UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

     ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2020

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 1-7933

Aon plc

(Exact Name of Registrant as Specified in Its Charter)

IRELAND	98-1539969
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

Metropolitan Building, James Joyce Street, Dublin 1, Ireland                  D01 K0Y8

     (Address of principal executive offices)                      (Zip Code)

+353 1 266 6000

(Registrant’s Telephone Number,

Including Area Code)

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  Yes  ☒  No  ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).  Yes  ☒  No  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	☒	Accelerated filer	☐
Non-accelerated filer	☐	Smaller reporting company	☐
		Emerging growth company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes ☐ No ☒

Number of Class A Ordinary Shares of Aon plc, $0.01 nominal value, outstanding as of October 29, 2020: 228,616,348

Securities registered pursuant to Section 12(b) of the Act:

Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Class A Ordinary Shares $0.01 nominal value	AON	New York Stock Exchange
Guarantees of Aon plc’s 2.80% Senior Notes due 2021	AON21	New York Stock Exchange
Guarantees of Aon plc’s 4.00% Senior Notes due 2023	AON23	New York Stock Exchange
Guarantees of Aon plc’s 3.50% Senior Notes due 2024	AON24	New York Stock Exchange
Guarantees of Aon plc’s 3.875% Senior Notes due 2025	AON25	New York Stock Exchange
Guarantees of Aon plc’s 2.875% Senior Notes due 2026	AON26	New York Stock Exchange
Guarantees of Aon plc’s 4.25% Senior Notes due 2042	AON24	New York Stock Exchange
Guarantees of Aon plc’s 4.45% Senior Notes due 2043	AON43	New York Stock Exchange
Guarantees of Aon plc’s 4.60% Senior Notes due 2044	AON44	New York Stock Exchange
Guarantees of Aon plc’s 4.75% Senior Notes due 2045	AON45	New York Stock Exchange

INFORMATION CONCERNING FORWARD-LOOKING STATEMENTS 

This report and reports we will subsequently file or furnish and have previously filed or furnished with the United States Securities and Exchange Commission (“SEC”) contain certain statements related to future results, or state our intentions, beliefs and expectations or predictions for the future, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements relate to expectations or forecasts of future events. They are typically identified by words such as “anticipate,” “believe,” “estimate,” “expect,” “forecast,” “project,” “intend,” “plan,” “probably,” “potential,” “looking forward,” “continue,” and other similar terms, and future or conditional tense verbs like “could,” “may,” “might,” “should,” “will,” and “would.” You can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. For example, we may use forward-looking statements when addressing topics such as: market and industry conditions, including competitive and pricing trends; public health concerns and continuing uncertainty in connection with COVID-19; changes in our business strategies and methods of generating revenue; the development and performance of our services and products; changes in the composition or level of our revenues; our cost structure and the outcome of cost-saving or restructuring initiatives; the outcome of contingencies; dividend policy; the expected impact of acquisitions and dispositions; pension obligations; cash flow and liquidity; expected effective tax rate; future actions by regulators; risks related to the Combination; and the impact of changes in accounting rules. Forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors, which may be revised or supplemented in subsequent reports filed or furnished with the SEC, that could impact results include:

•general economic and political conditions in the countries in which we do business around the world, including the withdrawal of the United Kingdom (the “U.K.”) from the European Union;

•changes in the competitive environment or damage to our reputation;

•fluctuations in exchange and interest rates that could influence revenues and expenses;

•changes in global equity and fixed income markets that could affect the return on invested assets;

•changes in the funding status of our various defined benefit pension plans and the impact of any increased pension funding resulting from those changes;

•the level of our debt limiting financial flexibility or increasing borrowing costs;

•rating agency actions that could affect our ability to borrow funds;

•volatility in our tax rate due to a variety of different factors including the United States (the “U.S.”) federal income tax reform;

•changes in estimates or assumptions on our financial statements;

•limits on our subsidiaries to make dividend and other payments to us;

•the impact of lawsuits and other contingent liabilities and loss contingencies arising from errors and omissions and other claims against us;

•the impact of, and potential challenges in complying with, legislation and regulation in the jurisdictions in which we operate, particularly given the global scope of our businesses and the possibility of conflicting regulatory requirements across jurisdictions in which we do business;

•the impact of any investigations brought by regulatory authorities in Ireland, the U.S., U.K., and other countries;

•the impact of any inquiries relating to compliance with the U.S. Foreign Corrupt Practices Act and non-U.S. anti-corruption laws and with U.S. and non-U.S. trade sanctions regimes;

•failure to protect intellectual property rights or allegations that we infringe on the intellectual property rights of others;

•the effects of Irish law on our operating flexibility and the enforcement of judgments against us;

•the failure to retain and attract qualified personnel;

•international risks associated with our global operations;

•the effects of natural or man-made disasters, including the effects of COVID-19 and other health pandemics;

•the potential of a system or network breach or disruption resulting in operational interruption or improper disclosure of personal data;

•our ability to develop and implement new technology;

•damage to our reputation among clients, markets or third parties;

•the actions taken by third parties that perform aspects of our business operations and client services;

•the extent to which we manage certain risks created in connection with the various services, including fiduciary and investment consulting and other advisory services, among others, that we currently provide, or will provide in the future, to clients;

•our ability to continue, and the costs and risks associated with, growing, developing and integrating companies that we acquire or new lines of business;

•changes in commercial property and casualty markets, commercial premium rates or methods of compensation;

•changes in the health care system or our relationships with insurance carriers;

•our ability to implement initiatives intended to yield cost savings and the ability to achieve those cost savings;

•risks and uncertainties associated with the sale of the Divested Business, as defined in Note 6 “Restructuring”;

•our ability to realize the expected benefits from our restructuring plan; and

•risks and uncertainties associated with the Combination, as defined in Note 7 “Acquisitions and Dispositions of Businesses”, including our ability to obtain the requisite approvals of, to satisfy the other conditions to, or to otherwise complete, the Combination on the expected time frame, or at all, the occurrence of unanticipated difficulties or costs in connection with the Combination, our ability to successfully integrate the combined companies following the Combination and our ability to realize the expected benefits from the Combination.

Any or all of our forward-looking statements may turn out to be inaccurate, and there are no guarantees about our performance. The factors identified above are not exhaustive. We and our subsidiaries operate in a dynamic business environment in which new risks may emerge frequently. Accordingly, readers should not place undue reliance on forward-looking statements, which speak only as of the dates on which they are made. We are under no obligation (and expressly disclaim any obligation) to update or alter any forward-looking statement that we may make from time to time, whether as a result of new information, future events or otherwise. Further information about factors that could materially affect Aon, including our results of operations and financial condition, is contained in the “Risk Factors” section in Part II, Item 1A of this report, Part II, Item 1A of our Form 10-Q for the quarter ended March 31, 2020, and in Part I, Item 1A of our 2019 Annual Report on Form 10-K, including amendments and additions disclosed on Form 8-K issued April 1, 2020.

These factors may be revised or supplemented in our subsequent periodic filings with the SEC.

Table of Contents

PART I
	Item 1. Financial Statements
	Aon plc Condensed Consolidated Statements of Income
	Aon plc Condensed Consolidated Statements of Comprehensive Income
	Aon plc Condensed Consolidated Statements of Financial Position
	Aon plc Condensed Consolidated Statements of Shareholders’ Equity
	Aon plc Condensed Consolidated Statements of Cash Flows
	Notes to Condensed Consolidated Financial Statements
	Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations
	Item 3. Quantitative and Qualitative Disclosures about Market Risk
	Item 4. Controls and Procedures
PART II
	Item 1. Legal Proceedings
	Item 1A. Risk Factors
	Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
	Item 3. Defaults Upon Senior Securities
	Item 4. Mine Safety Disclosures
	Item 5. Other Information
	Item 6. Exhibits
	Signature
	Exhibit Index

Part I Financial Information

Item 1. Financial Statements

Aon plc

Condensed Consolidated Statements of Income

(Unaudited)

	Three Months Ended September 30,				Nine Months Ended September 30,
(millions, except per share data)	2020		2019		2020		2019
Revenue
Total revenue	$	2,385	$	2,379	$	8,101	$	8,128
Expenses
Compensation and benefits	1,387		1,368		4,270		4,453
Information technology	107		120		325		363
Premises	70		76		217		248
Depreciation of fixed assets	42		44		124		124
Amortization of intangible assets	50		101		205		295
Other general expense	288		310		892		1,000
Total operating expenses	1,944		2,019		6,033		6,483
Operating income	441		360		2,068		1,645
Interest income	3		1		5		4
Interest expense	(80)		(78)		(252)		(227)
Other income (expense)	(1)		2		18		8
Income from continuing operations before income taxes	363		285		1,839		1,430
Income tax expense	82		56		356		238
Net income from continuing operations	281		229		1,483		1,192
Net income (loss) from discontinued operations	1		(1)		1		(1)
Net income	282		228		1,484		1,191
Less: Net income attributable to noncontrolling interests	7		6		39		33
Net income attributable to Aon shareholders	$	275	$	222	$	1,445	$	1,158
Basic net income per share attributable to Aon shareholders
Continuing operations	$	1.18	$	0.94	$	6.21	$	4.83
Discontinued operations	—		—		—		—
Net income	$	1.18	$	0.94	$	6.21	$	4.83
Diluted net income per share attributable to Aon shareholders
Continuing operations	$	1.18	$	0.93	$	6.18	$	4.79
Discontinued operations	—		—		—		—
Net income	$	1.18	$	0.93	$	6.18	$	4.79
Weighted average ordinary shares outstanding - basic	232.6		236.9		232.8		239.9
Weighted average ordinary shares outstanding - diluted	233.5		239.1		233.9		241.9

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

6

Aon plc

Condensed Consolidated Statements of Comprehensive Income

(Unaudited) 

	Three Months Ended September 30,				Nine Months Ended September 30,
(millions)	2020		2019		2020		2019
Net income	$	282	$	228	$	1,484	$	1,191
Less: Net income attributable to noncontrolling interests	7		6		39		33
Net income attributable to Aon shareholders	275		222		1,445		1,158
Other comprehensive income (loss), net of tax:
Change in fair value of financial instruments	6		(2)		4		(3)
Foreign currency translation adjustments	173		(212)		(136)		(182)
Postretirement benefit obligation	20		17		67		62
Total other comprehensive income (loss)	199		(197)		(65)		(123)
Less: Other comprehensive income (loss) attributable to noncontrolling interests	2		(4)		1		(2)
Total other comprehensive income (loss) attributable to Aon shareholders	197		(193)		(66)		(121)
Comprehensive income attributable to Aon shareholders	$	472	$	29	$	1,379	$	1,037

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

7

Aon plc

Condensed Consolidated Statements of Financial Position

	(Unaudited)
(millions, except nominal value)	September 30, 2020		December 31, 2019
Assets
Current assets
Cash and cash equivalents	$	821	$	790
Short-term investments	448		138
Receivables, net	2,906		3,112
Fiduciary assets	13,549		11,834
Other current assets	525		602
Total current assets	18,249		16,476
Goodwill	8,462		8,165
Intangible assets, net	665		783
Fixed assets, net	609		621
Operating lease right-of-use assets	914		929
Deferred tax assets	655		645
Prepaid pension	1,249		1,216
Other non-current assets	556		570
Total assets	$	31,359	$	29,405
Liabilities and equity
Liabilities
Current liabilities
Accounts payable and accrued liabilities	$	1,608	$	1,939
Short-term debt and current portion of long-term debt	472		712
Fiduciary liabilities	13,549		11,834
Other current liabilities	1,241		1,086
Total current liabilities	16,870		15,571
Long-term debt	7,251		6,627
Non-current operating lease liabilities	910		944
Deferred tax liabilities	223		199
Pension, other postretirement, and postemployment liabilities	1,597		1,738
Other non-current liabilities	888		877
Total liabilities	27,739		25,956
Equity
Ordinary shares - $0.01 nominal value      Authorized: 500 shares (issued: 2020 - 229.2; 2019 - 232.1)	2		2
Additional paid-in capital	6,216		6,152
Retained earnings	1,423		1,254
Accumulated other comprehensive loss	(4,099)		(4,033)
Total Aon shareholders' equity	3,542		3,375
Noncontrolling interests	78		74
Total equity	3,620		3,449
Total liabilities and equity	$	31,359	$	29,405

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

8

Aon plc

Condensed Consolidated Statements of Shareholders’ Equity

(Unaudited) 

(millions)	Shares	Ordinary Shares and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax		Non- controlling Interests		Total
Balance at December 31, 2019	232.1	$	6,154	$	1,254	$	(4,033)	$	74	$	3,449
Adoption of new accounting guidance	—	—		(6)		—		—		(6)
Balance at January 1, 2020	232.1	$	6,154	$	1,248	$	(4,033)	$	74	$	3,443
Net income	—	—		772		—		19		791
Shares issued - employee stock compensation plans	1.2	(112)		—		—		—		(112)
Shares purchased	(2.2)	—		(463)		—		—		(463)
Share-based compensation expense	—	81		—		—		—		81
Dividends to shareholders ($0.44 per share)	—	—		(102)		—		—		(102)
Net change in fair value of financial instruments	—	—		—		(5)		—		(5)
Net foreign currency translation adjustments	—	—		—		(395)		(2)		(397)
Net postretirement benefit obligation	—	—		—		24		—		24
Balance at March 31, 2020	231.1	6,123		1,455		(4,409)		91		3,260
Net income	—	—		398		—		13		411
Shares issued - employee stock compensation plans	0.4	(45)		—		—		—		(45)
Share-based compensation expense	—	64		—		—		—		64
Dividends to shareholders ($0.44 per share)	—	—		(102)		—		—		(102)
Net change in fair value of financial instruments	—	—		—		3		—		3
Net foreign currency translation adjustments	—	—		—		87		1		88
Net postretirement benefit obligation	—	—		—		23		—		23
Purchases of subsidiary shares from noncontrolling interests	—	4		—		—		(4)		—
Dividends paid to noncontrolling interests on subsidiary common stock	—	—		—		—		(7)		(7)
Balance at June 30, 2020	231.5	6,146		1,751		(4,296)		94		3,695
Net income	—	—		275		—		7		282
Shares issued - employee stock compensation plans	0.1	12		—		—		—		12
Shares purchased	(2.4)	—		(500)		—		—		(500)
Share-based compensation expense	—	67		—		—		—		67
Dividends to shareholders ($0.44 per share)	—	—		(103)		—		—		(103)
Net change in fair value of financial instruments	—	—		—		6		—		6
Net foreign currency translation adjustments	—	—		—		171		2		173
Net postretirement benefit obligation	—	—		—		20		—		20
Purchases of subsidiary shares from noncontrolling interests	—	(7)		—		—		(2)		(9)
Dividends paid to noncontrolling interests on subsidiary common stock	—	—		—		—		(23)		(23)
Balance at September 30, 2020	229.2	$	6,218	$	1,423	$	(4,099)	$	78	$	3,620

9

(millions)	Shares	Ordinary Shares and Additional Paid-in Capital		Retained Earnings		Accumulated Other Comprehensive Loss, Net of Tax		Non- controlling Interests		Total
Balance at January 1, 2019	240.1	$	5,967	$	2,093	$	(3,909)	$	68	$	4,219
Net income	—	—		659		—		17		676
Shares issued - employee stock compensation plans	1.4	(96)		—		—		—		(96)
Shares purchased	(0.6)	—		(101)		—		—		(101)
Share-based compensation expense	—	89		—		—		—		89
Dividends to shareholders ($0.40 per share)	—	—		(96)		—		—		(96)
Net change in fair value of financial instruments	—	—		—		7		—		7
Net foreign currency translation adjustments	—	—		—		131		2		133
Net postretirement benefit obligation	—	—		—		31		—		31
Balance at March 31, 2019	240.9	5,960		2,555		(3,740)		87		4,862
Net income	—	—		277		—		10		287
Shares issued - employee stock compensation plans	0.6	(47)		—		—		—		(47)
Shares purchased	(5.8)	—		(1,056)		—		—		(1,056)
Share-based compensation expense	—	91		—		—		—		91
Dividends to shareholders ($0.44 per share)	—	—		(107)		—		—		(107)
Net change in fair value of financial instruments	—	—		—		(8)		—		(8)
Net foreign currency translation adjustments	—	—		—		(103)		—		(103)
Net postretirement benefit obligation	—	—		—		14		—		14
Dividends paid to noncontrolling interests on subsidiary common stock	—	—		—		—		(20)		(20)
Balance at June 30, 2019	235.7	6,004		1,669		(3,837)		77		3,913
Net income	—	—		222		—		6		228
Shares issued - employee stock compensation plans	0.2	10		(1)		—		—		9
Shares purchased	(1.8)	—		(350)		—		—		(350)
Share-based compensation expense	—	72		—		—		—		72
Dividends to shareholders ($0.44 per share)	—	—		(104)		—		—		(104)
Net change in fair value of financial instruments	—	—		—		(2)		—		(2)
Net foreign currency translation adjustments	—	—		—		(208)		(4)		(212)
Net postretirement benefit obligation	—	—		—		17		—		17
Purchases of shares from noncontrolling interests	—	—		—		—		—		—
Dividends paid to noncontrolling interests on subsidiary common stock	—	—		—		—		(10)		(10)
Balance at September 30, 2019	234.1	$	6,086	$	1,436	$	(4,030)	$	69	$	3,561

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

10

Aon plc

Condensed Consolidated Statements of Cash Flows

(Unaudited)

	Nine Months Ended September 30,
(millions)	2020		2019
Cash flows from operating activities
Net income	$	1,484	$	1,191
Less: Net income (loss) from discontinued operations	1		(1)
Adjustments to reconcile net income to cash provided by operating activities:
(Gain) loss from sales of businesses, net	(25)		(8)
Depreciation of fixed assets	124		124
Amortization and impairment of intangible assets	205		295
Share-based compensation expense	207		252
Deferred income taxes	(4)		(44)
Change in assets and liabilities:
Fiduciary receivables	(1,051)		174
Short-term investments — funds held on behalf of clients	(706)		(1,285)
Fiduciary liabilities	1,757		1,111
Receivables, net	193		(167)
Accounts payable and accrued liabilities	(191)		(385)
Restructuring reserves	(112)		(62)
Current income taxes	34		3
Pension, other postretirement and postemployment liabilities	(117)		(127)
Other assets and liabilities	226		90
Cash provided by operating activities	2,023		1,163
Cash flows from investing activities
Proceeds from investments	34		33
Payments for investments	(80)		(94)
Net purchases of short-term investments — non-fiduciary	(312)		(7)
Acquisition of businesses, net of cash acquired	(368)		(39)
Sale of businesses, net of cash sold	30		43
Capital expenditures	(119)		(167)
Cash used for investing activities	(815)		(231)
Cash flows from financing activities
Share repurchase	(963)		(1,507)
Issuance of shares for employee benefit plans	(141)		(133)
Issuance of debt	4,153		4,918
Repayment of debt	(3,857)		(3,858)
Cash dividends to shareholders	(307)		(307)
Noncontrolling interests and other financing activities	(31)		(81)
Cash used for financing activities	(1,146)		(968)
Effect of exchange rates on cash and cash equivalents	(31)		(18)
Net increase (decrease) in cash and cash equivalents	31		(54)
Cash and cash equivalents at beginning of period	790		656
Cash and cash equivalents at end of period	$	821	$	602
Supplemental disclosures:
Interest paid	$	214	$	196
Income taxes paid, net of refunds	$	326	$	279

See accompanying Notes to Condensed Consolidated Financial Statements (Unaudited).

11

Notes to Condensed Consolidated Financial Statements (Unaudited)

1. Basis of Presentation

The accompanying unaudited Condensed Consolidated Financial Statements and Notes thereto (the “Financial Statements”) have been prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). The Financial Statements include the accounts of Aon plc, an Irish public limited company, and all of its controlled subsidiaries. Intercompany accounts and transactions have been eliminated. The Financial Statements include, in the opinion of management, all adjustments (consisting of normal recurring adjustments and reclassifications) necessary to present fairly the Company’s consolidated financial position, results of operations, and cash flows for all periods presented.

Certain information and disclosures normally included in the Financial Statements prepared in accordance with U.S. GAAP have been condensed or omitted. The Financial Statements should be read in conjunction with the Consolidated Financial Statements and Notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2019, including amendments and additions disclosed on Form 8-K issued April 1, 2020. The results for the three and nine months ended September 30, 2020 are not necessarily indicative of operating results that may be expected for the full year ending December 31, 2020, particularly in light of the continuing effect of the COVID-19 pandemic.

On April 1, 2020, a scheme of arrangement under English law was completed pursuant to which the Class A ordinary shares of Aon plc, a public limited company incorporated under the laws of England and Wales and the publicly traded parent company of the Aon group (“Aon Global Limited”), were cancelled and the holders thereof received, on a one-for-one basis, Class A ordinary shares of Aon plc, an Irish public limited company formerly known as Aon Limited (“Aon plc”), as described in the proxy statement filed with SEC on December 20, 2019 (the “Ireland Reorganization”). Aon plc is a tax resident of Ireland. References in this report to “Aon,” the “Company,” “we,” “us,” or “our” for time periods prior to April 1, 2020 refer to Aon Global Limited. References in the Financial Statements to “Aon,” the “Company,” “we,” “us,” or “our” for time periods on or after April 1, 2020, refer to Aon plc.

Use of Estimates

The preparation of the Financial Statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosures of contingent assets and liabilities at the date of the Financial Statements, and the reported amounts of reserves and expenses. These estimates and assumptions are based on management’s best estimates and judgments. Management evaluates its estimates and assumptions on an ongoing basis using historical experience and other factors, including the current economic environment. Management believes its estimates to be reasonable given the current facts available. Aon adjusts such estimates and assumptions when facts and circumstances dictate. Illiquid credit markets, volatile equity markets, foreign currency exchange rate movements, and, recently, impacts from the COVID-19 pandemic increase the uncertainty inherent in such estimates and assumptions. As future events and their effects cannot be determined with precision, actual results could differ significantly from these estimates. Changes in estimates resulting from continuing changes in the economic environment would, if applicable, be reflected in the Financial Statements in future periods.

2. Accounting Principles and Practices

Adoption of New Accounting Standards

Cloud Computing Arrangements

In August 2018, the Financial Accounting Standards Board (“FASB”) issued new accounting guidance on implementation costs incurred in a cloud computing arrangement that is a service contract. The new guidance aligns capitalization requirements for certain implementation costs incurred in cloud computing arrangements with existing requirements for capitalizing implementation costs for internal-use software. These costs will be deferred over the term of the hosting arrangement, including any optional renewal periods the entity is reasonably certain to exercise. An entity may apply the new guidance on either a prospective or retrospective basis. The new guidance was effective for Aon in the first quarter of 2020 and was adopted on a prospective basis for all implementation costs incurred after the date of initial adoption. The adoption of this guidance had no significant impact on the Financial Statements.

Simplifying the Test for Goodwill Impairment

In January 2017, the FASB issued new accounting guidance on simplifying the test for goodwill impairment. Currently the standard requires an entity to perform a two-step test to determine the amount, if any, of goodwill impairment. In Step 1, an entity compares the fair value of a reporting unit with its carrying amount, including goodwill. If the carrying amount of the reporting unit exceeds its fair value, the entity performs Step 2 and compares the implied fair value of goodwill with the carrying amount of that goodwill for that reporting unit. An impairment charge equal to the amount by which the carrying

12

amount of goodwill for the reporting unit exceeds the implied fair value of that goodwill is recorded, limited to the amount of goodwill allocated to that reporting unit. The new guidance removes Step 2. An entity will apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The new guidance does not amend the optional qualitative assessment of goodwill impairment. The new guidance was effective for Aon in the first quarter of 2020 and was adopted on a prospective basis. The adoption of this guidance had no impact on the Financial Statements.

Credit Losses

In June 2016, the FASB issued a new accounting standard on the measurement of credit losses on financial instruments. The new standard replaces the current incurred loss impairment methodology with a methodology that reflects expected credit losses and requires consideration of a broader range of reasonable and supportable information to inform credit loss estimates. The Company adopted the new standard as of January 1, 2020 using the modified retrospective approach. Under this approach, prior periods were not restated. Rather, the cumulative effect of initially applying the new standard was recognized as an adjustment to retained earnings. Upon the adoption of this guidance on January 1, 2020, the Company recognized a cumulative adjustment of $6 million to decrease retained earnings.

The Company’s estimate for allowance for credit losses with respect to receivables is based on a combination of factors, including evaluation of forward-looking information, historical write-offs, aging of balances, and other qualitative and quantitative analyses.

Financial Disclosures about Guarantors

In March 2020, the SEC issued a final rule that amended the disclosure requirements related to certain registered securities under SEC Regulation S-X Rules 3-10 and 3-16 of Regulation S-X. The changes are intended to provide investors with material information given the specific facts and circumstances, make disclosures easier to understand, and reduce the cost and burdens to registrants. The final rule replaces the requirement to provide condensed consolidated financial information with a requirement to present summarized financial information of the issuers and guarantors in the registrant’s Management Discussion and Analysis section or in the financial statements and reduces the periods for which summarized financial information is presented to the most recent annual period and year-to-date interim period. The amendments are effective January 4, 2021, with early adoption permitted.

The Company elected to early adopt the final rule in the second quarter of 2020 and elected to present these disclosures in Item 2, Management’s Discussion and Analysis of Financial Condition and Results of Operations.

Accounting Standards Issued But Not Yet Adopted

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued new accounting guidance that simplifies the accounting for income taxes by removing certain exceptions to the general principles in the existing guidance. It also clarifies certain aspects of the existing guidance to promote more consistent application. The new guidance is effective for Aon in the first quarter of 2021, with early adoption permitted. The Company previously expected to adopt this guidance in the first quarter of 2021 and is now considering early adoption in the fourth quarter of 2020. Different components of the guidance require retrospective, modified retrospective, or prospective adoption. The Company does not expect there to be a significant impact on the Financial Statements.

Changes to the Disclosure Requirements for Defined Benefit Plans

In August 2018, the FASB issued new accounting guidance related to the disclosure requirements for employers that sponsor defined benefit pension and other postretirement benefit plans. The guidance requires sponsors of these plans to provide additional disclosures, including weighted average interest rates used in the entity’s cash balance pension plans and a narrative description of reasons for any significant gains or losses impacting the benefit obligation for the period, and eliminates certain previous disclosure requirements. The new guidance is effective for Aon in the first quarter of 2021 and will be applied retrospectively in the Notes to Condensed Consolidated Financial Statements.

13

3. Revenue from Contracts with Customers

Disaggregation of Revenue

The following table summarizes revenue from contracts with customers by principal service line (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
Commercial Risk Solutions	$	1,042	$	1,057	$	3,314	$	3,342
Reinsurance Solutions	321		291		1,617		1,499
Retirement Solutions	468		484		1,258		1,323
Health Solutions	282		279		1,042		1,082
Data & Analytic Services	278		271		883		893
Elimination	(6)		(3)		(13)		(11)
Total revenue	$	2,385	$	2,379	$	8,101	$	8,128

Consolidated revenue from contracts with customers by geographic area, which is attributed on the basis of where the services are performed, is as follows (in millions):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2020		2019		2020		2019
United States	$	1,169	$	1,209	$	3,503	$	3,516
Americas other than United States	200		256		647		723
United Kingdom	332		358		1,276		1,210
Ireland	19		17		63		59
Europe, Middle East, & Africa other than United Kingdom and Ireland	372		266		1,731		1,734
Asia Pacific	293		273		881		886
Total revenue	$	2,385	$	2,379	$	8,101	$	8,128

Contract Costs

An analysis of the changes in the net carrying amount of costs to fulfill contracts with customers are as follows (in millions):

Three Months Ended September 30,		Nine Months Ended September 30,
2020	2019