Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

EXECUTIVE SUMMARY OF SECOND QUARTER 2022 FINANCIAL RESULTS

Aon plc is a leading global professional services firm providing a broad range of risk, health, and wealth solutions. Through our experience, global reach, and comprehensive analytics, we are better able to help clients meet rapidly changing, increasingly complex, and interconnected challenges. We are committed to accelerating innovation to address unmet and evolving client needs, so that our clients are better informed, better advised, and able to make better decisions to protect and grow their business. Management is focused on strengthening Aon and uniting the firm with one portfolio of capability enabled by data and analytics and one operating model to deliver additional insight, connectivity, and efficiency.

Financial Results

The following is a summary of our second quarter of 2022 financial results.

• Revenue increased $97 million, or 3%, to $3.0 billion compared to the prior year period due primarily to organic revenue growth of 8%, partially offset by a 4% unfavorable impact if prior year period results were translated at current period foreign exchange rates (“foreign currency translation”) and a 1% unfavorable impact from acquisitions, divestitures, and other. For the first six months of 2022, revenue increased $242 million, or 4%, to $6.7 billion compared to the prior year period due primarily to organic revenue growth of 8%, partially offset by a 3% unfavorable impact from foreign currency translation and a 1% unfavorable impact from acquisitions, divestitures, and other.

• Operating expenses were $2.3 billion, an increase of $69 million from the prior year period. The increase was due primarily to an increase in expense associated with 8% organic revenue growth, a $58 million charge related to certain legal settlements reached, and investments in long-term growth, partially offset by a $90 million favorable impact from foreign currency translation and a decrease in transaction costs incurred in the prior year period of $38 million. Operating expenses for the first six months of 2022 were $4.6 billion, an increase of $92 million compared to the prior year period primarily due to an increase in expense related to 8% organic revenue growth and a $58 million charge related to certain legal settlements reached, partially offset by a $133 million favorable impact from foreign currency translation and a decrease in transaction costs incurred in the prior year period of $73 million.

• Operating margin increased to 23.5% from 23.3% in the prior year period. The increase was driven by organic revenue growth of 8%, partially offset by an increase in operating expenses as listed above. Operating margin for the first six months of 2022 increased to 31.1% from 29.9% in the prior period. The increase was primarily driven by organic revenue growth of 8%, partially offset by an increase in operating expenses as listed above.

• Due to the factors set forth above, Net income increased $121 million, or 31%, to $514 million compared to the prior year period. For the first six months of 2022, Net income increased $236 million, or 18%, to $1,562 million compared to the first six months of 2021.

• Diluted earnings per share was $2.33 compared to $1.66 per share for the prior year period. During the first six months of 2022, diluted earnings per share was $7.07 compared to $5.66 per share for the prior period.

• Cash flows provided by operating activities was $1,131 million for the first six months of 2022, a decrease of $214 million from the prior year period, primarily due to higher receivables and incentive compensation payments following strong performance in 2021, partially offset by strong operating income growth.

We focus on four key metrics not presented in accordance with U.S. GAAP that we communicate to shareholders: organic revenue growth, adjusted operating margin, adjusted diluted earnings per share, and free cash flow. These non-GAAP metrics should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements. The following is our measure of performance against these four metrics for the second quarter of 2022:

• Organic revenue growth is a non-GAAP measure defined under the caption “Review of Consolidated Results — Organic Revenue Growth.” Organic revenue growth was 8% for the second quarter of 2022, driven by ongoing strong retention and net new business generation. Organic revenue growth was 8% for the first six months of 2022, driven by ongoing strong retention and net new business generation.

• Adjusted operating margin, a non-GAAP measure defined under the caption “Review of Consolidated Results — Adjusted Operating Margin,” was 26.2% for the second quarter of 2022 compared to 25.8% in the prior year period. The increase in adjusted operating margin primarily reflects strong organic revenue growth, partially offset by expense growth and investments in long-term growth. For the first six months of 2022, adjusted operating margin was 32.7% compared to 32.2% for the prior year period. The increase in adjusted operating margin primarily reflects strong organic revenue growth, partially offset by expense growth and investments in long-term growth.

• Adjusted diluted earnings per share, a non-GAAP measure defined under the caption “Review of Consolidated Results — Adjusted Diluted Earnings per Share,” was $2.63 per share for the second quarter of 2022 and $7.47 per share for the first six months of 2022, compared to $2.29 and $6.57 per share for the respective prior year periods.

• Free cash flow, a non-GAAP measure defined under the caption “Review of Consolidated Results — Free Cash Flow,” decreased in the first six months of 2022 by $212 million from the prior year period, to $1,063 million, reflecting a decrease in cash flows from operations, partially offset by a $2 million decrease in capital expenditures.

COVID-19 PANDEMIC

The COVID-19 pandemic has resulted, and may continue to result, in significant economic disruption and volatility, although much progress has been made in the development and distribution of vaccines, contributing to overall improved economic conditions globally. We continue to closely monitor the situation and its impacts on our business. We continue to be fully operational and in compliance with governmental restrictions considering the impact on health and safety of our colleagues, their families, and our clients. We continue to deploy business continuity protocols and our Smart Working strategy to facilitate remote working capabilities to ensure the health and safety of our colleagues, to deliver results on behalf of clients, and to comply with public health and travel guidelines and restrictions.

As the situation continues to evolve, the scale and duration of the disruption and impact of COVID-19 cannot be predicted, and COVID-19 may adversely affect our business and results of operations. However, for the three and six months ended June 30, 2022 the impacts of COVID-19 on our business results have lessened and we have seen overall strength across the firm. We continue to monitor the situation closely.

ENVIRONMENTAL, SOCIAL, AND GOVERNANCE

For many companies, the management of ESG risks and opportunities has become increasingly important, and ESG-related challenges, such as extreme weather events, supply chain disruptions and public health crises continue to create volatility and uncertainty for our clients. Aon offers a wide range of risk assessment, consulting and advisory solutions designed to address and manage ESG issues for clients, and to enable our clients to create more sustainable value. We view ESG risks as presenting an important opportunity for Aon to work together as one firm to address client needs and improve our impact on ESG matters.

RUSSIAN WAR IN UKRAINE

The Russian war in Ukraine, initiated on February 24, 2022, has resulted in certain sanctions being imposed by jurisdictions in which we operate, including the U.S., the E.U., and the U.K., on Russia and certain Russian companies and individuals. The Company’s operations in Russia and Ukraine continue to represent an immaterial portion of the Company’s global operations and the war has not had a material impact on the Company’s global operations as of June 30, 2022.

The Company continues to monitor the potential impacts on the business and the ancillary impacts that the military conflict could have on other global operations.

REVIEW OF CONSOLIDATED RESULTS

Summary of Results

Our consolidated results are as follows (in millions):

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Revenue
Total revenue						$	2,983					$	2,886					$	6,653					$	6,411
Expenses																		0
Compensation and benefits						1,639						1,628						3,406						3,347
Information technology						115						115						238						229
Premises						73						76						145						153
Depreciation of fixed assets						40						41						78						82
Amortization and impairment of intangible assets						25						36						53						76
Other general expense						391						318						666						607
Total operating expenses						2,283						2,214						4,586						4,494
Operating income						700						672						2,067						1,917
Interest income						5						3						8						6
Interest expense						(102)						(78)						(193)						(157)
Other income (expense)						30						(1)						55						(3)
Income before income taxes						633						596						1,937						1,763
Income tax expense						119						203						375						437
Net income						514						393						1,562						1,326
Less: Net income attributable to noncontrolling interests						13						14						38						34
Net income attributable to Aon shareholders						$	501					$	379					$	1,524					$	1,292
Diluted net income per share attributable to Aon shareholders						$	2.33					$	1.66					$	7.07					$	5.66
Weighted average ordinary shares outstanding - diluted						214.7						228.0						215.6						228.1

Revenue

Total revenue increased $97 million, or 3%, in the second quarter of 2022 compared to the second quarter of 2021. This increase reflects organic revenue growth of 8%, partially offset by a 4% unfavorable impact from foreign currency translation and a 1% unfavorable impact from acquisitions, divestitures, and other. For the first six months of 2022, revenue increased by $242 million, or 4% compared to the prior year period. This increase reflects organic revenue growth of 8%, partially offset by a 3% unfavorable impact from foreign currency translation and a 1% unfavorable impact from acquisitions, divestitures, and other.

Commercial Risk Solutions revenue increased $49 million, or 3%, to $1.7 billion in the second quarter of 2022, compared to $1.6 billion in the second quarter of 2021. Organic revenue growth was 7% in the second quarter of 2022, driven by growth across every major geography, reflecting strong retention and management of the renewal book portfolio. Strength in retail brokerage was highlighted by double-digit growth in EMEA, the Pacific, and Latin America, driven by continued strength in core P&C, as well as strong growth in project-related work, partially offset by a decline in transaction solutions due to lower external deal volume. Results also reflect solid growth globally in the affinity business across both consumer and business solutions, including growth in the travel and events practice. On average globally, exposures and pricing were modestly positive, resulting in a modestly positive market impact. For the first six months of 2022, revenue increased $128 million, or 4%, to $3.4 billion, compared to $3.3 billion in the first six months of 2021. Organic revenue growth was 8% in the first six months of 2022, driven by growth across every major geography, including double-digit growth in Asia and the Pacific, driven by strong retention and management of the renewal book portfolio. Results also reflect strong growth in project-related work, partially offset by a decline in transaction solutions due to lower external deal volume. On average globally, exposures and pricing were modestly positive, resulting in a modestly positive market impact overall.

Reinsurance Solutions revenue increased $37 million, or 7%, to $537 million in the second quarter of 2022, compared to $500 million in the second quarter of 2021. Organic revenue growth was 9% in the second quarter of 2022, driven by double-digit growth in treaty, reflecting continued net new business generation globally and strong retention, as well as strong growth in facultative placements. For the first six months of 2022 revenue increased $91 million, or 6%, to $1.5 billion, compared to $1.4 billion in the first six months of 2021. Organic revenue growth was 8% in the first six months of 2022, driven by continued net new business generation in treaty and strong growth in facultative placements. Market impact was modestly positive on results for the three and six months ended June 30, 2022. The majority of revenue in our treaty portfolio is recurring in nature and is recorded in connection with the major renewal periods that take place throughout the first half of the year, while the second half of the year is largely driven by facultative placements and capital markets that are more transactional in nature.

Health Solutions revenue increased $23 million, or 6%, to $414 million in the second quarter of 2022, compared to $391 million in the second quarter of 2021. Organic revenue growth was 11% in the second quarter of 2022, driven by double-digit growth across every major geography. Growth in core health and benefits brokerage was driven by strong retention and management of the renewal book portfolio, as well as a positive impact from the timing of certain revenues. Strength in health and benefits included continued growth in advisory work related to wellbeing and resilience. Results also reflect double-digit growth in Human Capital, driven by data and advisory solutions. For the first six months of 2022, revenue increased $46 million, or 5%, to $1,052 million, compared to $1,006 million in the first six months of 2021. Organic revenue growth was 9% in the first six months of 2022, reflecting growth globally in core health and benefits brokerage, driven by strong retention and management of the renewal book portfolio. Strength in health and benefits included growth in advisory work related to wellbeing and resilience. Results also reflect double-digit growth in Human Capital, driven by data and advisory solutions.

Wealth Solutions revenue decreased $13 million, or 4%, to $343 million in the second quarter of 2022, compared to $356 million in the second quarter of 2021. Organic revenue growth was 3% overall in the second quarter of 2022, driven by growth in Retirement Consulting, driven by higher utilization rates and project-related work related to pension de-risking and ongoing impacts of regulatory changes. Results also reflect growth in Investments, driven by performance fees, partially offset by a decline in AUM-based delegated investment management revenue. For the first six months of 2022, revenue decreased $23 million, or 3%, to $688 million, compared to $711 million in the first six months of 2021. Organic revenue growth was 2% in the first six months of 2022, reflecting growth in delegated investment management, as well as growth in Retirement Consulting, primarily from higher utilization rates and project-related work.

Compensation and Benefits

Compensation and benefits expenses increased $11 million, or 1%, in the second quarter of 2022 compared to the second quarter of 2021. This increase was primarily driven by an increase in expense associated with 8% organic revenue growth, partially offset by a $71 million favorable impact from foreign currency translation. For the first six months of 2022, compensation and benefits increased $59 million, or 2%, compared to the first six months of 2021. The increase was primarily driven by an increase in expense associated with 8% organic revenue growth, partially offset by a $108 million favorable impact from foreign currency translation.

Information Technology

Information technology expenses, which represent costs associated with supporting and maintaining our infrastructure, was flat in the second quarter of 2022 compared to the second quarter of 2021. For the first six months of 2022, Information technology increased $9 million, or 4%, compared to the first six months of 2021. The increase was primarily driven by an increase in expense associated with 8% organic revenue growth, partially offset by a $5 million favorable impact from foreign currency translation.

Premises

Premises expenses, which represent the cost of occupying offices in various locations throughout the world, decreased $3 million, or 4%, in the second quarter of 2022 compared to the second quarter of 2021. This decrease was primarily driven by a $4 million favorable impact from foreign currency translation. For the first six months of 2022, Premises expenses decreased $8 million, or 5%, compared to the first six months of 2021. This decrease was primarily driven by a $6 million favorable impact from foreign currency translation.

Depreciation of Fixed Assets

Depreciation of fixed assets primarily relates to software, leasehold improvements, furniture, fixtures, and equipment, computer equipment, buildings, and automobiles. Depreciation of fixed assets decreased $1 million, or 2%, in the second quarter of 2022 compared to the second quarter of 2021. For the first six months of 2022, Depreciation of fixed assets decreased $4 million, or 5%, compared to the first six months of 2021.

Amortization and Impairment of Intangible Assets

Amortization and impairment of intangible assets primarily relates to finite-lived tradenames and customer-related, contract-based, and technology assets. Amortization and impairment of intangible assets decreased $11 million, or 31%, in the second quarter of 2022 compared to the second quarter of 2021. For the first six months of 2022, Amortization and impairment of intangibles decreased $23 million, or 30%, compared to the first six months of 2021.

Other General Expense

Other general expense in the second quarter of 2022 increased $73 million, or 23%, compared to the second quarter of 2021 due primarily to an increase in expense associated with 8% organic revenue growth, including an increase in travel and entertainment expense, and a $58 million charge in connection with certain legal settlements reached, partially offset by a $38 million decrease in transaction costs. For the first six months of 2022, Other general expense increased $59 million, or 10%, compared to the prior year period due primarily to an increase in expense associated with 8% organic revenue growth, including an increase in travel and entertainment expense, and a $58 million charge in connection with certain legal settlements reached, partially offset by a $73 million decrease in transaction costs.

Interest Income

Interest income represents income earned on operating cash balances and other income-producing investments. It does not include interest earned on funds held on behalf of clients. During the second quarter of 2022, Interest income was $5 million, compared to $3 million in the second quarter of 2021. For the first six months of 2022, Interest income was $8 million, compared to $6 million in the first six months of 2021.

Interest Expense

Interest expense, which represents the cost of our debt obligations, was $102 million for the second quarter of 2022, an increase of $24 million, or 31%, from the second quarter of 2021. The increase was driven primarily by higher outstanding term debt. For the first six months of 2022, Interest expense was $193 million, an increase of $36 million, or 23%, from the prior year period. The increase was driven primarily by higher outstanding term debt.

Other Income (Expense)

Other income was $30 million for the second quarter of 2022, compared to Other expense of $1 million for the second quarter of 2021. Other income for the second quarter of 2022 primarily reflects a gain on sale of a business in Commercial Risk Solutions. Other income was $55 million for the first six months of 2022, compared to $3 million of Other expense for the first six months of 2021. Other income includes $47 million of gains from the disposal of businesses in Commercial Risk Solutions and Wealth Solutions, compared to $1 million in the prior year period.

Income before Income Taxes

Due to the factors discussed above, Income before income taxes for the second quarter of 2022 was $633 million, a 6% increase from $596 million in the second quarter of 2021 and Income before income taxes was $1.9 billion for the first six months of 2022, a 10% increase from $1.8 billion for the first six months of 2021.

Income Taxes

The effective tax rates on Net income were 18.8% and 34.1% for the second quarter of 2022 and 2021, respectively. The effective tax rates on Net income were 19.4% and 24.8% for the first six months ended June 30, 2022 and 2021, respectively.

For the six months ended June 30, 2022, the tax rate was primarily driven the geographical distribution of income and certain discrete items, primarily the favorable impacts of share-based payments.

For the six months ended June 30, 2021, the tax rate was primarily driven by the geographical distribution of income and certain discrete items, primarily the unfavorable impact of the U.K. tax rate increase offset by the favorable impact of share-based payments. The UK enacted legislation on June 10, 2021, which increases the corporate income tax rate from 19% to 25% with effect from April 1, 2023. As a result, the Company remeasured its U.K. deferred tax assets and liabilities based on the tax rate in effect when the deferred tax assets and liabilities are expected to be realized.

Net Income Attributable to Aon Shareholders

Net income attributable to Aon shareholders for the second quarter of 2022 increased to $501 million, or $2.33 per diluted share, from $379 million, or $1.66 per diluted share, in the prior year period. Net income attributable to Aon shareholders for the first six months of 2022 increased to $1,524 million, or $7.07 per diluted share, from $1,292 million, or $5.66 per diluted share, in the prior year period.

Non-GAAP Metrics

In our discussion of consolidated results, we sometimes refer to certain non-GAAP supplemental information derived from consolidated financial information specifically related to organic revenue growth, adjusted operating margin, adjusted diluted earnings per share, free cash flow, and the impact of foreign exchange rate fluctuations on operating results. Management believes that these measures are important to make meaningful period-to-period comparisons and that this supplemental information is helpful to investors. Management also uses these measures to assess operating performance and performance for compensation. This non-GAAP supplemental information should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements.

Organic Revenue Growth

We use supplemental information related to organic revenue growth to help us and our investors evaluate business growth from existing operations. Organic revenue growth is a non-GAAP measure that includes the impact of certain intercompany activity and excludes the impact of changes in foreign exchange rates, fiduciary investment income, acquisitions, divestitures, transfers between revenue lines, and gains or losses on derivatives accounted for as hedges. This supplemental information related to organic revenue growth represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements. Industry peers provide similar supplemental information about their revenue performance, although they may not make identical adjustments. A reconciliation of this non-GAAP measure to the reported Total revenue is as follows (in millions, except percentages):

						Three Months Ended June 30,
						2022						2021						% Change						Less: Currency Impact (1)						Less: Fiduciary Investment Income (2)						Less: Acquisitions, Divestitures & Other						Organic Revenue Growth (3)
Revenue
Commercial Risk Solutions						$	1,692					$	1,643					3		%				(4)		%				—		%				—		%				7		%
Reinsurance Solutions						537						500						7						(5)						—						3						9
Health Solutions						414						391						6						(3)						—						(2)						11
Wealth Solutions						343						356						(4)						(5)						—						(2)						3
Eliminations						(3)						(4)						N/A						N/A						N/A						N/A						N/A
Total revenue						$	2,983					$	2,886					3		%				(4)		%				—		%				(1)		%				8		%

						Six Months Ended June 30,
						2022						2021						% Change						Less: Currency Impact (1)						Less: Fiduciary Investment Income (2)						Less: Acquisitions, Divestitures & Other						Organic Revenue Growth (3)
Revenue
Commercial Risk Solutions						$	3,411					$	3,283					4		%				(3)		%				—		%				(1)		%				8		%
Reinsurance Solutions						1,513						1,422						6						(3)						—						1						8
Health Solutions						1,052						1,006						5						(3)						—						(1)						9
Wealth Solutions						688						711						(3)						(3)						—						(2)						2
Eliminations						(11)						(11)						N/A						N/A						N/A						N/A						N/A
Total revenue						$	6,653					$	6,411					4		%				(3)		%				—		%				(1)		%				8		%

(1)Currency impact represents the effect on prior year period results if they were translated at current period foreign exchange rates.

(2)Fiduciary investment income for the three months ended June 30, 2022 and 2021, respectively, was $7 million and $2 million. Fiduciary investment income for the six months ended June 30, 2022 and 2021, respectively, was $9 million and $4 million.

(3)Organic revenue growth includes the impact of certain intercompany activity and excludes the impact of changes in foreign exchange rates, fiduciary investment income, acquisitions, divestitures, transfers between revenue lines, and gains or losses on derivatives accounted for as hedges.

Adjusted Operating Margin

We use adjusted operating margin as a non-GAAP measure of our core operating performance. Adjusted operating margin excludes the impact of certain items, as listed below, because management does not believe these expenses are the best indicators of our core operating performance. This supplemental information related to adjusted operating margin represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements.

A reconciliation of this non-GAAP measure to the reported operating margin is as follows (in millions, except percentages):

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Revenue						$	2,983					$	2,886					$	6,653					$	6,411
Operating income - as reported						$	700					$	672					$	2,067					$	1,917
Amortization and impairment of intangible assets						25						36						53						76
Transaction costs and other charges related to the combination and resulting termination (1)						—						38						—						73
Legal settlements (2)						58						—						58						—
Operating income - as adjusted						$	783					$	746					$	2,178					$	2,066
Operating margin - as reported						23.5		%				23.3		%				31.1		%				29.9		%
Operating margin - as adjusted						26.2		%				25.8		%				32.7		%				32.2		%

(1)As part of the proposed combination with WTW, which was subsequently terminated in the third quarter of 2021, certain transaction costs were incurred by the Company through the first and second quarter of 2021. These costs included advisory, legal, accounting, valuation, and other professional or consulting fees related to the combination, including planned divestitures, some of which were terminated.

(2)In connection with certain legal settlements reached, a $58 million charge was recognized in the second quarter of 2022.

Adjusted Diluted Earnings per Share

We use adjusted diluted earnings per share as a non-GAAP measure of our core operating performance. Adjusted diluted earnings per share excludes the items identified above, along with certain pension settlements, when applicable, and related income taxes, because management does not believe these expenses are representative of our core earnings. This supplemental information related to adjusted diluted earnings per share represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements. A reconciliation of this non-GAAP measure to reported diluted earnings per share is as follows (in millions, except per share data and percentages):

						Three Months Ended June 30, 2022
																		Non-GAAP
						U.S. GAAP						Adjustments						Adjusted
Operating income						$	700					$	83					$	783
Interest income						5						—						5
Interest expense						(102)						—						(102)
Other income (expense)						30						—						30
Income before income taxes						633						83						716
Income tax expense (1)						119						19						138
Net income						514						64						578
Less: Net income attributable to noncontrolling interests						13						—						13
Net income attributable to Aon shareholders						$	501					$	64					$	565
Diluted net income per share attributable to Aon shareholders						$	2.33					$	0.30					$	2.63
Weighted average ordinary shares outstanding - diluted						214.7						—						214.7
Effective tax rates (1)						18.8		%										19.3		%

						Three Months Ended June 30, 2021
																		Non-GAAP
						U.S. GAAP						Adjustments						Adjusted
Operating income						$	672					$	74					$	746
Interest income						3						—						3
Interest expense						(78)						—						(78)
Other income (expense)						(1)						—						(1)
Income before income taxes						596						74						670
Income tax expense (1)						203						(68)						135
Net income						393						142						535
Less: Net income attributable to noncontrolling interests						14						—						14
Net income attributable to Aon shareholders						$	379					$	142					$	521
Diluted net income per share attributable to Aon shareholders						$	1.66					$	0.63					$	2.29
Weighted average ordinary shares outstanding - diluted						228.0						—						228.0
Effective tax rates (1)						34.1		%										20.1		%

						Six Months Ended June 30, 2022
																		Non-GAAP
						U.S. GAAP						Adjustments						Adjusted
Operating income						$	2,067					$	111					$	2,178
Interest income						8						—						8
Interest expense						(193)						—						(193)
Other income (expense)						55						—						55
Income before income taxes						1,937						111						2,048
Income tax expense (1)						375						25						400
Net income						1,562						86						1,648
Less: Net income attributable to noncontrolling interests						38						—						38
Net income attributable to Aon shareholders						$	1,524					$	86					$	1,610
Diluted net income per share attributable to Aon shareholders						$	7.07					$	0.40					$	7.47
Weighted average ordinary shares outstanding - diluted						215.6						—						215.6
Effective tax rates (1)						19.4		%										19.5		%

						Six Months Ended June 30, 2021
																		Non-GAAP
						U.S. GAAP						Adjustments						Adjusted
Operating income						$	1,917					$	149					$	2,066
Interest income						6						—						6
Interest expense						(157)						—						(157)
Other income (expense)						(3)						—						(3)
Income before income taxes						1,763						149						1,912
Income tax expense (1)						437						(57)						380
Net income						1,326						206						1,532
Less: Net income attributable to noncontrolling interests						34						—						34
Net income attributable to Aon shareholders						$	1,292					$	206					$	1,498
Diluted net income per share attributable to Aon shareholders						$	5.66					$	0.91					$	6.57
Weighted average ordinary shares outstanding - diluted						228.1						—						228.1
Effective tax rates (1)						24.8		%										19.9		%

(1)Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with certain transaction costs and other charges related to the combination and resulting termination and certain legal settlements, which are adjusted at the related jurisdictional rate. In addition, income tax expense for the three and six months ended June 30, 2021 was adjusted to exclude the impact of remeasuring the net deferred tax liabilities in the U.K. as a result of the corporate income tax rate increase enacted in the second quarter of 2021.

Free Cash Flow

We use free cash flow, defined as cash flow provided by operations less capital expenditures, as a non-GAAP measure of our core operating performance and cash-generating capabilities of our business operations. This supplemental information related to free cash flow represents a measure not in accordance with U.S. GAAP and should be viewed in addition to, not instead of, our Condensed Consolidated Financial Statements. The use of this non-GAAP measure does not imply or represent the residual cash flow for discretionary expenditures. A reconciliation of this non-GAAP measure to the reported Cash provided by operating activities is as follows (in millions):

						Six Months Ended June 30,
						2022						2021
Cash provided by operating activities						$	1,131					$	1,345
Capital expenditures						(68)						(70)
Free cash flow						$	1,063					$	1,275

Impact of Foreign Exchange Rate Fluctuations

Because we conduct business in over 120 countries and sovereignties, foreign exchange rate fluctuations may have a significant impact on our business. Foreign exchange rate movements may be significant and may distort true period-to-period comparisons of changes in revenue or pretax income. Therefore, to give financial statement users meaningful information about our operations, we have provided an illustration of the impact of foreign currency exchange rates on our financial results. The methodology used to calculate this impact isolates the impact of the change in currencies between periods by translating the prior year quarter’s revenue, expenses, and net income using the current quarter’s foreign exchange rates.

Currency fluctuations had an unfavorable impact of $0.09 and an unfavorable impact of $0.28 on net income per diluted share during the three and six months ended June 30, 2022, respectively, if prior year period results were translated at current period foreign exchange rates. Currency fluctuations had a favorable impact of $0.02 and a favorable impact of $0.19 on net income per diluted share during the three and six months ended June 30, 2021, respectively, if 2020 results were translated at 2021 rates.

Currency fluctuations had an unfavorable impact of $0.10 and an unfavorable of $0.29 on adjusted net income per diluted share during the three and six months ended June 30, 2022, respectively, if prior year period results were translated at current period foreign exchange rates. Currency fluctuations had a favorable impact of $0.04 and a favorable impact of $0.22 on adjusted net income per diluted share during the three and six months ended June 30, 2021, respectively, if 2020 results were

translated at 2021 rates. These translations are performed for comparative and illustrative purposes only and do not impact the accounting policies or practices for amounts included in our Condensed Consolidated Financial Statements.

LIQUIDITY AND FINANCIAL CONDITION

Liquidity

Executive Summary

We believe that our balance sheet and strong cash flow provide us with adequate liquidity. Our primary sources of liquidity in the near-term include cash flows provided by operations and available cash reserves; primary sources of liquidity in the long-term include cash flows provided by operations, debt capacity available under our credit facilities, and capital markets. Our primary uses of liquidity are operating expenses and investments, capital expenditures, acquisitions, share repurchases, pension obligations, and shareholder dividends. We believe that cash flows from operations, available credit facilities, available cash reserves, and the capital markets will be sufficient to meet our liquidity needs, including principal and interest payments on debt obligations, capital expenditures, pension contributions, and anticipated working capital requirements in the next twelve months and over the long-term. Although there continues to be uncertainties around future economic conditions due to COVID-19, we have largely returned to normal levels of liquidity and will continue to monitor our needs as economic conditions change.

Cash on our balance sheet includes funds available for general corporate purposes, as well as amounts restricted as to their use. Funds held on behalf of clients in a fiduciary capacity are segregated and shown together with uncollected insurance premiums in Fiduciary assets in our Condensed Consolidated Statements of Financial Position, with a corresponding amount in Fiduciary liabilities.

In our capacity as an insurance broker or agent, we collect premiums from insureds and, after deducting our commission, remit the premiums to the respective insurance underwriters. We also collect claims or refunds from underwriters on behalf of insureds, which are then returned to the insureds. Unremitted insurance premiums and claims are held by us in a fiduciary capacity. The levels of funds held on behalf of clients and liabilities can fluctuate significantly depending on when we collect the premiums, claims, and refunds, make payments to underwriters and insureds, and collect funds from clients and make payments on their behalf, and upon the impact of foreign currency movements. Funds held on behalf of clients, because of their nature, are generally invested in very liquid securities with highly rated, credit-worthy financial institutions. Fiduciary assets include funds held on behalf of clients comprised of cash and cash equivalents of $6.5 billion and $6.1 billion at June 30, 2022 and December 31, 2021, respectively, and fiduciary receivables of $10.4 billion and $8.3 billion at June 30, 2022 and December 31, 2021, respectively. While we earn investment income on the funds held in cash and money market funds, the funds cannot be used for general corporate purposes.

We maintain multicurrency cash pools with third-party banks in which various Aon entities participate. Individual Aon entities are permitted to overdraw on their individual accounts provided the overall global balance does not fall below zero. At June 30, 2022, non-U.S. cash balances of one or more entities may have been negative; however, the overall balance was positive.

The following table summarizes our Cash and cash equivalents, Short-term investments, and Fiduciary assets as of June 30, 2022 (in millions):

			Statement of Financial Position Classification
Asset Type			Cash and Cash Equivalents						Short-term Investments						Fiduciary Assets						Total
Certificates of deposit, bank deposits, or time deposits			$	740					$	—					$	3,361					$	4,101
Money market funds			—						243						3,090						3,333
Cash, Short-term investments, and funds held on behalf of clients			740						243						6,451						7,434
Fiduciary receivables			—						—						10,413						10,413
Total			$	740					$	243					$	16,864					$	17,847

Cash and cash equivalents and funds held on behalf of clients increased $546 million in 2022. A summary of our cash flows provided by and used for operating, investing, and financing activities is as follows (in millions):

						Six Months Ended June 30,
						2022						2021
Cash provided by operating activities						$	1,131					$	1,345
Cash used for investing activities						$	(125)					$	(27)
Cash used for financing activities						$	(37)					$	(736)
Effect of exchange rates on cash and cash equivalents and funds held on behalf of clients						$	(423)					$	29

Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2022 decreased $214 million, or 16%, from the prior year period to $1,131 million. This amount represents Net income reported, generally adjusted for the following primary drivers including gains from sales of businesses, losses from sales of businesses, share-based compensation expense, depreciation expense, amortization and impairments, and other non-cash income and expenses, as well as changes in working capital that relate primarily to the timing of payments of accounts payable and accrued liabilities and collection of receivables.

Pension Contributions

Pension contributions were $40 million for the six months ended June 30, 2022, as compared to $62 million for the six months ended June 30, 2021. For the remainder of 2022, we expect to contribute approximately $34 million in cash to our pension plans, including contributions to non-U.S. pension plans, which are subject to changes in foreign exchange rates.

Investing Activities

Cash flow used for investing activities was $125 million during the six months ended June 30, 2022, an increase of $98 million compared to $27 million of Cash flow used for investing activities in the prior year period. Generally, the primary drivers of cash flow used for investing activities are acquisitions of businesses, purchases of short-term investments, capital expenditures, and payments for investments. Generally, the primary drivers of cash flow provided by investing activities are sales of businesses, sales of short-term investments, and proceeds from investments. The gains and losses corresponding to cash flows provided by proceeds from investments and used for payments for investments are primarily recognized in Other income (expense) in our Condensed Consolidated Statements of Income.

Short-term Investments

Short-term investments decreased $49 million as compared to December 31, 2021. As disclosed in Note 14 “Fair Value Measurements and Financial Instruments” of our Condensed Consolidated Financial Statements contained in Part I, Item 1 of this report, the majority of our investments carried at fair value are money market funds. These money market funds are held throughout the world with various financial institutions. We are not aware of any market liquidity issues that would materially impact the fair value of these investments.

Acquisitions and Dispositions of Businesses

During the first six months of 2022, we completed two acquisitions for total consideration transferred of $150 million. Total cash consideration, net of cash and funds held on behalf of clients acquired was $143 million. During the first six months of 2022, we completed three dispositions. We had a net cash inflow related to dispositions of $22 million for the first six months of 2022. The pretax gains recognized in the Condensed Consolidated Statements of Income related to dispositions were $22 million and $47 million for the three and six months ended June 30, 2022, respectively.

During the first six months of 2021, we completed no acquisitions and one business was sold. There was a $1 million gain in the Condensed Consolidated Statement of Cash Flows related to prior year acquisitions.

Capital Expenditures

Our additions to fixed assets, including capitalized software, which amounted to $68 million and $70 million for the six months ended June 30, 2022 and 2021, respectively, primarily relate to the refurbishing and modernizing of office facilities, software development costs, and computer equipment purchases, much of which supports our flexible Smart Working strategy.

Financing Activities

Cash flow used for financing activities during the six months ended June 30, 2022 was $37 million, a decrease of $699 million compared to $736 million of Cash flow used for financing activities in the prior year period. The primary drivers of cash flow provided by (used for) financing activities are repayments of debt, issuances of debt, share repurchases, changes in net fiduciary liabilities, dividends paid to shareholders, issuances of shares for employee benefit plans, transactions with noncontrolling interests, and other financing activities, such as collection of or payments for deferred consideration in connection with prior year business acquisitions and divestitures.

Share Repurchase Program

We have a share repurchase program authorized by our Board of Directors. The Repurchase Program was established in April 2012 with $5.0 billion in authorized repurchases, and was increased by $5.0 billion in authorized repurchases in each of November 2014, June 2017, and November 2020, and by $7.5 billion in February 2022 for a total of $27.5 billion in repurchase authorizations.

The following table summarizes our share repurchase activity (in millions, except per share data):

			Three Months Ended June 30,												Six Months Ended June 30,
			2022						2021						2022						2021
Shares repurchased			1.7						1.1						4.5						1.3
Average price per share			$	292.06					$	235.84					$	293.56					$	232.53
Repurchase costs recorded to retained earnings			$	500					$	242					$	1,328					$	292

At June 30, 2022, the remaining authorized amount for share repurchases under the Repurchase Program was approximately $7.9 billion. Under the Repurchase Program, we have repurchased a total of 154.1 million shares for an aggregate cost of approximately $19.6 billion. For further information regarding the Repurchase Program, see Part II, Item 2 of this report.

Borrowings

Total debt at June 30, 2022 was $10.4 billion, an increase of $1.0 billion compared to December 31, 2021. Further, commercial paper activity during the six months ended June 30, 2022 and 2021 is as follows (in millions):

						Three Months Ended June 30,												Six Months Ended June 30,
						2022						2021						2022						2021
Total issuances (1)						$	6,045					$	850					$	7,701					$	1,100
Total repayments						(5,902)						(850)						(8,110)						(1,100)
Net repayments						$	143					$	—					$	(409)					$	—

(1)The proceeds of the commercial paper issuances are generally used for short-term working capital needs.

On February 28, 2022, Aon Corporation and Aon Global Holdings plc co-issued $600 million of 2.85% Senior Notes due May 2027 and $900 million of 3.90% Senior Notes due February 2052. The Company intends to use the net proceeds from the offering for general corporate purposes.

On December 2, 2021, Aon Corporation and Aon Global Holdings plc co-issued $500 million aggregate principal amount of 2.60% Senior Notes set to mature on December 2, 2031. The Company intends to use the net proceeds of the offering for general corporate purposes.

In November 2021, the Company’s $500 million 2.20% Senior Notes due November 2022 were classified as Short-term debt and current portion of long-term debt in the Condensed Consolidated Statements of Financial Position as the date of maturity was within one year.

On August 23, 2021, Aon Corporation and Aon Global Holdings plc co-issued $400 million of 2.05% Senior Notes due August 2031 and $600 million of 2.90% Senior Notes due August 2051. The Company intends to use the net proceeds from the offering for general corporate purposes.

On January 13, 2021, Aon Global Limited issued an irrevocable notice of redemption to holders of its 2.80% Senior Notes for the redemption of all $400 million outstanding aggregate principal amount of the notes, which were set to mature in March 2021 and classified as Short-term debt and current portion of long-term debt as of December 31, 2020. The redemption date was on February 16, 2021 and resulted in an insignificant loss due to extinguishment.

Other Liquidity Matters

Distributable Profits

We are required under Irish law to have available “distributable profits” to make share repurchases or pay dividends to shareholders. Distributable profits are created through the earnings of the Irish parent company and, among other methods, through intercompany dividends or a reduction in share capital approved by the High Court of Ireland. Distributable profits are not linked to a U.S. GAAP reported amount (e.g., retained earnings). As of June 30, 2022 and December 31, 2021, we had distributable profits in excess of $31.1 billion and $32.7 billion, respectively. We believe that we will have sufficient distributable profits for the foreseeable future.

Credit Facilities

We expect cash generated by operations for 2022 to be sufficient to service our debt and contractual obligations, finance capital expenditures, and continue to pay dividends to our shareholders. Although cash from operations is expected to be sufficient to service these activities, we have the ability to access the commercial paper markets or borrow under our credit facilities to accommodate any timing differences in cash flows. Additionally, under current market conditions, we believe that we could access capital markets to obtain debt financing for longer-term funding, if needed.

As of June 30, 2022, we had two primary committed credit facilities outstanding: our $1.0 billion multi-currency U.S. credit facility expiring in September 2026 and our $750 million multi-currency U.S. credit facility expiring in October 2023. In aggregate, these two facilities provide approximately $1.8 billion in available credit.

Each of these primary committed credit facilities includes customary representations, warranties, and covenants, including financial covenants that require us to maintain specified ratios of adjusted consolidated EBITDA to consolidated interest expense and consolidated debt to consolidated adjusted EBITDA, tested quarterly. At June 30, 2022, we did not have borrowings under either facility, and we were in compliance with the financial covenants and all other covenants contained therein during the rolling 12 months ended June 30, 2022.

Shelf Registration Statement

On May 12, 2020, we filed a shelf registration statement with the SEC, registering the offer and sale from time to time of an indeterminate amount of, among other securities, debt securities, preference shares, class A Ordinary Shares and convertible securities. Our ability to access the market as a source of liquidity is dependent on investor demand, market conditions, and other factors.

Rating Agency Ratings

The major rating agencies’ ratings of our debt at July 29, 2022 appear in the table below.

			Ratings
			Senior Long-term Debt						Commercial Paper						Outlook
Standard & Poor’s			A-						A-2						Stable
Moody’s Investor Services			Baa2						P-2						Stable
Fitch, Inc.			BBB+						F-2						Stable

Letters of Credit and Other Guarantees

We have entered into a number of arrangements whereby our performance on certain obligations is guaranteed by a third party through the issuance of a letter of credit. We had total LOCs outstanding of approximately $71 million at June 30, 2022, compared to $75 million at December 31, 2021. These LOCs cover the beneficiaries related to certain of our U.S. and Canadian non-qualified pension plan schemes and secure deductible retentions for our own workers compensation program. We also have obtained LOCs to cover contingent payments for taxes and other business obligations to third parties, and other guarantees for miscellaneous purposes at our international subsidiaries.

We have certain contractual contingent guarantees for premium payments owed by clients to certain insurance companies. The maximum exposure with respect to such contractual contingent guarantees was approximately $143 million at June 30, 2022, compared to $153 million at December 31, 2021.

Guarantee of Registered Securities

In connection with the Ireland Reorganization, on April 1, 2020 Aon plc and Aon Global Holdings plc entered into various agreements pursuant to which they agreed to guarantee the obligations of Aon Corporation arising under issued and outstanding debt securities, which were previously guaranteed solely by Aon Global Limited and the obligations of Aon Global Limited arising under issued and outstanding debt securities, which were previously guaranteed solely by Aon Corporation. Those agreements included: (1) Second Amended and Restated Indenture, dated April 1, 2020, among Aon Corporation, Aon Global Limited, Aon plc, and Aon Global Holdings plc and the Trustee (amending and restating the Amended and Restated Indenture, dated April 2, 2012, among Aon Corporation, Aon Global Limited and the Trustee); (2) Amended and Restated Indenture, dated April 1, 2020, among Aon Corporation, Aon Global Limited, Aon plc, Aon Global Holdings plc and the Trustee (amending and restating the Indenture, dated December 12, 2012, among Aon Corporation, Aon Global Limited plc and the Trustee); (3) Second Amended and Restated Indenture, dated April 1, 2020, among Aon Corporation, Aon Global Limited, Aon plc, Aon Global Holdings plc and the Trustee (amending and restating the Amended and Restated Indenture, dated May 20, 2015, among Aon Corporation, Aon Global Limited and the Trustee); (4) Amended and Restated Indenture, dated April 1, 2020, among Aon Corporation, Aon Global Limited, Aon plc, Aon Global Holdings plc and the Trustee (amending and restating the Indenture, dated November 13, 2015, among Aon Corporation, Aon Global Limited and the Trustee); and (5) Amended and Restated Indenture, dated April 1, 2020, among Aon Corporation, Aon Global Limited, Aon plc, Aon Global Holdings plc and the Trustee (amending and restating the Indenture, dated December 3, 2018, among Aon Corporation, Aon Global Limited and the Trustee).

After the Ireland Reorganization, newly issued and outstanding debt securities by Aon Corporation are guaranteed by Aon Global Limited, Aon plc, and Aon Global Holdings plc, and include the following (collectively, the “Aon Corporation Notes”):

Aon Corporation Notes
2.20% Senior Notes due November 2022
8.205% Junior Subordinated Notes due January 2027
4.50% Senior Notes due December 2028
3.75% Senior Notes due May 2029
2.80% Senior Notes due May 2030
6.25% Senior Notes due September 2040

All guarantees of Aon plc, Aon Global Limited, and Aon Global Holdings plc of the Aon Corporation Notes are joint and several as well as full and unconditional. Senior Notes rank pari passu in right of payment with all other present and future unsecured debt which is not expressed to be subordinate or junior in rank to any other unsecured debt of Aon Corporation. There are no subsidiaries other than those listed above that guarantee the Aon Corporation Notes.

After the Ireland Reorganization, newly issued and outstanding debt securities by Aon Global Limited are guaranteed by Aon plc, Aon Global Holdings plc, and Aon Corporation, and include the following (collectively, the “Aon Global Limited Notes”):

Aon Global Limited Notes
4.00% Senior Notes due November 2023
3.50% Senior Notes due June 2024
3.875% Senior Notes due December 2025
2.875% Senior Notes due May 2026
4.25% Senior Notes due December 2042
4.45% Senior Notes due May 2043
4.60% Senior Notes due June 2044
4.75% Senior Notes due May 2045

All guarantees of Aon plc, Aon Global Holdings plc, and Aon Corporation of the Aon Global Limited Notes are joint and several as well as full and unconditional. Senior Notes rank pari passu in right of payment with all other present and future unsecured debt which is not expressed to be subordinate or junior in rank to any other unsecured debt of Aon Global Limited. There are no subsidiaries other than those listed above that guarantee the Aon Global Limited Notes.

Newly co-issued and outstanding debt securities by Aon Corporation and Aon Global Holdings plc (together, the “Co-Issuers”) are guaranteed by Aon plc and Aon Global Limited and include the following (collectively, the “Co-Issued Notes”):

Co-Issued Notes - Aon Corporation and Aon Global Holdings plc
2.85% Senior Notes due May 2027
2.05% Senior Notes due August 2031
2.60% Senior Notes due December 2031
2.90% Senior Notes due August 2051
3.90% Senior Notes due February 2052

All guarantees of Aon plc and Aon Global Limited of the Co-Issued Notes are joint and several as well as full and unconditional. Senior Notes rank pari passu in right of payment with all other present and future unsecured debt which is not expressed to be subordinate or junior in rank to any other unsecured debt of the Co-Issuers. There are no subsidiaries other than those listed above that guarantee the Co-Issued Notes.

Aon Corporation, Aon Global Limited, and Aon Global Holdings plc are indirect wholly owned subsidiaries of Aon plc. Aon plc, Aon Global Limited, Aon Global Holdings plc, and Aon Corporation together comprise the “Obligor group”. The following tables set forth summarized financial information for the Obligor group.

Adjustments are made to the tables to eliminate intercompany balances and transactions between the Obligor group. Intercompany balances and transactions between the Obligor group and non-guarantor subsidiaries are presented as separate line items within the summarized financial information. These balances are presented on a net presentation basis, rather than a gross basis, as this better reflects the nature of the intercompany positions and presents the funding or funded position that is to be received or owed. No balances or transactions of non-guarantor subsidiaries are presented in the summarized financial information, including investments of the Obligor group in non-guarantor subsidiaries.

			Obligor Group
			Summarized Statement of Income Information
						Six Months Ended
(millions)						June 30, 2022
Revenue						$	—
Operating loss						$	(50)
Expense from non-guarantor subsidiaries before income taxes						$	(335)
Net loss						$	(503)
Net loss attributable to Aon shareholders						$	(503)

			Obligor Group
			Summarized Statement of Financial Position Information
						As of			As of
(millions)						June 30, 2022			December 31, 2021
Receivables due from non-guarantor subsidiaries						$	3,683		$	1,646
Other current assets						63			57
Total current assets						$	3,746		$	1,703
Non-current receivables due from non-guarantor subsidiaries						$	482		$	498
Other non-current assets						898			882
Total non-current assets						$	1,380		$	1,380
Payables to non-guarantor subsidiaries						$	15,722		$	13,509
Other current liabilities						2,436			2,013
Total current liabilities						$	18,158		$	15,522
Non-current payables to non-guarantor subsidiaries						$	7,225		$	7,139
Other non-current liabilities						10,891			9,512
Total non-current liabilities						$	18,116		$	16,651

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

There have been no changes in our critical accounting policies, which include revenue recognition, pensions, goodwill and other intangible assets, contingencies, share-based payments, and income taxes, as discussed in our Annual Report on Form 10-K for the year ended December 31, 2021.

NEW ACCOUNTING PRONOUNCEMENTS

As described in Note 2 “Accounting Principles and Practices” to our Financial Statements contained in Part I, Item 1, all issued, but not yet effective, guidance has been deemed not applicable or not significant to the Financial Statements.