London – 11 January 2005 – Following the most costly year on record for natural disasters, the 1 January 2005 renewal season was singularly marked by its lack of drama, according to Aon Limited.  At an informal press briefing to discuss the trends and issues arising from the latest renewal season, Charlie Cantlay, deputy chairman of Aon’s Reinsurance division, said that the impact on the reinsurance market of the natural catastrophes that took place last year was to stabilise rating trends and that the Indonesian earthquake/tsunami, whilst devastating in terms of human cost, would have little effect on reinsurance rates in 2005. 

The main effect of the four hurricanes that caused havoc in the US and Caribbean in the latter part of 2004 was only to reduce the scale of the reductions that otherwise would have applied, putting the brakes on the downward trend that was evident in the mid-season renewals.  The low impact was partly due to higher client retentions and also to the work that the reinsurance industry has been carrying out recently to restore its balance sheets.  “The fact that an unprecedented frequency of losses has been absorbed by the reinsurance industry with relative comfort is testimony to its strength, the significant building of reserves that has taken place over the last few years of profit and the robustness of capital allocation methodology driven by a highly technical and modelled underwriting approach,” Mr Cantlay said.

In its pre-renewal season report ‘Reinsurance: the divided market – How far? How fast?’ Aon predicted that buyers would be expecting reinsurance prices to fall in the 2005 renewals.  Even though reinsurers had adopted a more disciplined approach to their underwriting it was anticipated that this discipline would not be strong enough to prevent further softening and buyers were expected to become increasingly promiscuous, willing to change reinsurance partners to obtain a more favourable price, or retain more risk. 

As it was many buyers had budgeted a reduction in their insurance spend for 2005 and resistance was strong to any hint of rate increases.  The resultant negotiations made for an early start to the renewal season and a late finish and this was particularly evident in the UK.

Copies of ‘Reinsurance: the divided market – How far? How fast?’ are available on request.

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 51,000 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.

Aon Consulting Limited is authorised and regulated by the Financial Services Authority.

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, resolution of pending regulatory investigations and related issues, including those related to compensation arrangements with underwriters, 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, and 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.  Further information, concerning the Company and its business, including factors that potentially could materially affect the Company’s financial results, is 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.