MONTE CARLO, Monaco, Sept. 7 /PRNewswire-FirstCall/ -- Despite the impact of the ongoing credit and liquidity crisis to most financial services sectors, reinsurance companies are well-positioned to sustain reasonably significant property catastrophe losses or other large sequences of non-cat losses while continuing to meet the needs of reinsurance buyers, according to an analysis by Aon Re Global, the world's largest reinsurance intermediary.
With the cost of reinsurance capital in continued decline, Aon Re Global believes insurers will find that reinsurance is now a substantially more accretive form of underwriting capital than it was a year ago. "Equity risk premiums and credit risk spreads have become significantly more expensive for insurers, and the incremental benefit of reinsurance as an alternative source of underwriting capital has become even more pronounced," said Bryon Ehrhart, president and chief executive officer of Aon Re Global Services.
Most insurers and reinsurers have had very manageable impacts to earnings or capital as a result of the credit and liquidity crisis. This reflects an enterprise risk management success for the industry and provides a strong foundation as the industry heads into what appears to be a softening global insurance and reinsurance market. Ehrhart further commented: "Indeed, even reasonably high levels of property or liability catastrophes could be sustained by insurers without material disruption of the global business."
Jan. 1, 2009 Renewals
Aon Re Global anticipates the credit and liquidity crisis will lead to a slower decrease in reinsurance pricing for Jan. 1, 2009 renewals than otherwise would have been available had the crisis not reached its current or projected level. The January renewals will reflect the first time the decline in reinsurance pricing has slowed since the credit crisis began. (Figures 1 and 2.)
Should significant insured catastrophes occur before Jan. 1, 2009, the fast pace of rebuilding capacity will be unprecedented since the reinsurance and insurance markets are now aligned with sufficient existing and contingent (e.g. sidecar) capital providers.
The Capital Markets
While the pace of bond form transactions in 2008 may not reach the record levels attained though the end of 2007, the market continues to develop at a significant pace. Paul Schultz, president of Aon Capital Markets said, "We expect this complementary capacity to continue to provide 10-30 percent of the capacity required by insurers that purchase more than $500 million of capacity."
The facultative market is balancing between the desire of cedents to spend less on reinsurance to sustain net premium growth in a softening market -- an influence that's also driving higher casualty net retentions -- and the increased use of facultative certificates by underwriters that fear higher net treaty retentions. Aon Re Global anticipates rate, terms and conditions changes in the property and casualty facultative markets that are in line with the movements insurers offer to insureds. Catastrophe model miss continues to be a driver of facultative purchases.
Property Per Risk
Heavy industries such as mining, metals, pulp and paper and energy have contributed more than half of the insured losses in 2008. Aon Re Global anticipates neither capacity reductions on Jan. 1, 2009 renewals nor price increases on unaffected programs. Such programs are likely to see further rate relief.
Reduced demand from cedents in 2008 continues to impact reinsurers. Casualty capacity layers may increase or reflect lower levels of decreases than would otherwise have been achieved had the leverage from the underlying layers not been lost by reinsurers.
To read Aon Re Global's Jan. 1, 2009 pricing and capacity report, visit: http://aon.mediaroom.com/index.php?s=53&item=264.
About Aon Re Global
Aon Re Global provides clients with integrated capital solutions and services through a world-class network of experts in more than 35 countries. Clients are better able to differentiate and meet their business objectives with Aon Re Global's best-in-class treaty and facultative reinsurance placement services, capital markets expertise, and relevant analytics and technical expertise, including catastrophe management, actuarial and rating agency counsel. Aon Re Global was named best reinsurance broker in 2008, 2007 and 2006 by readers of Business Insurance.
Aon Corporation (NYSE: AOC) is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 36,000 colleagues 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 named the world's best broker by Euromoney magazine's 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance.
Media Contacts Chicago: Rahsaan Johnson, 1.312.381.2684, Mobile: 1.312.391.7506, Rahsaan_Johnson@aon.com London: Reuben Aitchison, +44 (0) 207 086 7201, Mobile: +44 (0) 7944 189 804, Reuben.Aitchison@aon.co.uk Paris: Christelle Mesle-Genin, +33 (0) 1 58 75 60 70, Christelle_Mesle-Genin@aon.fr Figure 1 - United States: January 1, 2009 Expectations: ROL Capacity Retention Changes Changes Changes United States: Personal lines national: Light year -5 to -15% +15% +5 to +10% Moderate year +5 to -5% +5% +10 to +15% Heavy year +25 to +35% Flat to -10% 20+% Personal lines regional: Light year -10% to -20% +20% +5 to +10% Moderate year Flat to -5% +10% +5 to +10% Heavy year +15 to +20% Flat to -5% +5 to +15% Standard commercial lines Light year -10 to -20% +10% Flat to +25% Moderate year +10 to -5% +5% +10 to +25% Heavy year +25 to +50% Flat to -20% 25+% Complex commercial lines Light year Flat to -20% +10% +5 to 20% Moderate year +15 to -5% Flat +10 to +25% Heavy year +25 to +50% Flat to -30% +15 to +33% Assumes no changes in insured catastrophe exposures and no significant catastrophe model changes Rate of change measured from January 1, 2008 terms Figure 2 - Global: January 1, 2009 Expectations: ROL Capacity Retention Changes Changes Changes Europe Northern (wind dominating) Flat to -10% +10% Stable to +10% Southern (quake dominating) -5 to -15% +10 to +15% Stable to +10% United Kingdom -5 to -10% Stable Stable Asia Pacific (x Japan) Flat to -10% +20% Stable Japan Flat to -5% Flat to -5% Stable to +10% Australia +5 to -10% +10% Stable Canada -5 to -10% +10% Stable to +10% South America -5 to -10% +10% Stable Mexico -5 to -10% +10% Stable Caribbean -5 to -10% +10% Stable Assumes no changes in insured catastrophe exposures and no significant catastrophe model changes Assumes no significant catastrophe losses occur before 1 January 2009 negotiations are completed Rate of change measured from January 1, 2008 terms
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SOURCE: Aon Corporation
CONTACT: Chicago: Rahsaan Johnson, +1-312-381-2684, Mobile:
+1-312-391-7506, Rahsaan_Johnson@aon.com, or London: Reuben Aitchison,
+44-207-086-7201, Mobile: +44-7944-189-804, Reuben.Aitchison@aon.co.uk, or
Paris: Christelle Mesle-Genin, +33-1-58-75-60-70,
Christelle_Mesle-Genin@aon.fr, all for Aon Corporation
Web site: http://www.aon.com/