Aon Keeps Margin Edge as Industry Tailwinds Fade

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2:01Advisory services by Public Advisors, LLC, SEC Registered Advisor. Complete disclosures available at public.com slash disclosures. Bloomberg Audio Studios. Podcasts. Radio. News. You're listening to Bloomberg Business Week with Carol Masser and Tim Stenevek on Bloomberg Radio. It's good to have back with us Edmund Reese, Executive Vice President and CFO of the nearly$78 billion market cap professional services, advisory and insurance brokerage company. Stock up a little over 2.5 % year to date, down about 5 % since reporting those earnings yesterday. Ed, good to have you back on the program. The company and the team, always a good read on how the business world is feeling about the current environment.

2:46when it comes to things like risk, climate, governance issues, M &A, and more, where do you think the biggest opportunity for growth is for Aon? Well, first of all, Tim, Carol, thanks for having me back here. The biggest opportunity for growth is actually what we just saw over the past two years in our three-year strategy and what we just saw in this most recent quarter with strong results. Complexity across the risk that our clients are facing is the biggest issue we're discussing with them. That's the political violence and war exposures in the Middle East. That's the hyperscalers access to additional capacity for the AI infrastructure builds.

3:26That's working with our clients on large scale defense projects. All of these things are coming together and intermingled in on the minds of our clients. And we are providing solutions to help them with that as we give them access to our data, help them understand their risk, and then match it with capitals. And that's where we actually saw when you look at those lines in our P &L and on our income statement, that's where you saw the growth. I don't want to be crass here, but in other words, is geopolitical uncertainty, is war, is instability good for your business? Well, it creates complexity for our clients and that drives demand for us.

4:04And that is good for our clients and good for our shareholders as well. If you think about that geopolitical violence, You have not just the assets themselves, the ships, the cargo, but you also have supply chain risk. You have the political violence and terrorism. Those things create demand because clients want to protect their assets, and they still want to be able to invest and grow and know how to do that. We give insight, and of course, that drives more demand for our products and helps us with the growth. All right. I want to cut to the chase with you. How freaked out is the corporate community?

4:41Because there's a lot, you know, coming at them. You know, this war that just, you know, peace talks, not peace talks, more attacks. There's that. There's the higher costs of maybe doing things in your backyard in terms of production, energy cost. There's just a lot. So how freaked out is kind of the corporate community in your view? Risk has been rising. Risk has been rising and the intermingledness of that risk, all of them connected, is creating more angst, more volatility in the P &Ls and in the balance sheets of our clients. And when these things come together, there is angst, but they still want to invest.

5:26They still want to grow. And so we have been investing. We've been investing in capabilities to do what I was saying, helping them understand their exposure, helping them connect that data to their assets and understand how it impacts their balance sheets. And then, of course, bringing in not just the traditional capital in our industry from insurance carriers, but from other players as well so that our clients can still continue to grow. And of course, that helps our growth as well. Is there enough, you know, if we're talking about the data center part of this, this conversation and the opportunity there, is there actually enough insurance capacity for all the demand that we're seeing with AI data centers?

6:09Tim, if you think about it, these data center sites, some of the clients that you'll be talking to later today and actually talked about at the beginning of your program, they're coming on at$20 billion,$40 billion,$50 billion per site. The insurance industry traditionally is about a$5 trillion industry across all property, across all casualty, across health and wealth as well. And so when you bring on data centers that are of this size, it's not sufficient capital from traditional insurance. So we've been talking for quite some time for the industry to stay relevant. We are going to need to have access to what we've sized as a 250 trillion opportunity.

6:52We just need a small slice of that to expand the addressable market. That's going to come from institutional investors. That's going to come from private equity, sovereign wealth funds. And the only way that they will enter is if we can provide the data, just like we began this cat catastrophe bond market, which is growing at a teen rate. And we're over half of it. We're seeing it with our treaty products, aggregating risk from insurance. And we're going to have to do the same thing for data centers here. Or you're going to see companies have it on their own balance sheets or go out and look to fund debt for it.

7:29But we think we certainly have interest as asset managers want assets with uncorrelated return. We are giving them the data to help them see that they can get attractive yields off of that. And we do think that we'll continue to be relevant as this extensive build, increasing investment in data centers continues over the next few years. So, Ed, as you guys know, you have all described in the past the data centers as a$10 billion premium opportunity. Is this still a reasonable amount? Has the company's view changed on it? Is it less? Is it small? Numbers matter. When we gave that estimate, the spend in 2026 was less than the$800 billion that is estimated to be today.

8:13The infrastructure spend over the next three years will be at least$2 trillion. And when you think about the ongoing operations of that, some estimates have it as high as$5 to$7 trillion. So it's only increased since then. And the question is, are we going to be able, back to Tim's question of getting the sufficient capital in to be able to insure and manage the risk associated with it? So we're very bullish that that's going to be an opportunity, a tailwind for our growth as we move forward. And we have been making the investments on the capabilities using our data because we are one of the largest players in the industry to give the insights to these asset managers.

8:55All right. Maybe a silly question, but I'm thinking somebody at home might be listening or watching and wondering, when we talk about enough insurance capacity for AI data center demand, what exactly are we talking about? What is that insurance capacity? Well, if you have a, I mean, think about your home, you know, a million dollar home. It's just protecting the data center? Is that what it is? Well, it's protecting the data center. The build of it is protecting the operations of it. If weather comes in, cyber has an impact on it, the general liability. So we actually have something that we call the data center lifecycle program, not just to build the physical facilities itself, but the ongoing operations and all the risk that it would face.

9:39You measure risk here with data centers. Our CEO likes to say you measure it in millions per minute in terms of operations. So imagine the risk associated with that. And you can ensure that and will help match that risk with the right capital. You know, we're actually seeing a headline that's related to this crossing the Bloomberg terminal right now. DeepSeek is developing a massive artificial intelligence data center in Inner Mongolia, according to people familiar with the matter. to add one gigawatt worth of compute. The company aims to build its own facility while leasing additional capacity from other companies.

10:14It's pushing to bring at least part of its data center's capacity online by the end of next year or early 2028. Edmund, we're speaking with Edmund Rees, CFO of Aon. We're talking data centers. We're talking insurance and the insurance market for data centers. What do you think when you see a headline like this, DeepSeek developing this massive AI data center in Inner Mongolia? As you were reading it, there were three things that were going across my mind. One is the construction. Two is the energy associated with it. Another area that is high growth for us that you'll need to support this data center.

10:48And the third thing is the engineering and expertise that we have in understanding, not building that in a concentrated location, but dispersing the risk and giving insight on that. So that is a company that could definitely benefit from the insights that we provide from the data here as they pursue what is going to be a massive investment and ensure that they get the returns that they want on it. Well, let me just go there then. Are you working with DeepSeek? Are you working with Amazon? Meta, Microsoft, you smile for those who are listening on radio. I will smile and say that we are, you know, given what we have, we have strong relationships across the hyperscalers.

11:29I, of course, can't talk about any specific company here, but increasingly, the expertise and the engineering advice, I think I mentioned on this program before that even before the large data center boom here, we had advised on over 30 % of the data center builds in the U.S., which is much larger than any other country. You have to go to China and Germany before you start to see the next. And we have high market share there as well. So imagine all the engineering expertise that we have, understanding where to put the sites, how to build them, how to insure them themselves. And so with that expertise, I think it drives more demand for us.

12:07And we are, in fact, working with many of the large hyperscalers that you talk about on the show. Just real quickly, any signs that this stuff is slowing down? Because this is the big question, or one of the big questions. Any signs that you're like, oh, this insurance capacity for AI data-centered demand, it's going to slow down. Any signs of that? Carol, the last five quarters, I got on our earnings call and said that we had double-digit growth in construction, which is where this shows up, including this quarter here. Now, we drive growth broad-based through many different product lines, so we're not overweighted to this, but it has been a strong contributor for us, and we see it to be a tailwind as we move forward here.

12:54We just want more time. Yeah, we'll come back. Come back soon. Thank you so much. Always, always appreciate it. Thank you for having me again. Yeah, be well. Edmund Rees, Executive Vice President and CFO of Aon, joining us right here in New York City.

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