LONDON, 14 November 2011 – Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation (NYSE:AON), has updated its UK terrorism catastrophe model. The model estimates the financial loss to life insurers from potential terrorist events and helps to satisfy the requirements of the proposed European Union Solvency II regulation, which requires insurers to gain a better understanding of their exposures and consequently their reinsurance buying strategy.
The model simulates attacks on more than 2,000 potential UK targets, including places of worship, financial centres, infrastructure, government and military locations. For each simulated event, it forecasts the consequent impact on an insurer’s exposures which can be used to assess potential financial losses from injuries and deaths.
The model has been developed through a unique collaboration of Impact Forecasting – Aon Benfield’s catastrophe model development centre of excellence – and counter-terrorism experts from Aon Risk Solution’s Crisis Management team, who have provided input on event frequency, credible attack types and damage profiles for various scenarios. The model’s real-world approach highlights:
• The likelihood and probable impact of unconventional attack types – such as chemical, biological and nuclear terrorism – accounts for 2% of modelled scenarios, consistent with the historical record, both globally and in the UK
• Damage impact is calculated by modelling dispersion of chemical and radioactive particles, amongst other effects, in addition to blast and thermal impacts
• An innovative approach assesses the expected effect of state mitigation on frequency in the aftermath of a major attack, in addition to accounting for the dynamic interaction between terrorist groups and prevention agencies.
Adam Podlaha, international head of Impact Forecasting, commented: “Working with ex-military and security professionals with real-life experience of the impact of terror attacks means we have been able to build a model based on a set of practical and realistic scenarios. For example, we have incorporated expert knowledge about the technical complexity of mounting material non-conventional attacks and the relative probability of such events.”
Andy Cox, Group Protection Actuary from Legal and General, added: “We required a model that provided a more experience-based view of UK terrorism risk and would enable us to gain an even better understanding of our Group Life and Income Protection exposures. The advent of Solvency II means this is more important than ever, as we work to embed the modelling process into our firm and make important business decisions based on the results. As we grow our Group Protection business by working in partnership with Aon Benfield, we have been able to access expert opinion and create a model that meets the needs of the industry as a whole.”
Scott Reid, Life Actuary and reinsurance broker at Aon Benfield, said: “Closer examination of terrorism risk is being driven by upcoming European Union regulatory changes. Solvency II has been the catalyst to the further development of our terrorism loss model. Using expert judgment, we help insurers understand their exposures and optimise the transfer of their risks to the reinsurance market.”
About Impact Forecasting
Impact Forecasting LLC is a catastrophe model development center of excellence within Aon Benfield whose seismologists, meteorologists, hydrologists, engineers, mathematicians, GIS experts, finance, risk management and insurance professionals analyze the financial implications of natural and man-made catastrophes around the world. Impact Forecasting’s experts develop software tools and models that help clients understand underlying risks from hurricanes, tornadoes, earthquakes, floods, wildfires and terrorist attacks on property, casualty and crop insurers and reinsurers. Impact Forecasting is the only catastrophe model development firm integrated into a reinsurance intermediary. To find out more about Impact Forecasting LLC, visit impactforecasting.com
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 Crisis Management
Aon Risk Solutions’ Crisis Management practice helps clients quantify and qualify their exposure to the threats of terrorism, kidnap, extortion, product contamination, product recall, piracy and political risk – ensuring they have the most appropriate and cost effective risk management strategy. Aon’s unique consulting approach helps clients quantify and qualify their exposure, ensuring they have a robust and comprehensive strategy around risk retention, mitigation, transfer and management. Crisis Management creates innovative, bespoke solutions, delivered through a combination of insurance market expertise and risk management strategy to help clients protect their people, assets and brand.
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.
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