Growth and Reserve Risk Challenge Insurance Industry, According to Aon Benfield Insurance Risk Study

Sep 11, 2011, 11:48 ET from Aon Corporation

CHICAGO, Sept. 11, 2011 /PRNewswire/ -- Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation (NYSE: AON), today releases its 2011 Insurance Risk Study, which continues to be the industry's leading set of risk parameters for modeling and benchmarking underwriting risk.

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The study, now in its sixth edition, provides underwriting volatility benchmarks that are a valuable resource to chief risk officers, actuaries and other economic capital modeling professionals, as well as comprehensive analyses of notable specific risks to the industry. Its data spans 47 countries and key business lines representing more than 90% of global property-casualty insurance premium.  

Again this year, the study ranks global underwriting volatility by line of business and by territory. It reveals that property remains substantially more volatile than other major lines. In Germany and Spain property is nearly twice as volatile as motor, the most stable line; in the U.S., property is nearly three times as volatile, and in France, it is four times as risky.  Overall volatility parameters are in line with last year's study, but they do not yet reflect 2011's significant catastrophe activity.

The study also provides a detailed summary of U.S. risk parameters and reserves, and highlights that despite recent favorable development in the P&C industry's reserves position, reserve risk remains a potential significant source of leveraged cyclical uncertainty and a continued threat to insurer solvency. Based on historical variance in reserve patterns the study estimates that aggregate U.S. industry reserve development of more than USD60bn can occur once every fifteen years, or roughly once per cycle – consistent with experience from the last two soft markets.

Meanwhile, it ranks the top 50 global markets by P&C Gross Written Premium (GWP), and reveals that the U.S. market leads the way with a GWP of USD455.98bn and 3.1% insurance penetration (defined as the ratio of premium to GDP), followed by Japan (USD76.93bn), Germany (USD67.79bn), the U.K. (USD62.66bn) and France (USD59.76bn). China ranks 6th, with a GWP of USD45.83bn and 0.8% insurance penetration.

International premium growth remains a challenge for the industry with none of the top ten countries showing an increase in insurance penetration. Absolute premiums decreased in five of the top ten countries, and, other than China, showed only modest increases in the others. Combined with depressed investment yields, insurers remain under significant pressure to expand their top line results.

The 26-page study includes a chapter dedicated to innovations in crop insurance modelling; a chapter focusing on achieving optimal performance in the Solvency II regime, and a section examining recent developments in the hedging of risk in variable annuity insurance products.  It also analyzes the link between firms' price to book ratio and their prospective return on equity (ROE), showing that companies with more stable earnings over time have higher valuations for a given ROE.

Stephen Mildenhall, CEO of Aon Benfield Analytics, said: "The Insurance Risk Study is based on many years of modeling innovation, and actuarial research work from Aon Benfield's 400-strong global Analytics team. It offers a series of valuable benchmarks that will be of use to a wide range of risk professionals, and provides analyses of the key insurance risk considerations for insurers, as well as a macroeconomic perspective to highlight the wider issues influencing and affecting our industry. The Analytics team continues to develop a range of tools to address key challenges in specific markets, such as the Aon Benfield Crop Reinsurance Solution (ACReS), which assists insurers to manage their agriculture exposures, and Pathwise, the industry's fastest variable annuity hedging product. Capabilities such as these ensure that our firm continues to bring real differentiating value to our clients."

To view the full 2011 Insurance Risk Study report, please follow the link below:

Notes to Editors:

Systemic risk in the Study is the coefficient of variation of loss ratio for a large book of business. Coefficient of variation (CV) is a commonly used normalized measure of risk defined as the standard deviation divided by the mean. Systemic risk typically comes from non-diversifiable risk sources such as changing market rate adequacy, unknown prospective frequency and severity trends, weather-related losses, legal reforms and court decisions, the level of economic activity and other macroeconomic factors.  It also includes the risk to smaller and specialty lines of business caused by a lack of credible data.  For many lines of business systemic risk is the major component of underwriting volatility.

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

About Aon

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 for more information on Aon and to learn about Aon's global partnership and shirt sponsorship with Manchester United.

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