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Energy Insurance Market Suffers Worst Year On Record
Aon confident insurers will trade through

London, 7 November 2005 – 2005 has been the worst year on record for the energy insurance industry, but the market is capable of weathering the storm according to Aon Limited, leading insurance broker and risk management consultant.

Losses in the energy insurance market are largely as a consequence of two key events:

  • The large loss at the Suncor Canadian oil sands facility, which occurred in early 2005 and generated a market loss in excess of US $1,3 bn
  • The significant losses pursuant to hurricanes Katrina and Rita in the Gulf of Mexico, which Aon estimate will cost the energy insurers from US $3,5 bn to US $ 5 bn

Alongside this, the energy insurance mutual OIL is widely predicted to post losses in the order of US $1,75 bn to US $ 2,0 bn for the year - of which US $1bn from Katrina alone.

Commenting on recent industry events, Magne Seljeflot, Chairman, Natural Resources Global Practice Group said: “Our estimate of global premium income for the energy sector is in the order of US $3,5 bn for this class, so simple arithmetic clearly demonstrates a significant net loss to underwriters.  However, the energy insurance market, like the energy industry itself, is accustomed to this boom or bust cycle, and we are confident insurers will " trade through " and look at the opportunities in the inevitable hard market we will be facing in 2006.

“Disregarding the hurricane losses - the energy insurance market has performed quite well in 2005.  One would therefore assume the key focus for underwriters for 2006 will be to look at limiting their exposure to the Gulf of Mexico storm exposures; or to impose dramatic increases in premium or aggregate limits for this exposure - so as to better balance their book of business.

“Outside of the Gulf of Mexico we would anticipate more moderate price increases as insurers will be competing for market share and volume to recoup some of their losses.  We would anticipate a very good market environment for insurers in the near term, and this will inevitably be a tempting opportunity for potential investors in the sector to offer new capital and capture the benefit of this window of opportunity.

“It would appear that the weather pattern has changed over recent years, compared to the post war period, leading to a significant increase in frequency as well as severity of tropical storms in the Gulf of Mexico.  Insurers have not yet compensated for this increased exposure.  Otherwise, the current pricing models for energy insurers appear to be performing well.”
The firm also said that it expected to see a significant rise in reinsurance costs for all insurers, leading to increased operating cost for direct writers and the possibility of a shrinkage of the current global capacity which is estimated to be slightly in excess of US$2 billion¹ both for onshore and for offshore exposures.

Note to Editors:

Notes to Editors
1.         This figure is still only half of the US$4 billion capacity we saw at the most extreme soft market in the late 90's.

About Aon
Aon Corporation (www.aon.com ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. The company employs approximately 53,000 professionals in its 600 offices in more than 120 countries.  Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions.
 
This press release contains certain statements relating to future results, which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995.  These 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 that could impact results include the general economic conditions in different countries around the world, fluctuations in global equity and fixed income markets, exchange rates, rating agency actions, pension funding, ultimate paid claims may be different from actuarial estimates and actuarial estimates may change over time, changes in commercial property and casualty markets and commercial premium rates, the competitive environment, the actual costs of resolution of contingent liabilities and other loss contingencies, the heightened level of potential errors and omissions liability arising from placements of complex policies and sophisticated reinsurance arrangements in an insurance market in which insurer reserves are under pressure, and the timing and resolution of related insurance and reinsurance issues relating to the events of September 11, 2001.  Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, are contained in the Company's filings with the Securities and Exchange Commission.
 

 

Aon Limited is authorised and regulated by the Financial Services Authority in respect of insurance mediation activities only.

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