Aon has reported a net income attributable to shareholders of $307m for the third quarter of 2016 ending 30 September, up from $295m for the same period in 2015.

Net income per share attributable to Aon shareholders, adjusted for certain items, increased 4% to $1.29, compared to $1.24 in the prior year quarter. 

If the Company were to hold foreign currency exchange rates constant, translating prior year quarter results at current quarter foreign exchange rates ("foreign currency translation"), there would be a $0.02 per share favorable impact on GAAP net income from continuing operations and a $0.01 per share favorable impact on adjusted net income from continuing operations.

Aon president and CEO Greg Case said: “Overall, our performance reflects solid organic revenue growth across both Risk and HR Solutions, effective capital management, and strong double-digit growth in free cash flow. 

"Looking forward, we expect a strong finish to the year as we head into our seasonally strongest quarter, resulting in improved operating performance for the full year.  Our industry-leading platform and significant level of strategic investments continue to position the firm for long-term growth, increased operating leverage and significant free cash flow generation towards our near-term goal of $2.4bn for the full year 2017."

Total revenue was $2.7bn, similar to the prior year quarter driven primarily by 4% organic revenue growth in commissions and fees, offset by a 2% unfavorable impact from foreign currency translation and a 2% decrease in commissions and fees related to divestitures, net of acquisitions.

Total operating expenses were $2.3bn, similar to the prior year quarter due primarily to a $50m favorable impact from foreign currency translation, a $41m decrease in expenses related to divestitures, net of acquisitions, and a $6m decrease in intangible asset amortization from previous acquisitions, offset by an increase in expense to support 4% organic revenue growth, an unfavorable impact from the timing of certain compensation expenses, an increase in errors and omissions expenses, and $7m of certain legacy information technology contract costs.

Depreciation expense increased $1m to $57m compared to the prior year quarter.

Intangible asset amortization expense decreased 8%, or $6m, to $72m compared to the prior year quarter, consisting of a $7m decrease in HR Solutions and a $1m increase in Risk Solutions.

Foreign currency exchange rates in the third quarter had a $0.02 per share, or $6m pretax, favorable impact (+$9m in Risk Solutions, -$4m in HR Solutions, and +$1m Unallocated) on GAAP net income and a $0.01 per share, or $3m pretax, favorable impact (+$8m in Risk Solutions, -$6m in HR Solutions, and +$1m Unallocated) on adjusted net income if the Company were to translate prior year quarter results at current quarter foreign exchange rates.

Effective tax rate used in the U.S. GAAP financial statements in the third quarter was 13.2%, compared to the prior year quarter of 14.0%.

 After adjusting to exclude the applicable tax impact associated with expenses for certain non-cash pension expenses, the adjusted effective tax rate for the third quarter of 2016 was 18.2% compared to 16.0% in the prior year quarter, driven primarily by changes in the geographic distribution of income and certain favorable discrete tax adjustments. 

The prior year quarter adjusted effective tax rate excludes the applicable tax impact associated with expenses related to certain legacy litigation.

Average diluted shares outstanding decreased to 269.6m in the third quarter compared to 283.8m in the prior year quarter. The Company repurchased 2.7m Class A Ordinary Shares for approximately $300m in the quarter.  As of September 30, 2016, the Company had $3.0bn of remaining authorization under its share repurchase program.

Cash flow from operations for the first nine months of 2016 increased 14%, or $180m, to $1,475m compared to the prior year period, primarily driven by lower pension contributions, an increase in net income, underlying working capital improvements, and lower cash tax payments.

Free cash flow, defined as cash flow from operations less capital expenditures, increased 24%, or $252m, to $1,322m for the first nine months of 2016 compared to the prior year period, driven by an increase in cash flow from operations and a $72m decrease in capital expenditures. 

Certain noteworthy items impacted operating income and operating margins in the third quarters of 2016 and 2015. 

Risk Solutions total revenue increased 2% compared to the prior year quarter driven by 3% organic growth in commissions and fees and a 1% increase in commissions and fees related to acquisitions, net of divestitures, partially offset by a 2% unfavorable impact from foreign currency translation.

Retail organic revenue increased 4% compared to the prior year quarter, reflecting organic revenue growth in both the Americas and International businesses.

Americas organic revenue increased 5% driven by growth across all regions, highlighted by strong growth in Affinity and record new business generation and retention in US Retail. 

International organic revenue increased 2% driven by effective management of the renewal book portfolio in continental Europe and solid growth in New Zealand and across Asia.

Reinsurance organic revenue increased 1% compared to the prior year quarter due primarily to growth in net new business generation in treaty and growth in facultative placements, partially offset by an unfavorable market impact globally.

Compensation and benefits for the third quarter decreased 1%, or $5m, compared to the prior year quarter due primarily to a $20m favorable impact from foreign currency translation, partially offset by an unfavorable impact from the timing of certain compensation expenses.

Other general expenses for the third quarter increased 6%, or $25m, compared to the prior year quarter due primarily to an increase in expense to support 3% organic revenue growth in the quarter and a $9m increase in errors and omissions expense, partially offset by a $14m favorable impact from foreign currency translation.

Third quarter operating income increased 2% to $330m compared to the prior year quarter. Operating income increased 2% to $358m, and operating margin increased 10 basis points to 20.9%, each compared to the prior year quarter.

The increase in adjusted operating margin was driven primarily by solid organic revenue growth of 3% and an 80 basis point favorable impact from foreign currency translation, partially offset by an unfavorable impact from the timing of certain compensation expenses and a 50 basis point unfavorable impact from higher errors and omissions expense.

HR Solutions total revenue decreased 2% compared to the prior year quarter driven by a 4% decrease in commissions and fees resulting from net divestitures and a 2% unfavorable impact from foreign currency translation, partially offset by 4% organic growth in commissions and fees.

Organic revenue in Consulting increased 3% compared to the prior year quarter, driven by growth in retirement consulting for delegated investment consulting services and growth in communications consulting.

Organic revenue in Outsourcing increased 5% compared to the prior year quarter, due primarily to strong growth in HR BPO for cloud-based solutions and for off-cycle enrollments and project-related work in health care exchanges, partially offset by an anticipated modest decline in benefits administration.

Compensation and benefits for the third quarter decreased 5%, or $30m, compared to the prior year quarter due primarily to a $31m decrease in expenses related to net divestitures and a $10m favorable impact from foreign currency translation, partially offset by an increase in expense to support 4% organic revenue growth.

Other general expenses for the third quarter increased $7m compared to the prior year quarter due primarily to an increase in expense to support 4% organic revenue growth and $7m of certain legacy information technology contract costs, partially offset by a $9m decrease in expenses related to net divestitures, a $7m decrease in intangible asset amortization from previous acquisitions, and a $6m favorable impact from foreign currency translation.

Third quarter operating income was $134m, similar to the prior year quarter.  Adjusting for certain items detailed on page 12 of this press release, operating income decreased 4% to $178m, and operating margin decreased 30 basis points to 17.1%, each compared to the prior year quarter.

The decrease in adjusted operating margin was primarily driven by a 70 basis point unfavorable impact from certain legacy information technology contract costs, a 70 basis point unfavorable impact related to previous portfolio repositioning activity and a 20 basis point unfavorable impact from foreign currency translation, partially offset by solid organic revenue growth of 4%.

Unallocated expenses for the third quarter decreased $3m to $42m compared to the prior year quarter.  Interest income decreased $2m to $1m compared to the prior year quarter.

Interest expense decreased $2m to $70m compared to the prior year quarter primarily due to a decline in costs related to certain derivative hedging programs which have expired.

Other income in both the current and prior year quarter primarily includes gains on certain long term investments.