Monte Carlo, 10 September 2006 – Any squeeze on capacity as a result of last year’s hurricanes Katrina, Rita and Wilma has been mitigated by the additional capital that flowed into the reinsurance market in their immediate aftermath, according to a report on the current state of the international reinsurance market launched by leading reinsurance broker Aon at the Monte Carlo Reinsurance Rendezvous. The one exception was US exposed catastrophe business where capacity was particularly tight in both the 1 January and 1 July 2006 renewals.

At the time of last year’s Rendezvous hurricane Katrina had just occurred and Aon made a series of predictions as to the probable outcome based on a range of potential losses. The subsequent occurrences of hurricanes Rita and Wilma pushed the final outcome towards the top loss range and Aon now estimates that insured losses from the 2005 hurricane season will be in the region of US$65 billion to US$90 billion.

Following the end of the hurricane season around US$30 billion flowed into the industry, some US$9.5 billion of which was additional capital raised by existing reinsurers with a further US$9 billion being invested in new start-ups, mainly Bermuda based. Most of the remainder was raised in the capital markets through a range of vehicles including sidecars, private collateralised layers and catastrophe bonds.

Bryon Ehrhart, president, Aon Re Services, commented: “The capital markets are playing an increasing role in providing capacity as buyers, unable to fill their requirements through traditional reinsurance, learn to access these non-traditional sources. The catastrophe bond market in particular will double in size this year to around US$8 billion and now represents only a fraction of the role investors and hedge funds are playing within the reinsurance community.”

He continued: “Hedge funds, like traditional reinsurers, have a significant presence at the Monte Carlo Rendezvous and will meet with many clients seeking additional capacity. While higher reinsurance prices for US hurricane exposed business have attracted many forms of new capital to the reinsurance business, reinsurance in most forms continues to be an accretive form of capital for global insurers. Catastrophe reinsurance for European and other significant non-US world zones remains highly accretive; its cost is generally lower than the insurer’s weighted average cost of capital.”

Looking towards the 1 January 2007 renewals, Aon predicts that capacity for US property catastrophe risks will remain under pressure, but markets in the rest of the world should remain stable barring any significant non-US events.

About Aon

Aon Corporation  is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 46,000 employees working in Aon's 500 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.

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