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U.S. homeowners insurance consumers continue to benefit from rates that do not fully reflect private insurers’ costs of capital – Aon Benfield study

Oct 24, 2011

NEW ORLEANS, October 24, 2011 – Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation (NYSE:AON), today launches its annual Homeowners ROE Outlook report, which analyzes insurers’ prospective returns on equity for homeowners business based on their July 2011 rate filings.

The report, compiled by the firm’s Analytics division, reviews the latest rate filings and supporting actuarial information of insurers operating in the 25 largest U.S. states. It reveals that insurers’ prospective after-tax ROE for homeowners insurance is 4.8 percent on average, a decrease from the 6.9 percent of 2010, mainly due to forecast subdued investment returns and higher estimates of non-coastal losses.

Aon Benfield estimates that investment returns will average 3.8 percent during the current annual period, a decrease from the 5.0 percent seen in prior years. Excluding this change, insurers’ prospective ROE would be 6.3 percent, down from 6.9% in 2010, and still well below the true cost of capital.

The report reveals that homeowners insurers have improved their recovery of the cost of reinsurance capital in recent years but could still recover a greater share of the annual cost of exposing capital to retained catastrophe losses.

Bryon Ehrhart, Chairman of Aon Benfield Analytics, said: “Great progress has been made across the homeowners insurance industry to more fully recover the cost of reinsurance over the past few years – a net cost that is generally lower than the cost of exposing an insurer’s own capital to catastrophic risk.  However, homeowners insurers continue to maintain and expose significant capital to retained catastrophe risk. The filings we reviewed show that the annual cost of exposing insurer capital to catastrophic risk is not being fully recovered. Homeowners insurance consumers therefore continue to benefit from rates that do not fully reflect the annual cost of insuring their homes.” 

Ends

About Aon Benfield
Aon Benfield, a division of Aon Corporation (NYSE: AON), is the world’s leading reinsurance intermediary and full-service capital advisor. We empower our clients to better understand, manage and transfer risk through innovative solutions and personalized access to all forms of global reinsurance capital across treaty, facultative and capital markets. As a trusted advocate, we deliver local reach to the world’s markets, an unparalleled investment in innovative analytics, including catastrophe management, actuarial and rating agency advisory. Through our professionals’ expertise and experience, we advise clients in making optimal capital choices that will empower results and improve operational effectiveness for their business. With more than 80 offices in 50 countries, our worldwide client base has access to the broadest portfolio of integrated capital solutions and services. To learn how Aon Benfield helps empower results, please visit aonbenfield.com.

About Aon
Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human resources solutions and outsourcing. Through its more than 60,000 colleagues worldwide, Aon unites to deliver distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally in over 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and 2009. A.M. Best deemed Aon the number one insurance broker based on revenues in 2007, 2008 and 2009, and Aon was voted best insurance intermediary 2007-2010, best reinsurance intermediary 2006-2010, best captives manager 2009-2010, and best employee benefits consulting firm 2007-2009 by the readers of Business Insurance. Visit http://www.aon.com for more information on Aon and http://www.aon.com/manchesterunited to learn about Aon's global partnership and shirt sponsorship with Manchester United.

Media contacts

David Bogg
Aon Benfield
t: +44 (0)20 7522 4016
e: david.bogg@aonbenfield.com 

Andrew Wragg
Aon Benfield
t: +44 (0)20 7522 8183
e: andrew.wragg@aonbenfield.com     

Alexandra Lewis
Aon Benfield
t: +44 (0)20 7882 0541  
e: alexandra.lewis@aonbenfield.com



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