Reinsurance Emerges As Lower Cost Alternative To Risk Financing As Credit Markets Become More Expensive: Aon Re Global Analysis

Aon Re Global, the world?s largest provider of reinsurance brokerage and integrated capital solutions and services and a unit of Aon Corporation (NYSE: AOC), today released its sixth annual Reinsurance Market Update at the insurance and reinsurance industry?s Jan. 1 renewal season kickoff event, the Rendez-Vous de Septembre in Monte Carlo.

Aon Re Global, the world?s largest provider of reinsurance brokerage and integrated capital solutions and services and a unit of Aon Corporation (NYSE: AOC), today released its sixth annual Reinsurance Market Update at the insurance and reinsurance industry?s Jan. 1 renewal season kickoff event, the Rendez-Vous de Septembre in Monte Carlo.

Among the highlights:

* Reinsurance market risk spreads are narrowing ? directionally getting less expensive
* Worldwide credit market risk spreads are widening ? directionally getting more expensive
* Worldwide equity market risk premiums are widening ? directionally getting more expensive
* To finance risk that otherwise would have been retained, insurers will be more likely to utilize the reinsurance market than the equity, senior and subordinated debt markets
* Large buyers of property catastrophe reinsurance now utilize the capital markets to provide 10-25 percent of their catastrophe capacity. This is expected to expand.

As the property catastrophe reinsurance market moves further away from the 2005 Atlantic Hurricane Season ? the most significant recent catastrophic event to impact the industry ? trends indicate that renewal pricing peaked in July 2006, and that the reinsurance margin per unit of risk reinsured is in decline. That decline comes as the cost of equity and debt capital will be increasing for insurance; as such, the reinsurance pricing and terms cycle can be uncorrelated with the cost of equity and debt capital for insurers and reinsurers.

?We see the 2008 market cycle as an exciting and challenging one as reinsurance has the opportunity to play a larger role in capital management strategies,? said Bryon Ehrhart, president and chief executive officer of Aon Re Services. ?Having recovered from the significant catastrophe events of 2005, we are pleased to see an environment in which we, as brokers, can deliver new levels of value to clients. Softening markets lend themselves to softening terms and conditions which allow Aon brokers to closely analyze and negotiate on behalf of clients, looking towards a fully transitioned post-Katrina landscape.?

The size of the reinsurance industry property or casualty event that would be necessary to change the direction of the reinsurance market is large ? US$15 to $25 billion of ceded losses. Barring a major catastrophe event, to finance risk that otherwise would have been retained, insurers will be more likely to utilize the reinsurance markets than the equity, senior and subordinated debt markets.

With capacity greatly expanded since Hurricane Katrina in 2005, the reinsurance market now provides efficient property, casualty, life and insurance enterprise risk transfer and contingent capital solutions.

Large buyers of property catastrophe reinsurance now utilize the capital markets to provide 10 percent to 25 percent of their catastrophe capacity. From January through July 2007, the reinsurance markets have funded more capacity than was issued during 2006 in its entirety.

"We also see this environment as an opportunity in which to look closely at integrated risk management,? Ehrhart said. ?Rather than producing reporting on the varied results of actual renewals, Aon Re Global is able to identify changes to the reinsurance markets in advance of key renewal dates to deliver more consultative value to clients when they need it.?

Factors such as insurer underwriting methods, data quality, capacity required, experience and current modeled margin levels can combine to create better or worse outcomes. Detailed information and analysis from the Aon Re Global Reinsurance Market Update can be obtained at www.aon.com.entertainment and media liability insurance

Aon UK is ranked by A.M. Best as the number one global insurance brokerage based on brokerage revenues and voted best insurance intermediary, offering classic sports car insurance, high value home insurance, entertainment and media insurance and construction site insurance.

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