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

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

EXECUTIVE SUMMARY OF SECOND QUARTER 2023 FINANCIAL RESULTS

Aon plc is a leading global professional services firm providing a broad range of risk and human capital solutions. Through our experience, global reach, and comprehensive analytics, we help clients meet rapidly changing, increasingly complex, and interconnected challenges related to risk and people. 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 remains 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 2023 financial results.

Revenue increased $194 million, or 7%, to $3.2 billion compared to the prior year period reflecting organic revenue growth of 6% and a 2% favorable impact from fiduciary investment income, partially offset by a 1% unfavorable impact from foreign currency translation. For the first six months of 2023, revenue increased $395 million, or 6%, to $7.0 billion compared to the prior year period due primarily to organic revenue growth of 7% and a 2% favorable impact from fiduciary investment income, partially offset by a 2% unfavorable impact from foreign currency translation and a 1% unfavorable impact from acquisitions, divestitures, and other.
Total operating expenses in the second quarter increased 2% to $2.3 billion compared to the prior year period due primarily to an increase in expense associated with 6% organic revenue growth and investments in long-term growth, partially offset by a decrease in certain legal settlements in the prior year period of $58 million that did not repeat in the second quarter of 2023. Operating expenses for the first six months of 2023 were $4.7 billion, an increase of $147 million compared to the prior year period primarily due to an increase in expense related to 7% organic revenue growth and investments in long-term growth, partially offset by a $77 million favorable impact from foreign currency translation and a decrease in certain legal settlements in the prior year period of $58 million that did not repeat in the first six months of 2023.
Operating margin increased to 26.5% from 23.5% in the prior year period. The increase was driven by organic revenue growth of 6%, partially offset by an increase in operating expenses as listed above. Operating margin for the first six months of 2023 increased to 32.8% from 31.1% in the prior period. The increase was primarily driven by organic revenue growth of 7%, partially offset by an increase in operating expenses as listed above.
Due to the factors set forth above, Net income increased $61 million, or 12%, to $575 million compared to the prior year period. For the first six months of 2023, Net income increased $92 million, or 6%, to $1.7 billion compared to the first six months of 2022.
Diluted earnings per share was $2.71 compared to $2.33 per share for the prior year period. During the first six months of 2023, diluted earnings per share was $7.79 compared to $7.07 per share for the prior period.
Cash flows provided by operations for the first six months of 2023 was flat at $1.1 billion compared to the prior year period, primarily due to strong operating income growth, offset in part by higher cash tax payments.

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 2023:

Organic revenue growth is a non-GAAP measure defined under the caption “Review of Consolidated Results — Organic Revenue Growth.” Organic revenue growth was 6% for the second quarter of 2023, driven by ongoing strong retention, management of the renewal book, and net new business generation. Organic revenue growth was 7% for the first six months of 2023, 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 27.3% for the second quarter of 2023 compared to 26.2% in the prior year period. The increase in adjusted operating margin primarily reflects organic revenue growth and increased fiduciary investment income, partially offset by increased expenses and investments in long-term growth. For the first six months of 2023, adjusted operating margin was 33.6% compared to 32.7% for the prior year period. The increase primarily reflects organic revenue growth and increased fiduciary investment income, partially offset by increased expenses 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 $2.76 per share for the second quarter of 2023 and $7.93 per share for the first six months of 2023, compared to $2.63 and $7.47 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 2023 by $77 million from the prior year period, to $986 million, reflecting flat cash flows from operations and a $77 million increase in capital expenditures.

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, cyber events, regulatory changes, ongoing public health impacts, and the increased focus on workforce resilience in various work environments, continue to create volatility and uncertainty for our clients. At Aon, helping clients manage risk - including ESG risk - is at the core of what we do. Aon offers a wide range of risk assessment, consulting, and advisory solutions, many of which are significant parts of our core business offerings, designed to address and manage ESG issues for clients, and to enable our clients to create more sustainable value. We see significant opportunity in enhancing our impact and delivering innovative client solutions on ESG matters.

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,
	2023		2022		2023		2022
Revenue
Total revenue	$	3,177	$	2,983	$	7,048	$	6,653
Expenses
Compensation and benefits	1,754		1,639		3,546		3,406
Information technology	129		115		268		238
Premises	68		73		143		145
Depreciation of fixed assets	39		40		77		78
Amortization and impairment of intangible assets	25		25		50		53
Other general expense	320		391		649		666
Total operating expenses	2,335		2,283		4,733		4,586
Operating income	842		700		2,315		2,067
Interest income	5		5		10		8
Interest expense	(130)		(102)		(241)		(193)
Other income (expense)	(59)		30		(84)		55
Income before income taxes	658		633		2,000		1,937
Income tax expense	83		119		346		375


Net income	575		514		1,654		1,562
Less: Net income attributable to noncontrolling interests	15		13		44		38
Net income attributable to Aon shareholders	$	560	$	501	$	1,610	$	1,524
Diluted net income per share attributable to Aon shareholders	$	2.71	$	2.33	$	7.79	$	7.07



Weighted average ordinary shares outstanding - diluted	206.3		214.7		206.7		215.6

Revenue

Total revenue increased $194 million, or 7%, to $3.2 billion, compared to the prior year period, with organic revenue growth of 6%, driven by ongoing strong retention, management of the renewal book, and net new business generation, and a 2% favorable impact from fiduciary investment income, partially offset by a 1% unfavorable impact from foreign currency translation. For the first six months of 2023, revenue increased by $395 million, or 6% compared to the prior year period. This increase reflects organic revenue growth of 7% and 2% favorable impact from fiduciary investment income, partially offset by a

2% unfavorable impact from foreign currency translation and a 1% unfavorable impact from acquisitions, divestitures, and other.

Commercial Risk Solutions revenue increased $82 million, or 5%, to $1.8 billion in the second quarter of 2023, compared to $1.7 billion in the second quarter of 2022. Organic revenue growth was 5% in the second quarter of 2023, reflecting strong growth across most major geographies driven by strong retention, management of the renewal book, and net new business generation. Growth in retail brokerage was highlighted by double-digit growth in Asia and the Pacific, driven by continued strength in core P&C. The U.S. grew modestly driven by strength in core businesses, partially offset by the impact of the external M&A and IPO markets on M&A services. Results also reflect strong growth globally in the affinity business across both consumer and business solutions. On average globally, exposures and pricing were positive, resulting in a modestly positive market impact. For the first six months of 2023, revenue increased $141 million, or 4%, to $3.6 billion, compared to $3.4 billion in the first six months of 2022. Organic revenue growth was 6% in the first six months of 2023, reflecting growth across every major geography, driven by strong retention, management of the renewal book, and net new business generation.

Reinsurance Solutions revenue increased $70 million, or 13%, to $607 million in the second quarter of 2023, compared to $537 million in the second quarter of 2022. Organic revenue growth was 9% in the second quarter of 2023, reflecting strong growth in treaty, driven by strong retention and continued net new business generation, as well as double-digit growth in both facultative placements and investment banking, and solid growth in the Strategy and Technology Group. Market impact was modestly positive on results in the quarter. 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. For the first six months of 2023, revenue increased $171 million, or 11%, to $1.7 billion, compared to $1.5 billion in the first six months of 2022. Organic revenue growth was 9% in the first six months of 2023, driven by strong retention and net new business generation.

Health Solutions revenue increased $33 million, or 8%, to $447 million in the second quarter of 2023, compared to $414 million in the second quarter of 2022. Organic revenue growth was 10% in the second quarter of 2023, reflecting strong growth globally in core health and benefits brokerage primarily from net new business generation and management of the renewal book. Strength in the core was highlighted by double-digit growth in Latin America, EMEA, and the U.K. Results also reflect modest growth in Talent, driven by data and advisory solutions. For the first six months of 2023, revenue increased $66 million, or 6%, to $1.1 billion, compared to the first six months of 2022. Organic revenue growth was 9% in the first six months of 2023, reflecting strong growth globally in core health and benefits brokerage, driven by strong retention and management of the renewal book.

Wealth Solutions revenue increased $9 million, or 3%, to $352 million in the second quarter of 2023, compared to $343 million in the second quarter of 2022. Organic revenue growth was 2% in the second quarter of 2023, reflecting growth in Retirement, driven by advisory demand and project-related work related to pension de-risking and ongoing impact of regulatory changes. In Investments, a decrease in AUM-based delegated investment management revenue due to equity market and interest rate movements was partially offset by advisory demand and project-related work. For the first six months of 2023, revenue increased $14 million, or 2%, to $702 million, compared to $688 million in the first six months of 2022. Organic revenue growth was 4% in the first six months of 2023, reflecting growth in Retirement, driven by advisory demand and project-related work related to pension de-risking and ongoing impact of regulatory changes.

Compensation and Benefits

Compensation and benefits expense increased $115 million, or 7%, compared to the prior year period due primarily to an increase in expense associated with 6% organic revenue growth, partially offset by an $8 million favorable impact from foreign currency translation. For the first six months of 2023, compensation and benefits increased $140 million, or 4%, compared to the first six months of 2022. The increase was primarily driven by an increase in expense associated with 7% organic revenue growth, partially offset by a $63 million favorable impact from foreign currency translation.

Information Technology

Information technology expenses, which represent costs associated with supporting and maintaining our infrastructure, increased $14 million, or 12%, compared to the prior year period due primarily to ongoing investments in Aon Business Services-enabled technology platforms to drive long-term growth and continued investment in core infrastructure and security. For the first six months of 2023, information technology increased $30 million, or 13%, compared to the first six months of 2022. The increase was primarily driven by ongoing investments in Aon Business Services-enabled technology platforms to drive long-term growth and continued investment in core infrastructure and security.

Premises

Premises expenses, which represent the cost of occupying offices in various locations throughout the world, decreased $5 million, or 7%, in the second quarter of 2023 compared to the prior year period due primarily to a one-time $4 million benefit

associated with steps taken to optimize our real estate footprint. For the first six months of 2023, premises expenses decreased $2 million, or 1%, compared to the first six months of 2022.

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 3%, in the second quarter of 2023 compared to the prior year period. For the first six months of 2023, depreciation of fixed assets decreased $1 million, or 1%, compared to the first six months of 2022.

Amortization and Impairment of Intangible Assets

Amortization and impairment of intangible assets primarily relates to finite-lived customer-related and contract-based assets as well as technology and other assets. Amortization and impairment of intangible assets was flat in the second quarter of 2023 compared to the prior year period. For the first six months of 2023, amortization and impairment of intangibles decreased $3 million, or 6%, compared to the first six months of 2022.

Other General Expense

Other general expense in the second quarter of 2023 decreased $71 million, or 18%, compared to the prior year period due primarily to a $58 million charge in connection with certain legal settlements in the prior period that did not repeat in the second quarter of 2023. For the first six months of 2023, other general expense decreased $17 million, or 3%, compared to the prior year period due primarily to a $58 million charge in connection with certain legal settlements in the prior year period that did not repeat in the first six months of 2023, partially offset by an increase in expense associated with 7% organic revenue growth.

Interest Income

Interest income represents income, net of expense, 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 2023, interest income was flat compared to the prior year period. For the first six months of 2023, interest income increased $2 million to $10 million compared to the first six months of 2022.

Interest Expense

Interest expense, which represents the cost of our debt obligations, increased $28 million to $130 million during the second quarter of 2023 compared to the prior year period, reflecting an increase in total debt and higher interest rates, as well as an $11 million non-recurring charge in the quarter. For the first six months of 2023, interest expense increased $48 million to $241 million compared to the prior year period. The increase was driven primarily by an increase in total debt and higher interest rates and includes an $11 million non-recurring charge.

Other Income (Expense)

Other income (expense) for the second quarter of 2023 decreased $89 million compared to the prior year period. Other expense was $59 million for the second quarter of 2023, primarily due to a non-cash pension settlement charge of $27 million and an expense from the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies. Other income was $30 million for the second quarter of 2022 due primarily to an expense from the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies. Other income (expense) for first six months of 2023 decreased $139 million compared to the prior year period. Other expense was $84 million for the first six months of 2023, primarily due a non-cash pension settlement charge of $27 million and expense from the unfavorable impact of exchange rates on the remeasurement of assets and liabilities in non-functional currencies. Other income was $55 million for the first six months of 2022 primarily due to gains on the sales of businesses.

Income before Income Taxes

Due to the factors discussed above, Income before income taxes for the second quarter of 2023 was $658 million, a 4% increase from $633 million in the second quarter of 2022. For the first six months of 2023, income before income taxes was $2.0 billion, a 3% increase from $1.9 billion for the first six months of 2022.

Income Taxes

The effective tax rate on Net income was 12.6% and 17.3% for the three and six months ended June 30, 2023, respectively. The effective tax rate on Net income was 18.8% and 19.4% for the three and six months ended June 30, 2022, respectively.

For the three and six months ended June 30, 2023, the tax rate was primarily driven by the geographical distribution of income and certain discrete items, including the tax benefits associated with share-based payments and the anticipated sale of certain assets and liabilities classified as held for sale.

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

We continue to monitor the manner in which countries will enact legislation to implement the Pillar Two framework proposed by the OECD, which proposes a 15% global corporate minimum tax. Pursuant to a directive adopted by the E.U., E.U. member states (including Ireland) are required to enact domestic legislation implementing Pillar Two by the end of 2023 to be effective January 1, 2024. The Company is currently evaluating the potential impact that this may have on its global effective tax rate, results of operations, cash flows and financial condition beginning in 2024.

Net Income Attributable to Aon Shareholders

Net income attributable to Aon shareholders for the second quarter of 2023 increased to $560 million, or $2.71 per diluted share, from $501 million, or $2.33 per diluted share, in the prior year period. Net income attributable to Aon shareholders for the first six months of 2023 increased to $1.6 billion, or $7.79 per diluted share, from $1.5 billion, or $7.07 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, adjusted net income attributable to Aon shareholders, adjusted net income per share, other income (expense), as adjusted, adjusted effective tax rate, 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,
	2023		2022		% Change		Less: Currency Impact (1)		Less: Fiduciary Investment Income (2)		Less: Acquisitions, Divestitures & Other		Organic Revenue Growth (3)
Revenue
Commercial Risk Solutions	$	1,774	$	1,692	5	%	(1)	%	2	%	(1)	%	5	%
Reinsurance Solutions	607		537		13		(1)		5		—		9
Health Solutions	447		414		8		(1)		—		(1)		10
Wealth Solutions	352		343		3		—		—		1		2
Eliminations	(3)		(3)		N/A		N/A		N/A		N/A		N/A
Total revenue	$	3,177	$	2,983	7	%	(1)	%	2	%	—	%	6	%


	Six Months Ended June 30,
	2023		2022		% Change		Less: Currency Impact (1)		Less: Fiduciary Investment Income (2)		Less: Acquisitions, Divestitures & Other		Organic Revenue Growth (3)
Revenue
Commercial Risk Solutions	$	3,552	$	3,411	4	%	(2)	%	2	%	(2)	%	6	%
Reinsurance Solutions	1,684		1,513		11		(2)		3		1		9
Health Solutions	1,118		1,052		6		(2)		—		(1)		9
Wealth Solutions	702		688		2		(2)		—		—		4
Eliminations	(8)		(11)		N/A		N/A		N/A		N/A		N/A
Total revenue	$	7,048	$	6,653	6	%	(2)	%	2	%	(1)	%	7	%

(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, 2023 and 2022, was $64 million and $7 million, respectively. Fiduciary investment income for the six months ended June 30, 2023 and 2022 was $116 million and $9 million, respectively.

(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,
	2023			2022			2023			2022
Revenue	$	3,177		$	2,983		$	7,048		$	6,653

Operating income - as reported	$	842		$	700		$	2,315		$	2,067
Amortization and impairment of intangible assets	25			25			50			53




Legal settlements (1)	—			58			—			58
Operating income - as adjusted	$	867		$	783		$	2,365		$	2,178

Operating margin - as reported	26.5		%	23.5		%	32.8		%	31.1		%
Operating margin - as adjusted	27.3		%	26.2		%	33.6		%	32.7		%

(1)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 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 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, 2023
	U.S. GAAP			Adjustments		Non-GAAP Adjusted
Operating income	$	842		$	25	$	867
Interest income	5			—		5
Interest expense	(130)			—		(130)
Other income (expense) (1)	(59)			27		(32)
Income before income taxes	658			52		710
Income tax expense (2)	83			42		125


Net income	575			10		585
Less: Net income attributable to noncontrolling interests	15			—		15
Net income attributable to Aon shareholders	$	560		$	10	$	570

Diluted net income per share attributable to Aon shareholders	$	2.71		$	0.05	$	2.76




Weighted average ordinary shares outstanding - diluted	206.3			—		206.3
Effective tax rates (2)	12.6		%			17.6		%


	Three Months Ended June 30, 2022
	U.S. GAAP			Adjustments		Non-GAAP 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 (2)	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 (2)	18.8		%			19.3		%


	Six Months Ended June 30, 2023
	U.S. GAAP			Adjustments		Non-GAAP Adjusted
Operating income	$	2,315		$	50	$	2,365
Interest income	10			—		10
Interest expense	(241)			—		(241)
Other income (expense) (1)	(84)			27		(57)
Income before income taxes	2,000			77		2,077
Income tax expense (2)	346			47		393


Net income	1,654			30		1,684
Less: Net income attributable to noncontrolling interests	44			—		44
Net income attributable to Aon shareholders	$	1,610		$	30	$	1,640

Diluted net income per share attributable to Aon shareholders	$	7.79		$	0.14	$	7.93




Weighted average ordinary shares outstanding - diluted	206.7			—		206.7
Effective tax rates (2)	17.3		%			18.9		%


	Six Months Ended June 30, 2022
	U.S. GAAP			Adjustments		Non-GAAP 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 (2)	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 (2)	19.4		%			19.5		%

(1)To further its pension de-risking strategy, the Company settled certain pension obligations in the Netherlands through the purchase of annuities, where certain pension assets were liquidated to purchase the annuities. A non-cash settlement charge totaling $27 million was recognized in the second quarter of 2023 which is excluded from Other income (expense) - as adjusted.

(2)Adjusted items are generally taxed at the estimated annual effective tax rate, except for the applicable tax impact associated with the anticipated sale of certain assets and liabilities classified as held for sale as well as certain pension and legal settlements, which are adjusted at the related jurisdictional rate.

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,
	2023		2022
Cash provided by operating activities	$	1,131	$	1,131
Capital expenditures	(145)		(68)
Free cash flow	$	986	$	1,063

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 $0.05 and an unfavorable impact of $0.19 on net income per diluted share during the three and six months ended June 30, 2023, respectively, if prior year period results were translated at current period 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 if 2021 results were translated at 2022 rates.

Currency fluctuations had an unfavorable impact of $0.05 and an unfavorable impact of $0.19 on adjusted diluted earnings per share during the three and six months ended June 30, 2023, respectively, if prior year period results were translated at current period foreign exchange rates. Currency fluctuations had an unfavorable impact of $0.10 and an unfavorable impact of $0.29 on adjusted diluted earnings per share during the three and six months ended June 30, 2022 if 2021 results were translated at 2022 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.

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 $7.5 billion and $6.4 billion at June 30, 2023 and December 31, 2022, respectively, and fiduciary receivables of $10.7 billion and $9.5 billion at June 30, 2023 and December 31, 2022, 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, 2023, cash balances of one or more non-U.S. 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, 2023 (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	$	952	$	—	$	4,188	$	5,140
Money market funds	—		200		3,350		3,550
Cash, Short-term investments, and funds held on behalf of clients	952		200		7,538		8,690
Fiduciary receivables	—		—		10,655		10,655
Total	$	952	$	200	$	18,193	$	19,345

Total cash and cash equivalents and funds held on behalf of clients, including $9 million of cash and cash equivalents classified as held for sale, increased $1.4 billion in 2023. 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,
	2023		2022
Cash provided by operating activities	$	1,131	$	1,131
Cash provided by (used for) investing activities	$	128	$	(125)
Cash used for financing activities	$	(39)	$	(37)

Effect of exchange rates on cash and cash equivalents and funds held on behalf of clients	$	203	$	(423)

Operating Activities

Net cash provided by operating activities during the six months ended June 30, 2023 was flat compared to the prior year period at $1.1 billion. 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. Adjustments also include 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 $31 million for the six months ended June 30, 2023, as compared to $40 million for the six months ended June 30, 2022. For the remainder of 2023, we expect to contribute approximately $30 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 provided by investing activities was $128 million during the six months ended June 30, 2023, an increase of $253 million compared to $125 million of Cash flow used for investing activities in the prior year period. Generally, the primary drivers of cash flow provided by investing activities are sales of businesses, sales of short-term investments, and proceeds from investments. Generally, the primary drivers of cash flow used for investing activities are acquisition of businesses, purchases of short-term investments, capital expenditures, and payments for 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 $252 million as compared to December 31, 2022. As disclosed in Note 13 “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 2023, we completed one acquisition. Cash consideration transferred, net of cash and funds held on behalf of clients acquired, was $8 million, which includes $2 million related to acquisitions completed in 2022. During the first six months of 2022, we completed two acquisitions. Cash consideration transferred, net of cash and funds held on behalf of clients acquired, was $143 million.

During the first six months of 2023, we completed no dispositions. During the first six months of 2022, three businesses were sold for $22 million, net of cash and funds held on behalf of clients.

Capital Expenditures

Our additions to fixed assets, including capitalized software, amounted to $145 million and $68 million for the six months ended June 30, 2023 and 2022, respectively, primarily relate to the refurbishing and modernizing of office facilities, software development costs, and computer equipment purchases. In the current period, we continue to support certain technology projects to drive long-term growth and real estate projects to align with our Smart Working strategy.

Financing Activities

Cash flow used for financing activities during the six months ended June 30, 2023 was $39 million, an increase of $2 million compared to $37 million of Cash flow used for financing activities in the prior year period. Generally, the primary drivers of cash flow used for financing activities are repayments of debt, share repurchases, cash paid for employee taxes on withholding shares, dividends paid to shareholders, 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. Generally, the primary drivers of cash flow provided by financing activities are issuances of debt, changes in net fiduciary liabilities, and proceeds from issuance of shares.

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,
	2023		2022		2023		2022
Shares repurchased	1.7		1.7		3.5		4.5
Average price per share	$	323.96	$	292.06	$	314.36	$	293.56

Repurchase costs recorded to accumulated deficit	$	550	$	500	$	1,100	$	1,328

At June 30, 2023, the remaining authorized amount for share repurchase under the Repurchase Program was approximately $4.9 billion. Under the Repurchase Program, the Company has repurchased a total of 164.2 million shares for an aggregate cost of approximately $22.6 billion. For further information regarding the Repurchase Program, see Part II, Item 2 of this report.

Borrowings

Total debt at June 30, 2023 was $11.3 billion, an increase of $0.6 billion compared to December 31, 2022. Further, commercial paper activity during the six months ended June 30, 2023 and 2022 is as follows (in millions):


	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Total issuances (1)	$	1,411	$	6,045	$	2,281	$	7,701
Total repayments	(1,455)		(5,902)		(2,498)		(8,110)
Net issuances (repayments)	$	(44)	$	143	$	(217)	$	(409)

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

In June 2023, Aon Global Limited’s $600 million 3.50% Senior Notes due June 2024 were classified as Short-term debt and current portion of long-term debt in the Condensed Consolidated Statement of Financial Position as the date of maturity is in less than one year.

On February 28, 2023, Aon Corporation and Aon Global Holdings plc co-issued $750 million 5.35% Senior Notes due in February 2033. The Company intends to use the net proceeds from the offering for general corporate purposes.

In November 2022, Aon Global Limited’s $350 million 4.00% Senior Notes due November 2023 were classified as Short-term debt and current portion of long-term debt in the Condensed Consolidated Statement of Financial Position as the date of maturity is in less than one year.

In November 2022, Aon Corporation’s $500 million 2.20% Senior Notes matured and were repaid in full.

On September 12, 2022, Aon Corporation and Aon Global Holdings plc co-issued $500 million of 5.00% Senior Notes due September 2032. The Company intends to use the net proceeds from the offering for general corporate purposes.

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.

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. Accumulated Deficit). As of June 30, 2023 and December 31, 2022, we had distributable profits in excess of $29.3 billion and $29.0 billion, respectively. We believe that we will have sufficient distributable profits for the foreseeable future.

Credit Facilities

We expect cash generated by operations for 2023 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, 2023, 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 2024. 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, 2023, 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, 2023.

Shelf Registration Statement

On June 22, 2023, 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 28, 2023 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	Positive
Fitch, Inc.	BBB+	F-2	Stable

On June 26, 2023, Moody’s Investor Services upgraded our 'Baa2' outlook to Positive, as compared to a Stable outlook at April 28, 2023 as reported in our Quarterly Report on Form 10-Q for the three months ended March 31, 2023.

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 $79 million at June 30, 2023, compared to $74 million at December 31, 2022. 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 $135 million at June 30, 2023, compared to $173 million at December 31, 2022.

Guarantee of Registered Securities

On June 22, 2023, Aon North America, Inc., a 100% indirectly owned subsidiary of Aon plc, entered into agreements pursuant to which it guaranteed the obligations of Aon Corporation, Aon Global Limited, and Aon Global Holdings plc arising under issued and outstanding debt securities, which are outlined in the tables below by the respective issuer or co-issuer. The obligations of Aon Corporation were previously guaranteed by Aon Global Limited, Aon plc, and Aon Global Holdings plc. The obligations of Aon Global Limited were previously guaranteed by Aon Corporation, Aon plc, and Aon Global Holdings plc. The obligations co-issued by Aon Corporation and Aon Global Holdings plc were previously guaranteed by Aon plc and Aon Global Limited.

Following June 22, 2023, newly issued and outstanding debt securities by Aon Corporation are guaranteed by Aon Global Limited, Aon plc, Aon North America, Inc., and Aon Global Holdings plc, and include the following (collectively, the “Aon Corporation Notes”):


Aon Corporation Notes

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, Aon North America, Inc., 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.

Newly issued and outstanding debt securities by Aon Global Limited are guaranteed by Aon plc, Aon Global Holdings plc, Aon North America, Inc., 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, Aon North America, Inc., 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, Aon North America, Inc., 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
5.00% Senior Notes due September 2032
5.35% Senior Notes due February 2033
2.90% Senior Notes due August 2051
3.90% Senior Notes due February 2052

All guarantees of Aon plc, Aon Global Limited, and Aon North America, Inc. 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 North America, Inc., 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, Aon North America, Inc., and Aon Corporation together comprise the revised “Obligor group” as amended on June 22, 2023. The following tables set forth summarized financial information for the revised Obligor group, which reflects the financial results of Aon North America, Inc. for the year ended December 31, 2022 and for the period ended June 30, 2023.

Adjustments are made to the tables to eliminate intercompany balances and transactions between the revised Obligor group. Intercompany balances and transactions between the revised 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 revised Obligor group in non-guarantor subsidiaries.


	Obligor Group
	Summarized Statement of Income Information
		Six Months Ended
(millions)		June 30, 2023
Revenue		$	—
Operating loss		$	(56)
Expense from non-guarantor subsidiaries before income taxes		$	(359)
Net loss		$	(664)
Net loss attributable to Aon shareholders		$	(664)


	Obligor Group
	Summarized Statement of Financial Position Information
		As of		As of
(millions)		June 30, 2023		December 31, 2022
Receivables due from non-guarantor subsidiaries		$	3,772	$	1,300
Other current assets		58		317
Total current assets		$	3,830	$	1,617

Non-current receivables due from non-guarantor subsidiaries		$	489	$	483
Other non-current assets		1,163		1,060
Total non-current assets		$	1,652	$	1,543

Payables to non-guarantor subsidiaries		$	14,840	$	16,171
Other current liabilities		6,927		5,875
Total current liabilities		$	21,767	$	22,046

Non-current payables to non-guarantor subsidiaries		$	6,615	$	2,253
Other non-current liabilities		11,377		11,226
Total non-current liabilities		$	17,992	$	13,479

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, 2022.

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.

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