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Study : Aon Benfield’s 2010 Insurance Risk Study

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Aon Benfield,  today releases its 2010 Insurance Risk Study, which quantifies systemic risk across the global insurance industry.

The Study, now in its fifth edition, provides underwriting volatility benchmarks that are a valuable resource to chief risk officers, actuaries and other economic capital modeling professionals, especially in light of the forthcoming implementation of Solvency II. Its data span 46 countries and 12 business lines representing more than 90% of global premium.

Again this year, the Study ranks global underwriting volatility by line of business and territory. It reveals that the most volatile business line was Fidelity & Surety, where U.S. volatility stood at 70% and many countries in the Americas reported volatility in excess of 100%. In contrast, volatility in Motor underwriting averaged 17% globally, and Property 41% – with the U.S. the 16th most volatile country (45%) and the U.K. 36th most volatile (22%).

This year’s study contains an analysis of insurer risks associated with key pricing and cycle risk inflection points. Today’s market is at such a point, and we expect the associated heightened uncertainty to continue into 2011.

It also reveals that in key lines including Other Liability claims-made, when insurers “true-up” after soft markets the mean of the worst individual insurer accident year loss ratio increase was 44 points. Similar significant increases were taken in other casualty lines.

The 28-page study includes a chapter dedicated to the potential impact on insurance capital of the forthcoming Solvency II regulatory framework in the European Union; a chapter focusing specifically on U.S. risk parameters, and a section analyzing inflation risk.

Inflation risk is highlighted as a key area for concern, as during the past 25 years the trend towards low inflation in the U.S. and other developed economies has resulted in insufficient data to prepare today’s insurance industry for the next potential inflation shock.

Insurance pricing is also stressed as a critical issue. New products and emerging markets generate important opportunities for revenue and income growth, but both also generate heightened levels of pricing uncertainty. The Study highlights that while reinsurance is not a solution to inadequate pricing, it can be an effective hedge against pricing uncertainty.

Stephen Mildenhall, CEO of Aon Benfield Analytics, said: “An effective re/insurance product depends on the effective quantification of global risks, and at Aon Benfield we have 500 analytics experts worldwide who are dedicated to developing solutions tailored to that task. The Insurance Risk Study is in many ways a result of their efforts and is based on years of extensive and ongoing modeling work. It comprises many valuable benchmarks that will be of use to risk professionals, and provides ideas on emerging risks that may help them in protecting their companies against potential headwinds.”

Source : Aon News Release