Aon Seeks Recovery as Vesttoo Bankruptcy Forces $197 Million Charge

Aon plc sees an opportunity to work on recoveries related to the bankruptcy process of insurtech Vesttoo Ltd. over time and is confident over recovering a "meaningful" amount, said its president.

Source: AM Best | Published on February 5, 2024

Vesttoo fraudulent LOCs

Aon plc sees an opportunity to work on recoveries related to the bankruptcy process of insurtech Vesttoo Ltd. over time and is confident over recovering a “meaningful” amount, said its president.

“We strategically wanted to draw a line under this issue for our market partners and for ourselves so that we are able to move forward together as partners,” President Eric Andersen said in a conference call. He said an effort was made to reach an agreement with the affected parties going forward.

In the quarter, Aon recognized actual or anticipated legal settlement expenses in connection with transactions for which capital was arranged
by third party Vesttoo, the broker said in a statement. The transactions were in the form of letters of credit from third-party banks that are alleged to have been fraudulent.

“Certain actual or anticipated legal settlement expenses totaling $197 million have been recognized in the current period, where certain potentially meaningful amounts may be recoverable in future periods,” Aon said.

A dominant issue for Aon in the fourth quarter is its proposed $13.4 billion acquisition of NFP Corp., a deal that would drive both organic and inorganic growth in a fast-growing U.S. property/casualty middle market and strengthen Aon’s presence in high-growth lines of business.

Fourth-quarter net income attributable to shareholders fell to $498 million from $657 million a year ago. Total revenue rose to $3.38 billion from $3.13 billion.

Aon seeks to close on the NFP acquisition around mid-year 2025, said Chief Financial Officer Christa Davies in the call. The acquisition is expected to be dilutive in 2025, break even to adjusted earnings per share in 2026 and accretive in 2027 and beyond, she said.

Davis said that there are no further updates on the deal timeline or regulatory process for the acquisition at this time.

As an established risk, health and wealth broker, NFP provides access to a large middle market of more than $30 billion with strong organic and
inorganic growth prospects. NFP’s distribution capability is particularly strong in the United States.

NFP will be acquired from funds affiliated with NFP’s main capital sponsor, private equity firm Madison Dearborn Partners, and funds affiliated with HPS Investment Partners, Aon earlier said. The acquisition will comprise $7 billion in cash and $6.4 billion of Aon stock.

Aon seeks to make inroads in the middle market by acquiring NFP, a “premier” operating platform in the segment, said Chief Executive Officer Greg Case in the call. NFP’s platform includes a strong cyberrisk capability among other abilities, he said.

Looking to the long term in terms of mergers and acquisitions, Davies said Aon’s priority for capital management remains share buybacks give what she sees as the undervaluing of Aon’s share price.

Organic growth remains a priority though Aon’s M&A pipeline continues to be focused on global areas that would bring scalable solutions to evolving challenges, such as data analytics and health, Davies said.

Aon’s strategy will be “much more weighted” to share buybacks following the NFP acquisition, she said.

Business generation revolves around four “megatrends,” Case said. These are trade and the consequences of geopolitical uncertainty; technology, particularly the rise of artificial intelligence; weather reflecting the rate of natural catastrophes; and workforce, as COVID-19 has “fundamentally impacted talent.”

Aon saw 7% organic revenue growth as reinsurance and health solutions both recorded double-digit revenue growth for the year in 2023, Case said.

Commercial risk revenue rose 4% organically on string growth in property, casualty and construction even with headwinds in the M&A and initial public offering markets, Case said.

Organic growth in reinsurance was 14% ahead of an early Jan. 1 renewal season, Case said.

Wealth solutions saw 5% organic growth on growth in retirement, including pension risk transfer growth projects and changing regulatory requirements, he said.

Long-term financial guidance for Aon includes mid-single digit or greater organic revenue growth in 2024 and over the long term, adjusted operating margin expansion and long-term double-digit free cash flow growth, Case said.