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Marine Insurance: Lower Prices, Higher Risks for 2008
Aon launches annual Marine Insurance Market Review

LONDON and CHICAGO, Jan. 29 /PRNewswire-FirstCall/ -- The marine industry is set for a continued run of favorable insurance premiums in 2008, despite facing higher risks. According to Aon's 2008 Marine Insurance Market Review*, the cargo and liability markets offer a win-win situation to ship and cargo owners who are paying less and underwriters who remain profitable due to few claims -- at least for the time being.

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Rates for well-managed risks are expected to continue falling throughout 2008 by up to 10 percent. This positive outlook is due to a plentiful supply of capacity combined with a low level of claims creating fierce competition between underwriters. The relatively benign claims environment reflects major advances in recent years in ship design, cargo handling and general maritime safety.

However, the market is turning for protection & indemnity (P&I) and the clubs have announced big rate increases for 2008 in response to a surge in the size of large claims. Neither is the situation quite so rosy in hull and machinery, where losses are starting to impact the accounts of many insurers, although not to the same extent as in P&I.

For the shipping industry, two continuing key risks threaten to increase the size and cost of claims:

  -- crew shortages and a dwindling pool of skilled officers in the marine
     industry could result in increasing claims due to human error. At the
     same time, shipyards are working at full capacity on new builds and
     these additional ships will exacerbate the existing crew shortage,
     especially for complex vessels such as the new generation of LNG
     tankers. The industry must focus on recruitment, training and retention
  -- bigger ships, tankers and dredgers are creating bigger concentrations
     of risk and magnifying the potential scale of disaster for P&I,
     liability and cargo insurers as well as hull underwriters.

Peter Dobbs, CEO of Aon's marine team, commented: "Although the short term prospects for insurers and shipowners are generally very favorable, the combination of falling premiums and rising risk does ultimately hold the potential to destroy this equilibrium. And, as we are seeing in the P&I market, that could provoke a dramatic response from insurers as they try to restore the balance between premiums and claims."

The market in the United States closely resembles the international market, with a key exception.

"U.S. marine insurers are generally responding to rate pressures in a parallel manner to international markets," said Bob DeMotta, managing director and head of the U.S. marine practice. "It is also historically true that in an upward market U.S. insurers will reach a price ceiling prior to their international counterparts."

Despite new markets and capacity from Bermuda and elsewhere to write U.S. marine risks, Aon expects price reductions will begin to level off in the United States within the next 12 months.

"This is also a great time to review policy wording and expand coverage where possible," DeMotta said. "For example, U.S. insurers are still the most familiar and comfortable with primary and low level excess liability layers involving U.S. exposures. We have a creative underwriting community that will consider coverage enhancements as a means to mitigating premium reductions."

The report provides insight on rates, capacity and outlook for the key marine markets in 2008. Highlights include:

Hull -- Rates are reducing by 5-10 percent. Insurer accounts are unlikely to be profitable due to the combination of falling rates and emerging losses -- most are subsidizing hull business with profits from other lines. Korean, Japanese and Singaporean insurers are aggressively writing international tonnage.

Cargo -- Ample capacity and few claims are resulting in savings of around 10 percent at renewal and profitable accounts for insurers. London maintains the role of leading rate setter on the majority of complex global placements. Meanwhile, Singapore is emerging as an international force for straightforward risks. Outside of London, insurers are willing to tempt clients with offers of much lower deductibles.

P&I -- The surge in costly P&I pool claims in 2006 could be a sign of the times as booming shipping operations become more expensive. In anticipation, P&I clubs are already initiating increases of 10-20 percent in shipowners' premiums at the next renewal in February 2008.

Liability -- Rate reductions are expected around 5-10% percent. Liability deductibles are fairly stable after years of increases to stay ahead of rapidly rising litigation costs. Capacity is growing and becoming more global, notably in the Asian hubs of Singapore and Hong Kong.

Yachts -- In 2004 the world population of super yachts (30 meters plus) was around 4,000. It now stands close to 7,000 and boat builders are struggling to keep pace with demand. After several years when annual increases were in the region of 10-15 percent, rates began to level off in 2006/7. By the end of 2007 early signs of softening had begun to emerge, but were generally limited to newly built vessels. Rates may come under slight pressure during 2008 simply because of the amount of capacity entering the market.

* Please access the report in the Aon Risk Services section of Aon's global online newsroom: http://aon.mediaroom.com/index.php?s=55.

About Aon

Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. Through its 43,000 professionals worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was ranked by A.M. Best as the number one global insurance brokerage in 2007 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 by the readers of Business Insurance. For more information on Aon, log onto http://www.aon.com/.

   Media contacts:
   Chicago                         London
   Rahsaan Johnson                 Alexandra Lewis
   312.381.2684                    0207 882 0541
   Rahsaan_Johnson@aon.com         Alexandra.Lewis@aon.co.uk

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SOURCE: Aon Corporation

CONTACT: Chicago, Rahsaan Johnson, +1-312-381-2684,
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Alexandra.Lewis@aon.co.uk, both of Aon Corporation

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