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Economic Outlook For UK Looks Strong Though Falling Premiums May Undermine Insurance Market

 

London – 26 July 2004 – The UK is set for solid and balanced economic growth into 2005 but it may not be enough to outstrip the growth of capacity supply in the insurance sector said Aon and the Royal Bank of Scotland in a joint webcast, broadcast today. An oversupply of insurance capacity threatens to undermine the financial recovery of insurers who have posted good returns over the last two years, but who still have much to do to repair damaged balance sheets and restore negative rating outlooks.

Looking at the general economic situation both worldwide and in the UK, Jeremy Peat, Group Chief Economist at the Royal Bank of Scotland, said: “The outlook for the global economic situation is the best that it has been for at least five years. Domestically, the UK economy is set for strong and balanced growth as we head towards 2005, which will provide a sound backdrop for the health of the insurance sector.”

David Martin, chief executive officer of Aon’s Commercial Division, added; “Last year, most insurers around the world and in the UK posted some of their best results for the last decade, with most achieving a combined ratio of claims and expenses to premium collected of under 100%.

“There is a cloud on the horizon however which is that the strong economic growth may not be enough to outstrip the growing insurance capacity currently available. This is already having the effect of driving down insurance premium rates at a time when insurers are still rebuilding their balance sheets and dealing with legacy issues which will increase the fragility of the market should the trend of losses turn upwards,” Martin said.

The webcast also went on to detail some specific changes within the insurance market, including:

The softening insurance market is having a greater impact, in terms of lower premiums, for larger businesses. Eventually though, this impact is likely to be felt by smaller organisations;

  • Business interruption has seen the greatest reduction in premium pricing;
  • Employers’ liability is still suffering from rapid claims inflation (from 10%-20%) which is pushing up insurance prices, though increased insurer competition, particularly for the very well managed risks, may begin to dampen further rises.

To listen to the webcast, log onto www.aon.co.uk

Notes to Editors

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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