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

MONTE CARLO, Sept. 9 /PRNewswire-FirstCall/ -- Aon Re Global, the world's largest provider of reinsurance brokerage and integrated capital solutions and services and a unit of Aon Corporation , 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.

(Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO) 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 http://www.aon.com/.

About Aon

Aon Re Global, the world's leading and most preferred reinsurance intermediary, provides clients with integrated capital solutions and services through a world-class network of experts in more than 35 countries. Clients are better able to differentiate and meet their business objectives with Aon Re Global's best-in-class treaty and facultative reinsurance placement services, capital markets expertise, and relevant analytics and technical expertise, including catastrophe management, actuarial, and rating agency counsel. Aon Re Global was named best reinsurance broker in 2007 and 2006 by readers of Business Insurance, in 2007 by readers of US Insurer and in 2006 by readers of Reinsurance.

Aon Corporation , ranked by A.M. Best as the number one global insurance brokerage based on brokerage revenues and voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm by the readers of Business Insurance, is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 43,000 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.

This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, our ability to successfully execute strategic options for our Combined Insurance subsidiary, the impact of current, pending and future regulatory and legislative actions that affect our ability to market and sell, and be reimbursed at current levels for, our Sterling subsidiary's Medicare Advantage health plans, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, ERISA class actions, the impact of the analysis of practices relating to stock options, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission.

Media Contacts LONDON CHICAGO Reuben Aitchison Rahsaan Johnson [phone]/mobile [phone]/mobile [phone] [e-mail] NEW YORK Anne de Fleurieu Deidre Campbell [phone]/mobile [phone] [e-mail]

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