Aon plc. - Class A (AON) — Q3 2017 Earnings Call Transcript

Thanks very much and good morning everyone. Welcome to our third quarter 2017 conference call. Joining me here today is our CFO, Christa Davies. Before beginning the discussion on our Q3 and year-to-date results, I would like to pause for a moment to reflect on the recent catastrophic events that have impacted various communities and millions of individuals around the world. Our sincere condolences go out to families who are enduring this trauma, to business owners forced to rebuild, and to those who remain at risk or without sufficient resources. We are very fortunate that our 3,000 colleagues and their families across 30 Aon offices directly affected by the series of events were safe. During times of tragedy and devastation, it is heartening to see my colleagues from across the firm rise up and unite to help their neighbors, fellow colleagues and clients. Aon is also a partner of the Red Cross investing in their disaster relief efforts to respond in times of need and offering volunteer work on the ground to aid the millions of individuals personally affected. I can’t begin to express enough gratitude to my Aon colleagues and partners who put forth tremendous effort during the time of such human need. With all hands on deck, we are fully focused on supporting our clients and our colleagues through the continued aftermath of these events. Now, referencing back to the specific topic of this call, we’d like to highlight that there are slides available on our website for you to follow along with our commentary today. As we discussed on prior calls, Aon’s current position is a result of a proven decade-long strategy that focuses on aligning our portfolio solutions around our clients’ highest priorities in the arenas of risk, retirement, and health. We’ve taken significant steps to get here. Earlier this year, we completed the divestiture of our outsourcing platform, which provides a further catalyst for our strategy and actions to deliver substantial shareholder value. With approximately $3 billion of additional capital to accelerate investment in emerging client needs and in our Aon United operating model, we expect to substantially strengthen our firm even further. We’re already seeing improvement in our growth profile driven by investments in high-growth, high-margin areas across our portfolio. For example, our organic growth has accelerated year-to-date from 2% in 2015 to 3% in both 2016 and now 2017. And we’re taking further steps to unite Aon with investments to progress toward a single global business services operating model, increasing Aon’s efficiency and connectivity, and through one global P&L encompassing all of Aon’s industry-leading capabilities, helping us deliver all of global Aon to our clients in their local markets. Now turning to the quarter on page five of the presentation. Consistent with previous quarters, I would like to cover two areas before turning the call over to Christa for further financial review. First is our performance against key metrics we communicate to shareholders; second, overall growth performance including continued areas of strategic investment. On the first topic, our performance versus key metrics. Each quarter, we measure our performance against the key metrics we focus on achieving over the course of the year, grow organically, expand margins, increase earnings per share, and deliver free cash flow growth. In the third quarter, organic revenue growth was 2%, highlighted by strong growth in Reinsurance and Retirement Solutions. Operating margin increased by 170 basis points, primarily reflecting savings from investments in our Aon United operating model and core operational improvement. EPS increased 18% to $1.29, reflecting both strong operating performance and effective capital management. Finally, free cash flow decreased by $881 million year-to-date, primarily reflecting tax payments related to the divestiture. Overall, Q3 was a quarter of continued progress with year-to-date results reflecting 3% organic revenue growth, 170 basis points of margin improvement, and 17% EPS growth heading into our seasonally strongest quarter of the year. Turning to slide seven, on the second topic of organic growth and strategic investments. Organic revenue growth was 2% overall in the third quarter. And as I mentioned earlier, on a year-to-date basis, organic revenue growth was 3%, reflecting growth across all five revenue lines with particular strength in Health and Reinsurance Solutions. Reflecting now on each of our core growth platforms. In Commercial Risk Solutions, organic revenue declined 1% against the strong comparable of 4% growth in the prior year quarter. The prior year quarter included a benefit from certain one-time items. On average, globally, exposures are modestly positive and the impact from pricing was modestly negative, resulting in a relatively stable market impact overall. Our results in the quarter reflect modest growth internationally across EMEA, Asia, and the Pacific, driven by strong new business generation and management of our renewable portfolio. In the U.S., results faced a headwind from the timing of certain items. Given recent catastrophic events and significant industry challenges, our global teams prioritize helping clients with immediate action plans, claims processing, and recovery efforts in the quarter. Overall, we believe our results in Commercial Risk Solutions for the third quarter reflect the confluence of unfavorable timing and events in our seasonally smallest quarter, against the strong comparable in the prior year. We believe the underlying results are better viewed on a year-to-date basis, and we would expect the fourth quarter to show growth in our seasonally strongest quarter. In Reinsurance Solutions, organic revenue growth was 7%, an acceleration from flat in the prior-year quarter. I would note, this is the second consecutive quarter of the highest level of organic revenue growth achieved in our reinsurance business in five years. Results reflect growth across every major area including treaty placements, capital markets transactions, and facultative placements. We saw a particular strength in treaty placements, driven by record new business generation including several new clients to Aon and a modest benefit from reinstatement premiums following the recent events. Results were partially offset by modest, unfavorable market impact, primarily in the Americas. In Retirement Solutions, organic revenue growth was 5%, an acceleration from 4% in the prior year quarter. We saw a continued strong growth in investment consulting, including double-digit growth in delegated investment management solutions, reflecting an increase in client demand for Aon’s tailored solutions, independent advice, as well as an increase in performance fees for outperforming benchmark returns. Assets under management and delegated investment management continue to trend upward, reaching $118 billion in the third quarter. We also saw solid growth in our talent practice, primarily from compensation survey and benchmarking services. In Health Solutions, organic revenue growth was 2%. We saw strong growth in health and benefits brokerage including double-digit new business generation with particular strength in the U.S. and Latin America. Results were partially offset by a decline in project-related work in the healthcare exchange business. On a year-to-date basis, organic revenue growth was 7%, an acceleration from 4% in the prior year. In Data & Analytic Services, organic revenue growth was 3%. Results primarily reflect growth in our Affinity business, with particular strength in the U.S. Growth in U.S. Affinity was highlighted by continued strong performance in pet and financial solutions as well as the modest increase in claims processing in our employed business following recent activity. Now, turning to slide eight to discuss areas of strategic investment. Clients are navigating an increasingly volatile world where economic, demographic, and geopolitical forces combined with the exponential pace of technology change are all converging to create a challenging new reality for businesses. Aon has a strong track record of allocating capital for developing innovative, first-to-market solutions to help solve problems and create differentiated value in response to specific client needs. We’re investing organically and through M&A across our portfolio in areas such as Data & Analytics, in our InPoint and Re/View businesses; cyber risk advisory through the recent acquisition of Stroz Friedberg; Affinity, in multiple areas across the business; health and elective benefits brokerage through the recent acquisitions of Admix in Latin America and Univers; healthcare exchanges, where we offer the broadest set of solutions in health; geographically with the pending acquisition of UMG, reinforcing our industry-leading position in the Netherlands; and finally, in delegated investment management solutions, a business with rapidly growing client demand. In the third quarter, we announced the pending acquisition of the Townsend Group, a leading global provider of investment management and advisory services, primarily focused on real estate. Townsend significantly expands our investment capabilities by bringing greater depth of expertise in real estate and real estate assets to Aon’s distribution scale and furthers our ability to provide more attractive, alternative pilot market asset capabilities to our clients. Overall, our strategic investments in high growth areas and Data & Analytics are improving the firm’s long-term growth profile, driven by new business generation, strong retention rates, and increased operating leverage across the portfolio. In summary, during the quarter, where client and colleague needs were our immediate priority, we delivered strong operational improvement and double-digit earnings growth, reflecting increased operating leverage and performance on new initiatives, in addition to the year-to-date return of approximately $2.1 billion of capital to shareholders through share repurchase and dividends. Looking forward, we expect a strong finish to the year with continued momentum amplified by an unmatched level of investment driving the next wave of innovation for clients and substantial value creation for our shareholders. I’m now pleased to turn the call over to Christa for further financial review.

Thank you so much, Greg, and good morning, everyone. As Greg noted, our performance marks a solid quarter of progress highlighted by strong operational improvement and effective capital management while continuing to take significant steps to increase the effectiveness and efficiency of our operating model. Our results year-to-date reflect growth across every major revenue line, strong operational improvement, and double-digit earnings growth heading into our seasonally strongest quarter of the year. Turning to slide 10 of the presentation. Our core EPS from continuing operations, excluding certain items, increased 18% to $1.29 per share for the third quarter compared to $1.09 in the prior-year quarter. Certain items that were adjusted for in the core EPS performance and highlighted in the schedules on Page 11 and 12 of the press release include non-cash intangible asset amortization, restructuring charges, charges related to certain regulatory and compliance matters, non-cash expenses related to pension settlements in the prior-year quarter, and the related tax impact. Included in the results was a $0.01 per share favorable impact from foreign currency translation due primarily to a stronger U.S. dollar versus the pound and a modestly weaker U.S. dollar overall. Turning to the next slide to discuss our strong operational performance. Operating income increased 16% and operating margin improved 170 basis points to 20.3%, compared to the prior year quarter. Operating margin improvement primarily reflects $55 million or 240 basis points of savings from restructuring initiatives and other operational improvements before any reinvestment. This was partially offset by $10 million or minus 40 basis points of transaction costs related to recent acquisitions, and $5 million or minus 20 basis points headwind, resulting from lower non-cash pension income. Year-to-date operating income has increased 14% and operating margin has improved 170 basis points compared to the prior year. From a dollar standpoint, operating income has increased $183 million with $109 million driven by savings before reinvestment and $74 million delivered by solid organic revenue growth and core operational improvements, a strong progress operationally as we continue to execute against our multi-year investment in the firm. Turning to page 12. I’d like to spend a few moments discussing the investments we’re making to create our next generation global business services model that allows for better scalability, flexibility, and enhanced colleague and client experience. These investments are intended to create one operating model with increased operating leverage. Our primary investment areas are across IT, real estate, and people. In IT, we expect to create greater insight from data center optimization, application management, and strategic vendor consolidation. In real estate, we expect to drive greater collaboration and engagement through real estate portfolio optimization. And in people, we expect to create greater scalability of operations and activity, including the use of centers of excellence and third-party providers. As part of these operating model investments, we plan to invest an estimated $900 million in total cash out of the $3 billion total outsourcing divestiture proceeds. These investments include an estimated $700 million of cash charges expected to be incurred $350 million in 2017; $250 million in 2018, and $100 million in 2019. And an estimated $200 million of incremental CapEx, expected to be incurred $30 million in 2017; $100 million in 2018; and $70 million in 2019. There is an additional estimated $50 million of non-cash charges included as part of asset impairments and lease consolidations. Overall, we expect these investments and other expense discipline initiatives to deliver $400 million of estimated annual savings in 2019, before any potential reinvestments. Following this $900 million investment in our operating model, we are left with approximately $2.1 billion of incremental capital from the outsourcing divestiture proceeds to invest in high-growth, high-margin areas across our portfolio and to return to shareholders. We will deploy this capital to the highest return on invested capital opportunity. As Greg mentioned earlier, we’ve returned approximately $2.1 billion to shareholders year-to-date through share repurchase and dividends. We also announced two significant acquisitions during the quarter, the Townsend Group in our delegated investment management business, and UMG in the Netherlands, which are expected to close in the coming months. With the completion of these two acquisitions and year-to-date activity, we’ve committed over $1 billion of capital to M&A in 2017 in high-growth, high-margin businesses. Turning to the next page. In the third quarter, we incurred $102 million of restructuring-related charges, relating primarily to workforce reduction, IT, and other general initiatives. Year-to-date, we’ve incurred $401 million of restructuring-related charges, representing 53% of the total program estimate. The cash impact year-to-date is an outflow of $199 million. We recognized $55 million of savings in the third quarter, and $109 million of savings year-to-date, representing 73% of the expected savings for the year and 27% of the expected total savings. Now, let me discuss a few of the line items outside of operations on slide 14. Interest income increased $9 million to $10 million for Q3 compared to the prior year quarter, reflecting additional income earned on the balance of proceeds from the sale of the outsourcing assets. I would note that higher cash balances in the short-term resulting in additional interest income but balances are coming down through the deployment of capital to pending M&A and share repurchase such that we would not expect the same level of interest income going forward. Interest expense was similar at $70 million for Q3. Other expenses of $5 million include $15 million of net losses due to the unfavorable impact of exchange rates on the re-measurement of assets and liabilities in non-functional currencies, partially offset by $10 million of gains primarily related to certain long-term investments. Turning to taxes. The adjusted effective tax rate on net income from continuing operations, excluding the applicable tax impact associated with certain non-GAAP adjustments, increased to 17.5% compared to 14.2% in the prior year quarter. The adjusted effective tax rate in the prior year reflects a net favorable impact from certain discrete items. Lastly, weighted average diluted shares outstanding decreased 5% to 257.3 million in the third quarter compared to 269.6 million in the prior-year quarter, as we effectively allocate capital. The Company repurchased 5.4 million Class A Ordinary Shares for approximately $750 million in third quarter. The Company has approximately $5.9 billion of remaining authorization under its share repurchase program. Actual shares outstanding on September 31st were 250.8 million and there were approximately 5 million additional dilutive equivalents. Estimated Q4 2017 beginning dilutive share count is approximately 256 million, subject to share price movement, share issuance, and share repurchase. Now, let me turn to the next slide to discuss our solid balance sheet and financial flexibility. At September 30, 2017, cash and short-term investments decreased to $2.4 billion, which continues to reflect higher balances related to the proceeds from the sale of the outsourcing assets. Total debt outstanding was similar at $6 billion. And total debt to EBITDA on a GAAP basis to continuing operations increased modestly to 3.3 times. As discussed previously, while debt to EBITDA will initially be elevated as a result of the sale of the outsourcing assets, we expect to return back to the 2 to 2.5 times range by the end of 2018, driven by operational improvement. Cash flow from operations for the first nine months decreased $863 million to $289 million, primarily driven by cash tax payments associated with the divestiture, a $199 million of cash restructuring charges and $45 million of transaction costs related to the divestiture, partially offset by operational improvement. Free cash flow, defined by cash flow from operations less CapEx, decreased $881 million to $164 million, driven by a decline in cash flow from operations and an $18 million increase in CapEx, including investments to deliver our Aon United operating model. Turning to the next slide to discuss our free cash flow growth over the long term. We value the firm based on free cash flow and allocate capital to maximize free cash flow returns. We’ve made substantial progress since introducing free cash flow as a key financial metric in 2012, reaching record free cash flow of $2.1 billion in 2016. Our disciplined capital management approach is focused on maximizing return on invested capital, which we’ve consistently improved each year since 2010, increasing 540 basis points to 17.1% in 2016. We expect the recent sale of our outsourcing assets and investments in our Aon United operating model to improve this even further in 2017 and beyond. We have taken significant steps to maximize the translation of each dollar of revenue into the highest amount of free cash flow, including working capital initiatives and actions to manage our cash pension contributions. Since 2010, we’ve increased our free cash flow margin by nearly 1,000 basis points to 18.1% in 2016. Looking forward, there are three primary areas that we expect to continue to contribute to incremental free cash flow generation. The first is continued operational improvement, driven by expected accelerated organic revenue growth and margin expansion. The second is working capital improvements, as we focus on closing the gap between receivables and payables. We expect working capital to contribute to free cash flow by over $500 million over the long-term. And third is expected lower cash tax payments, reflecting a lower effective tax rate over time. In summary, this was a solid quarter of progress. We delivered strong operational improvement and double-digit earnings growth while continuing to take substantial steps to strengthen our firm over the long term, including investments in high growth areas and in our Aon United operating model. We believe that operational improvement combined with significant financial flexibility from transaction proceeds and underlying free cash flow generation position the firm to deliver on our near-term goal of exceeding $7.97 in adjusted EPS in 2018. More importantly, we believe this reinforces our ability to deliver double-digit annual growth in free cash flow over the long-term, reflecting what we believe is the next significant value-creation opportunity for shareholders. With that I'd like to turn the call back over to the operator for questions.

Hi. Good morning. First, I was wondering if you could just talk about on organic growth, what drove the decline in Commercial Risk Solutions. I think, you mentioned some timing issues. And do you expect that to rebound going forward? And then second, could you just talk about your outlook for PNC insurance pricing, post the active third quarter hurricane season?

Sure, happy to do that, Sarah. First of all, remember that Q3 is our smallest quarter of the year as we head into our strongest quarter, which is the fourth quarter. I mentioned a strong comparison to Q3 last year of 4%, and it seems like the timing really impacted Q1 and Q3. So, we don’t anticipate any significant changes in Q4. What we want to emphasize is that if you look at our results—not just in commercial risk but overall from a year-to-date perspective—this is where we believe we have the best assessment of our position. Specifically, if we compare year-to-date results from Q3 in 2015, 2016, and 2017, we increased from 2% in 2015 to 3% in both 2016 and 2017, and we believe we can keep accelerating that over time. We consider Q3 to be somewhat of an anomaly in this context.

Pricing…

On the pricing side, there's been a lot of discussion. Our perspective is that there is still a significant amount of uncertainty in the market. The ultimate losses are unclear, and the ranges that have been reported have been staggering. However, we believe we are in a well-capitalized industry. We view this situation more as an earnings event rather than a balance sheet concern over time. From Aon's viewpoint, we approach this on a client-by-client basis. We've invested in substantial data and analytics, which we believe positions us well to assist our clients, especially in challenging environments. For instance, our Aon Client Treaty initiative reflects our commitment to reducing risk for clients and creating opportunities. This situation will evolve over time, and there isn't a specific answer at this moment. We will continue to assess it on a client-by-client basis as it develops.

I just want to go back to operating income. So, if we take the 476 and back out the unfavorable adjustments from pension and M&A transaction costs, and adjust for the $55 million of cost savings, I guess, I get a margin around 18.6% on an underlying basis, which should be flat year-over-year. Is that sort of a right way to think about it, or did you guys plough back some of the $55 million of cost savings? And obviously, if you did that, the core margin would show some expansion. So, I’m just trying to understand what’s happening on a fundamental basis, when we exclude some of the larger puts and takes there.

I think about this on a year-to-date basis because I think quarter-to-quarter, it’s a little lumpy Dave. And frankly, Q3 is our seasonally smallest quarter. And so, if you look at it year-to-date, you can see that OI is up 14% or $183 million. If you look at that $183 million, $109 million of it came from restructuring and $74 million of it came from core operational improvement. So, you’ve basically got 60% of the growth in OI from restructuring savings before reinvestment and 40% of it from core organic revenue growth and margin expansion. So, we feel really good about the operating income growth for the year, and margins for the year are up 170 basis points. So, we’re very pleased with the progress so far.

I would like to add to that, Dave. If you examine the results, as Christa mentioned, for Q3 year-to-date 2017, we see improvements in all metrics compared to Q2. We're up 14%, and for year-to-date Q3, we increased 170 basis points compared to 160 basis points in year-to-date Q2. Our EPS growth is at 17%, up from 15% in Q2. This shows a positive trend. While we should be cautious, it reflects a quarter of progress in our core performance and operating leverage as we continue to invest in our global business services platform.

Okay, got it. And then, on your $150 million of cost savings target, it sounds that’s unchanged for the year. But, if you look at how things are trending, if you just kept the same run rate from 3Q into 4Q, you’re going to be above that range. And I guess, I would assume that as you progress, your cost savings should actually increase. So, are you guys in position where you might actually be trending above your cost savings target for this year or is there something that makes that come down in the fourth quarter?

Dave, we are exactly on track with the program estimates and we feel really good about the progress so far.

It seems like there might be a reason for a decrease. Are you still committed to the $150 million target?

We are holding $150 million and we will update at year-end.

It looks like you’ve got roughly $2.4 billion or so of cash and short-term securities on the balance sheet. And historically, you hold more like $700 million to $900 million. So, that would suggest you have roughly $1.5 billion extra cash and then for next year, on top of that you have what you generate. Is that the way to think about what you have to deploy for 2018 versus 2017?

Yes. I think that’s right, Adam. And I guess, what I would say is, as you look at sort of the $2.4 billion, $850 million of it is committed to the M&A we did in the quarter. We did publicly announce those two deals, Townsend and UMG. So, you have $1.6 billion left plus Q4 free cash flow going into 2018.

I think you mentioned that tax payments reduced free cash this quarter. How much were those?

Yes. We haven’t given that number. But, what we can say is that the after-tax proceeds from the sale of the outsourcing assets were approximately $3 billion.

Okay. And then, you’ve done a couple of good-sized deals already in growth areas. Does that mean you have to digest those or do you still have a good pipeline, and is it possible to see some more good deals in 2018?

From our standpoint, listen, we’ve actually done 19 acquisitions signed closed year-to-date and as Christa described, over $1 billion committed on the M&A front. We see, again, real opportunities here to add content capability to the overall portfolio. As you’ve heard us say multiple times, so I’ll repeat it here again today, we take a very, very disciplined approach to this. Christa has put in place a return on invested capital framework, cash on cash return; nothing gets through that framework. And in essence, the benchmark is buyback, which we believe is a very, very attractive investment. But, when we find opportunities that exceed buyback, we invest in those. And there is a very substantial robust pipeline, lots of opportunities out there and we see these as kind of add-on acquisitions to the Aon family that content capability that we can scale. Townsend is a terrific example of that and UMG is a terrific example of that, Admix in Latin America is a terrific example of that. So, lots of different opportunities for us out there and you’ll continue to see us invest along the framework I described.

And finally on Townsend, will that deal be flowing in the fourth quarter? And are the margins at this business generally in line, better or not as good as the overall business?

We expect to finalize both Townsend and UMG in the next few months. We won't provide further details on the timing. Both companies are highly attractive; they exhibit significant growth, strong margins, and high free cash flow generation. This aligns with our overall strategy of evolving our portfolio. We are moving away from businesses with lower growth, lower margins, and lower free cash flow generation, and are instead making substantial investments. This is reflected in the over $1 billion in mergers and acquisitions we've committed to so far this year, and we are very enthusiastic about these developments.

We really appreciate not only the financial aspects but also the underlying client capabilities and content characteristics that drive them. Each of these contributes unique strengths that benefit our firm as a whole. This ties back to the idea of a catalyst; if we see growth in the outsourcing business, it will create additional investment opportunities for us, both in acquisitions and in strengthening our global business services across Aon. We believe this presents a unique opportunity for capital deployment in the next two to three years.

It’s actually Mike Phillips here in place of Kai Pan this morning. Couple of questions, one on margins. In the quarter, the 120 basis-point improvement, decent improvement. I guess, with lots of moving parts behind that, one is FX. How much of the FX impact to the margin improvement?

So, there is no FX impact on margin for the quarter.

And then, same thing on margin with the organic growth being what it was, 2%. Does that mean that you can expand the margin, if organic grows even more?

Yes, we can. And so, what you are seeing, due to the investments we have made in higher growth, higher margin areas over the last few years, our investments in Aon United operating model is we can grow margin at low rates of growth. And so, as Greg said, we do expect to accelerate growth based on the investments we have made. And that’s where you should expect accelerating margin expansion.

Lots of brokers are talking about the excitement they have with maybe possible pricing changes and how they can take advantage of that, and you guys are closing the difference. I guess, can you talk about any possible risk to you guys because of the restructuring you’re doing, and possible maybe disruptions to brokers and maybe not to focus on the possible opportunities coming with the possible price changes, is there any risk there?

First of all, Mike, I would just step back. As I described when Sarah asked her question at the beginning, for us, a lot of uncertainty out there in terms of what’s going on. That means there is uncertainty for our clients and that is actually the wheelhouse of Aon. The content capability, analytics we have invested in over time, it literally puts us in a tremendous position. Our clients understand risk, measure risk, and mitigate risk. And that’s really what we are doing. I want to also emphasize, the investment we are making back into the firm is a substantial investment. It involves restructuring but it is also an investment in a number of areas to strengthen our firm, in technology, things we are doing on the real estate front to create greater client areas to bring our colleagues together. So, a lot is going on across Aon. But it is all fundamentally to make Aon a stronger engine, a stronger firm to serve clients. So, I’d go the exact opposite. What we are doing is strengthening our firm, support clients over time and this is another example of a very high stress time for clients, so we can be helpful to them. So, I see exactly the opposite. To us, this is an opportunity to invest to strengthen the firm. And that’s in fact exactly what we are doing.

It seems you are quite confident that brokers won’t be distracted by the restructuring and that you don’t perceive any risk in that regard?

Quite the reverse. Again, I think our team is fully focused on clients 24x7 and that’s what Aon is all about, so don’t see any concern there at all.

I was wondering about where or not the goal to exceed 7.97 next year is dependent upon the current accounting system or the one that we’re going to get next year with the change in revenue recognition? And maybe just a view, an update whether or not you have a view how the revenue recognition might change your financials next year?

So, really the impact of 2018 revenue recognition accounting changes is largely immaterial to full year revenue and margin; it’s really going to change the timing by quarter. There will be a significant re-phasing of quarterly revenue within a given year, particularly within reinsurance solutions, but there will be immaterial changes to full year 2018. The other thing I would note is at our Q4 full year 2017 earnings day, we will actually restate 2016 full year and 2017 full year by quarter to give you that detail for the benefit of shareholders.

Does it in any way change how we calculate organic growth as well?

Because we’re going to restate 2016 and 2017, no.

I just wanted to get your thoughts on the protection gap in insurance and to what extent you think the events we saw in the third quarter could actually lead to a higher insurance penetration within certain lines of business?

It’s a great question. We have discussed this, and the industry has as well. These types of events reveal individuals and companies that are often overlooked during times of crisis. At Aon, we view it somewhat differently when considering the protection gap. From the perspective of a client or individual customer, we're essentially saying that to improve your situation, you should purchase more of our product. Our approach is different; we think about how capital is allocated and whether there are more efficient methods to manage various risks, and we believe there are. There are new products and innovations that emerge from this. When you consider the overall risk landscape and recognize how low the penetration is globally, there are significant chances to enhance and expand upon that, not only for existing risks like floods, which is clear, but also for new risks like cyber. For instance, cyber losses in the U.S. were reported at $450 billion last year, while only $2.5 billion to $3 billion was collected in premiums. Furthermore, the upcoming laws in Europe set to take effect in May and June 2018 will likely generate another wave of reported losses. Our response to support clients will depend on our ability to innovate as an industry. This applies equally to more traditional coverages like flood, where we need to innovate to make our offerings more appealing, differing from our current products. Thus, we see a robust set of opportunities to enhance penetration and serve our clients more effectively as they learn to understand, measure, and manage risk, but it will necessitate innovation within our industry to achieve that.

I have one more question regarding cyber. I know we've heard various industry estimates suggesting that the cyber market could grow from $3 billion to $30 billion in just a few years. Based on your observations, do you anticipate demand increasing at that rate, or how do you view the growth opportunities in the coming years?

We are witnessing significant growth driven entirely by client needs. Considering the reported $450 billion loss from the U.S., which is primarily where this data originates, one might wonder if there is no cyber risk in Europe. Clearly, there is, but the scale is much smaller due to existing laws, which are expected to evolve. This shift will lead to cyber risks increasing substantially. We recognize a tremendous opportunity to assist our clients in understanding and navigating cyber risks, which has already contributed to our growth and will continue to do so. We are proud to be the largest global provider in this space and are committed to increasing our investment here. However, our industry, including Aon, must keep innovating to meet our clients' needs in this area. We see this as a major opportunity since it represents significant risk for our clients.

I just want to thank everybody for being part of the call today, and look forward to our conversation next quarter. Thanks very much.