Jan. 1 renewals likely to reflect slowing rate of decrease in reinsurance pricing provided no significant catastrophe losses

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.

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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.