The pair first proposed their merger in March 2020 before the Department of Justice filed an antitrust lawsuit in June 2021. The lawsuit was the first antitrust challenge from President Joe Biden's administration.
"Despite regulatory momentum around the world, including the recent approval of our combination by the European Commission, we reached an impasse with the U.S. Department of Justice," said Aon CEO Greg Case.
The Department of Justice was investigating the merger on antitrust grounds. Aon's $30 billion acquisition of Willis Towers Watson was challenged by U.S. regulators who argued that the deal to create the world's largest insurance brokerage was anticompetitive.
Aon will pay the $1 billion termination fee to Willis Towers Watson and both organizations will move forward independently.
The companies are expected to provide business updates during their respective second-quarter earnings calls over the next week.
"Going forward, our focus remains steadfast on our colleagues, our clients and our shareholders. We believe we are well-positioned to compete vigorously across our businesses around the world and will continue to introduce important innovations to the market," said Willis Towers Watson CEO John Haley said.
The proposed deal, which would have been the largest for the industry, would've combine the second- and third-largest brokers in a combination that would have overtaken current market leader Marsh & McLennan.
Willis Towers Watson shares were down more than 6% in premarket trading while Aon shares were up more than 5%.