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Aon Corporation (NYSE:AON)

Annual General Meeting of Shareholders

May 17, 2013 3:00 am ET

Executives

Lester B. Knight - Non-Executive Chairman, Chairman of Executive Committee and Chairman of Governance/Nominating Committee

Ram Padmanabhan - Chief Counsel of Corporate, Vice President and Corporate Secretary

Gregory C. Case - Chief Executive Officer, President, Executive Director and Member of Executive Committee

Christa Davies - Chief Financial Officer and Executive Vice President

Lester B. Knight

Good morning, ladies and gentlemen. I'm Lester Knight, Chairman of Aon's Board of Directors. And at this time, it's my pleasure to welcome all of you to Aon's Annual General Meeting of Shareholders and call the meeting to order. There are 8 items of business on today's agenda: the election of directors; the receipt of Aon's annual report and accounts, together with the reports of the directors and the auditor; ratification and the appointment of Ernst & Young LLP as Aon's independent registered public accounting firm for 2013; the reappointment of Ernst & Young LLP as Aon's United Kingdom statutory auditor to hold office until the next Annual General Meeting, at which accounts are laid before the company; the approval of resolution permitting the board directors to set the auditors' remuneration; and the advisory vote on the compensation of the named executive officers as set forth on Aon's proxy statement; an advisory vote on the directors' remuneration report included in Aon's annual report and accounts; and the approval of the Aon plc global share purchase plan. And there will be an opportunity later in the program for questions.

We're also joined by representatives of Ernst & Young, and they will be available for appropriate questions in the Q&A portion of the meeting. For those of you listening to our meeting this morning, the audio webcast, the slides that accompany this presentation can be viewed on Aon's website at www.aon.com.

It's now my pleasure to introduce Ram Padmanabhan, the Secretary of the company who will provide the secretary's report.

Ram Padmanabhan

Thank you, Lester. Notice of this annual meeting, together with Aon's proxy statement and annual reports, were made available beginning April 1, 2013, to shareholders of record as of the close of business on March 25, 2013, and has appointed Michelle Davies of Computershare Investor Services plc as inspector of election for voting at the Annual General Meeting.

Based on a preliminary report from the inspector of election of the 309,114,125 voting rights of all of the shareholders entitled to vote at the meeting, more than 262.9 million shares, representing more than 85% of the total voting rights of all of the shareholders entitled to vote are present in person or by proxy at the meeting. As a result, I declare that a quorum is present and we will proceed with the meeting.

A list of the shareholders eligible to vote at this Annual General Meeting, as certified by Computershare, as well as a copy of the minutes of the 2012 Annual General Meeting of shareholders are available at this meeting for inspection. Now I'd like to turn the meeting over to Greg Case.

Gregory C. Case

Thank you, Ram. I appreciate it very much. I'd like to add my welcome with the Chairman to our shareholders for joining the session today, either online or here in the room, and also on behalf of management, I'd like to thank our Board of Directors for their tireless efforts over the course of last year to support our management team in the mission of Aon, so thank you very much. I'm going to provide a brief overview of Aon and the current work and the current mission of the firm; and Christa Davies, our CFO, is going to provide a brief financial overview.

To take a step back and understand what Aon is about and what we're trying to do, understand that Aon is focused on 2 issues in the global economy. One is the area of risk, helping clients understand measure and mitigate risk. The other one is in the most important issues around people, helping clients understand how to deal with and sort through [ph] issues around retirement and pensions, Health and Benefits, talent rewards. In that context, as you will see on the slide, Aon is roughly 60% of our business overall, 66% is risk and 34% is in the people businesses, but these are the 2 missions of our firms around risk and people.

In the context of that, we believe we're in a very strong position. Not only do we have these 2 platforms, which are the single most significant in the world in their categories, where there are [ph] more risk than anyone in the world and dealing with people issues in a way that includes advice, as well as execution. We stand in the global economy in which these issues have greater needs than ever before. So on the risk side, no matter where you go in the world, the issues of risk are becoming more and more substantial. The magnitude of risk is increasing in the world today, the complexity has interconnected is becoming more substantial, and it's being looked at more than ever before. Issues around risk literally permeate every economy in the world. The need is very high. Equally, the need is also high on the people side, so virtually every economy you go into in the world today, the issues around people, retirement, talent, health and benefits also quite substantial. So your firm, Aon, sits today with these 2 platforms on risk and people at a time when the global economy where the needs are greater than ever before. That's the overall firm.

In that context, we have invested more heavily, we believe than [ph] anyone out there in the world today. We've invested in data, technology analytics on the risk side as an example, on investments like the Global Risk Insight Platform, which is the single biggest repository of insurance or risk information in the world today and other risk analytics. Very substantial investments to build our capability in this category and equal investments to build our capability on the people side. And an example here would be something like our launch of corporate healthcare exchanges in the U.S., the first ever fully insured corporate exchange that exist in the world today, launched by your firm, Aon. So very substantial investment in the topic of risk, very substantial investments in the topic of people.

And finally, I will just highlight that we look for validation in one and only place and that's the place from our clients. Our goal, our mission is to serve clients, helping them with these issues everyday, bringing global Aon to our clients in a very local way and serving clients. We've also got some additional recognition, I will just highlight on the slide here, from external resources that's good to see. But really the fundamental proof point of our firm is our client value and client value-added, which is really the strength of the firm and that's what we're designed to do around these 2 topics of risk and people.

So with that brief overview of Aon, I'm going to turn the floor to Christa Davies to talk about the financial review.

Christa Davies

Thank you very much, Greg. And I'd like to start with the 4 key metrics we report to shareholders every quarter and every year. Oops, I'm going the wrong way. Organic revenue growth, margin expansion, EPS growth and free cash flow growth. You'll note that over the last 7 years, we've grown revenue every year except for 2009 in the depth of the economic recession, and we continue to grow in 2013. Margin expansion over this period of time has been 450 basis points, a very impressive achievement, and then EPS growth compound at 16% growth over the last 7 years, a very impressive achievement. And then really our most important metric to shareholders and for ourselves is free cash flow. And free cash flows continue to accelerate over the last several years, with a 48% growth in free cash flow from 2011 to 2012. And we continue to grow free cash flow in the next couple of years which we feel will generate substantial value to shareholders.

As we look at our long-term margin goals in each of our 2 segments, 26% margin goal in Risk Solutions and 22% margin goal in HR Solutions, we see substantial operating leverage over the coming years. In our Risk Solutions segment, there are really 3 key areas that will get us to a 26% margin target that are fully within our control. The first is continued operational improvement, including the flow-through of the remaining restructuring savings. The second is the rollout of the Revenue Engine globally, which is increasing new business wins and improving our retention rate of existing clients. And the third is the continued rollout of Aon Broking and the group-related initiatives, which are improving the yield [ph] on every dollar of premium placed. Those 3 initiatives will get us to 26% without any changes in the external marketplace such as changes in short-term interest rates or GDP or insurance pricing.

On the HR Solutions side, there are really 3 key areas to get us to our 22% long-term margin targets. The first is the completion of the restructuring savings and the delivery of $355 million of annual savings that we originally announced upon the acquisition of Hewitt. The second is the return on substantial investments that Greg described we're making in health care exchanges, in our BPO business, in retirement and investment consulting, and the continued improvement in the business. And the last is, the improvement in our HR BPO business, one of the platforms in which we excel for clients. So we see substantial operating leverage in both segments in achieving these long-term margin goals.

Turning to the balance sheet and cash flow. We have a very strong balance sheet with debt-to-capital remaining around 35%, strong cash and short-term investments. And you can see the free cash flow growth I referenced earlier go from $777 million to $1.15 billion, a 48% growth year-over-year, so very strong growth in free cash flow. And we see that free cash flow growing even more substantially over the next 5 to 6 years. And there are really 3 big drivers of the continued growth in free cash flow. The first is organic revenue growth and margin expansion, so operating improvement. The second is a decrease in use of cash. As you can see here, that we are going to have decreases in uses of cash which will free up approximately $500 million over the next several years. And the third is the redomestication to the U.K., which is continuing to enable us to access more free cash flow and grow the cash flow through reduction in tax rate. So we feel like the growth in cash flow over the next several years is going to be even more substantial and drive substantial value-creation for shareholders.

With that, I'll turn the meeting back to Lester.

Lester B. Knight

Thank you, Greg and Christa. Before we move to vote on the resolutions, does anybody have any questions or comments about what you've heard or said at this time? Not seeing any questions, I'm going to turn the meeting back over to Ram and he's going to bring the resolutions to the meeting.

Ram Padmanabhan

Thank you, Lester. The following individuals have been nominated for election as directors of the company and each will be elected by way of separate ordinary resolution of the company: Lester Knight, Greg Case, Fulvio Conti, Cheryl Francis, Edgar Jannotta, Michael Loach, Robert Morrison, Richard Myers, Richard Notebaert, Gloria Santona and Carolyn Woo. There are 7 additional matters scheduled to be acted upon at the meeting. In accordance with the recommendation of the Board of Directors, I move the following proposals for approval. The receipt of the Annual Report and Accounts together with the reports of the directors and the auditor, the ratification of the appointment of Ernst & Young LLP as Aon's independent registered public accounting firm for the year 2013, the reappointment of Ernst & Young LLP as Aon's U.K. statutory auditor to hold office until the next -- until the conclusion of the next Annual General Meeting at which accounts or laid before the company, the authorization of the Board of Directors to determine the auditor remuneration, the advisory vote on executive compensation, the advisory vote on the direct remuneration report and the approval of Aon plc's global purchase plan. Each to be proposed as a separate ordinary resolution. As an ordinary resolution, the resolution requires a simple majority of the votes cast in favor of the resolution to pass as required by articles, the vote will be taken on a poll. As a result, each person, representing a person or by proxy is entitled to one vote for each share held. I'll turn it back over to you, Lester.

Lester B. Knight

So we will now conduct the official business of the meeting. It's now 8:13 British summertime. I formally propose that each of the resolutions set out in the notice of the meeting, which forms the first part of the company's proxy statement, are put to the meeting and I declare the polls open for voting on all resolutions.

Let me spend a moment reviewing the voting procedures. Proxy statements and proxy voting cards were sent to all shareholders prior to this meeting. Those of you who return proxies prior to this meeting authorized the persons named in the proxy to vote on all proposals coming before the meeting. Similarly, if you granted your proxy over the telephone or Internet, you do not need to vote during the meeting. Any shareholder who has not submitted a proxy or wishes to change his or her vote, please stand and you'll be given a ballot. Anyone who still has a proxy card should now hand it to the inspector of election, so it may be counted as a vote executed in person at the meeting.

Will the inspector of election please collect all ballots at this time? Are all the ballots in? Thank you. All the ballots are in. I now declare the polls closed. Ram, please note the time of closing of the polls for the minutes. The inspector of elections requested to tabulate the proxies and ballots and report the final voting results to the Secretary.

Now it's my pleasure to introduce to you our nonexecutive directors. I'd like those seated in front to stand when I call their name and be recognized. Fulvio Conti, Cheryl Francis, Ed Jannotta, Mike Losh, Bob Morrison, Dick Myers, Dick Notebaert, Gloria Santona and Carolyn Woo. Please join me in thanking the directors for all the time and effort they devote on behalf of Aon and its shareholders. I'd also like to thank Greg Case and Christa Davies and their management team for their efforts on behalf of the company and its shareholders. As well as Fresh Fields [ph] for providing the meeting space for this Annual General Meeting. Now I'd like to ask Ram to report on the results of the voting.

Ram Padmanabhan

So following a review of proxies received and tabulated before the start of the meeting, each nominee for election as director received the majority of the votes cast at this meeting with a number of votes cast for each nominee for director exceeding the number of votes cast against each nominee for director. In addition, each of the following resolutions, the receipt of the Annual Report and Accounts, the ratification of the appointment of Ernst & Young as Aon's independent registered public accounting firm for the year 2013, the reappointment of Ernst & Young LLP as Aon's U.K. statutory auditor, the authorization of the Board of Directors to set auditors' remuneration, the advisory vote on executive compensation, the advisory vote on the directors' remuneration report and the approval of the Aon plc global share purchase plan, received the majority of the votes present and entitled to vote at this meeting, and therefore, are approved. These results are provisional. The inspector of election will furnish a written report of the final vote count, which will be attached as an exhibit to the minutes of this meeting, reported in the filing by Aon with the Securities and Exchange Commission and made available on the company's website. I'll turn the meeting back over to Lester for some closing remarks.

Lester B. Knight

Thank you, Ram. I'd like to express our sincere appreciation to all shareholders who attended the meeting and at this point, I'd like to declare the meeting closed. Thank you very much.

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