Global Champions - AON

Aon is the second largest insurance brokerage in the world. They operate in a fairly acyclical industry that has maintained its share of GDP over time, naturally growing as business activity grows. Additionally, there is some measure of built-in inflation protection because as inflations rises, so do premiums and the fees they collect on those premiums. As a result of its virtually unrivaled global network of insurance buyers, sellers, and knowledgeable brokers, we believe Aon is in a great position to maintain its pricing power and act as a toll taker on global insurance activity. In fact, because two drivers of this growth, globalization and urbanization, 1 will increase the value of large insurance networks, we believe Aon is likely to be able to grow both pricing and volume faster than its industry over time. Moreover, most businesses are run by employees instead of owners, further solidifying Aon’s competitive position because employees are incentivized to make the “safe” choice (in this case, by hiring an industry leader like Aon to analyze their complex insurance needs, resulting in sticky relationships). Finally, because they earn interest on the premiums they collect, their business benefits from rising interest rates. This earnings boost could potentially help offset a compressing valuation multiple in a rising interest rate environment.

To read a more detailed description on AON as discussed in a prior investment letter, click here.

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