Aon warns of further expense cuts
Broker has already told staff they face 20% salary cuts as part of Covid-19 response
Aon has warned it will implement further expense reductions to match any reductions in revenue that take place as a result of Covid-19.
The broker, which has already revealed it was implementing salary cuts of 20% for 70% of its staff as part of an expense reduction programme during the crisis, said any reductions in revenue will see the firm “reduce expenses proportionally to match”.
During Aon’s first-quarter earnings call its chief executive, Greg Case, reiterated the firm’s commitment that “no colleague will lose their job as a result of Covid-19”.
But chief financial officer, Christa Davies, issued the warning about possible further expense reductions when questioned by analysts on the company’s outlook.
Davies said Aon had already taken several steps alongside the salary reductions, including a reduction in third-party spend, as well as travel and entertainment expenses, which have fallen as a result of lockdown conditions.
In the event further expense reductions are required, Davies did not disclose where these would be generated.
The broker has also paused its discretionary usage of cash for share buybacks and mergers and acquisitions, although it will still pay shareholders a dividend and is pressing ahead with its $30bn acquisition of Willis Towers Watson.
When questioned about staff reactions to the salary reductions, Case said the response had been “incredibly strong”.
“It has been incredibly invigorating as our colleagues have put this in place,” he said. “Our colleagues have embraced it.”
Aon said 80% of its revenue is for core businesses such as property/casualty, directors’ and officers’ liability, cyber and treaty reinsurance, with the remaining 20% covering more discretionary purchases that were likely to be at greater risk of non-renewal.
Aon was the first major re/insurance broker to announce it would be cutting salaries as a result of Covid-19. The broker has said its executive management will take cuts of 50%, with 30% of staff seeing no reduction.
Several rival brokers have said they will not be following Aon’s lead and cutting salaries, including Marsh & McLenna Companies and Willis Towers Watson.