insurance.

Social

1. Social media influence on younger generations: In the age of internet-enabled world, The younger generations which have grown up in this age are highly influenced by Social media as it ensures that the cnsumers are aware about their own needs and the options available to them. It provides them a greater transparency in terms of pricing and also gives them the voice if they are not satisfied with the product or service standards which are set tremendously high by the new age technology service companies and the insurance companies are finding it very difficult to compete, which they have to change in order to compete and influence the new generation.

2.Rapid growth of Takaful: Takaful, an insurance form compliant with Islamic law is rapidly growing in the Asian and Middle East countries where the insurance has not played a very significant role till now. According to Ernst & Young, Global contributions of Takaful have been growing annually at 14 percent and are forecasted to reach USD 20 billion by 2019 and are expected to maintain strong growth, driven by the slamic banking sector strength and the government initiatives. This niche but growing segment deserves the industry attention.

3.Increase in income and rise of middle class: In countries like India and Mexico, there is growing population which is working as compared to dependant population and there is increase in disposable income in these countries giving rise to a new middle class population which is more aware and purchases insurance products more often to mitigate risks, resulting in an opportunity for companies like Aon. For instance the population of Mexico is close to 130 million but the insurance penetration is only 2.3% which presents a huge opportunity.

Technological

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Legal

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Environmental

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