Steven Wevodau - Accident & Health Insurance News

LONDON and NEW YORK, Jan. 28 /PRNewswire-FirstCall/ — 2009 will see the political consequences of the global credit crunch start to have an impact, according to the 16th annual Political Risk Map, launched today by Aon Risk Services, a division of Aon Corporation.(Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO)

In a global webcast, Aon’s political risk and trade credit experts discussed how the economic instability caused by the credit crunch was having a flow-on effect on political stability.

Miles Johnstone, director of Aon’s Political Risk team, explained: “This year’s map reflects how the impact of the credit crunch is shifting from being an economic problem to a political problem. When an economy is in downturn, the government has less resource available to deal with issues when they arise, potentially leading to political instability.

“We are seeing this particularly in several Eastern European countries, as well as Iceland and Greece, where there is a rise in exchange transfer and sovereign non-payment risk as well as an increase in widespread protests and street disturbances.”

The emergence of Very High Risk nations

The past year has seen a number of High Risk countries continue to deteriorate to the point where Aon believes the gap between seven countries — Afghanistan, Congo DRC, Iran, Iraq, North Korea, Somalia and Zimbabwe — and other High Risk countries warranted the creation of a Very High Risk category.

Miles commented: “The level of risk in these countries just continued to get worse. It has reached the point where although we have been able to secure insurance cover for some clients in some of these territories, it is not always available.”

The Commodity Crunch

This year’s map includes a Commodity Crunch Exposure Matrix, which identifies the countries most vulnerable to political instability in 2009 if commodity prices continue to fall, as has been suggested by some forecasters.

“Volatility in global commodity prices in the 1970s and early 1980s contributed to political and economic instability in a number of countries,” according to Roger Schwartz, senior vice president of Aon Trade Credit. “Countries that recently benefited from very high commodity prices may suffer as they fall. The types of commodities we are talking about include oils, metals and minerals.

“Interestingly, the resource nationalism prevalent last year when commodity prices were rising continues, despite the fact prices are now firmly on a downward trend.”

A move to the middle

A reflection of the general rise in the risk level globally, the past year has been notable for a significant shift from the Low Risk category to the Medium-Low category. Six Eastern European countries, Estonia, Hungary, Latvia, Lithuania, Slovakia and Slovenia, as well as Greece and Iceland, received a downgrade.

On the other hand, four High Risk countries, Malawi, Moldova, Syria and Turkmenistan, saw an improvement in their status to Medium-High Risk.

Movements on the 2009 map:

Thirteen countries have been upgraded to a lower risk level: Algeria, Benin, Cameroon, Colombia, Kuwait, Lesotho, Libya, Malawi, Moldova, Morocco, Syria, Tunisia and Turkmenistan.

Eighteen countries have been downgraded to a higher risk level: Afghanistan, Congo DRC, Estonia, Greece, Hungary, Iceland, Iran, Iraq, Latvia, Lithuania, Malaysia, Mauritania, North Korea, Slovakia, Slovenia, Somalia, Thailand and Zimbabwe.

Miles concluded: “It is an uncertain future for many companies and many sectors. Just how some of these issues, such as the commodity crunch, will play out is unclear. We have seen a significant increase in enquiries over the past year from companies seeking political risk cover. It remains to be seen how and to what extent demand for cover is affected by the ongoing impact of the credit crunch on global trade and investment.

“As the global business landscape continues to change, the Political Risk Map provides our clients with the proper analytical tools to assess the various contingencies and determine how they may impact their sustainable growth, continuity and profitability.”

 

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About the 2009 Political Risk Map

Aon ranked the political risk of 209 countries and territories, measuring risk of currency inconvertibility and transfer; strikes, riots and civil commotion; war; terrorism; sovereign non-payment; political interference; supply chain interruption; legal and regulatory risk. The risk in each country was ranked as Low, Medium-Low, Medium, Medium-High, High or Very High. A country with an “elevated” risk is defined as any country with a risk ranked at Medium-Low, Medium, Medium-High, High or Very High.

The results of the analysis are detailed on the 2009 Political Risk Map, produced by Aon Risk Services in partnership with Oxford Analytica, an international consulting firm. Oxford Analytica draws its analysis from a global network of more than 1,000 experts — including senior faculty members at Oxford University and at major research institutions worldwide — to make independent judgments about geopolitical risk.

The Political Risk Map is published annually by Aon Risk Services, a unit of Aon Corporation. With more than 400 specialists in 60 offices around the world, Aon has been providing political risk and trade credit insurance and consulting services, such as country audits, since 1912. For more information, visit http://www.aon.com/2009politicalmap.

About Aon

Aon Corporation (NYSE: AOC - News) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 36,000 colleagues worldwide, Aon readily delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Our industry-leading global resources, technical expertise and industry knowledge are delivered locally through more than 500 offices in more than 120 countries. Aon was named the world’s best broker by Euromoney magazine’s 2008 Insurance Survey. In 2008, Aon ranked highest on the Business Insurance ranking of the world’s largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues. Aon also was ranked by A.M. Best as the number one insurance broker based on brokerage revenues in 2007 and 2008, and was voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 and 2008 by the readers of Business Insurance. Sign up to receive Aon news alerts by email or RSS feed at: http://aon.mediaroom.com/index.php?s=58.

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CHICAGO and LONDON, January 8 /PRNewswire/ — Global reinsurance prices firmed for January 1, 2009 renewals and are expected to remain firm for the April through July 2009 renewals, according to the January 2009 Reinsurance Market Outlook issued today by Aon Benfield, the world’s premier reinsurance intermediary and capital advisor.Assuming only limited additional turbulence in the financial markets and no significant reinsured catastrophe losses, Aon Benfield expects that the April through July reinsurance renewal market will be similar to the January 1, 2009 market with U.S. hurricane and earthquake reinsurance pricing rising modestly, and pricing of other global natural perils holding firm. However, U.S. hurricane dominated programs, especially those exposed in the state of Florida will likely experience more significant price increases than others due to the potential inability of the Florida Hurricane Catastrophe Fund (FHCF) to fully finance its projected 2009 capacity in the uncertain municipal bond market. The loss of significant optional FHCF capacity or less confidence in its claims paying ability may greatly impact reinsurance renewals for Florida residential property insurers.

Factors Impacting Supply and Demand

The financial and credit crisis as well as the severity of 2008 hurricanes impacted reinsurers and it is estimated that reinsurers will be entering 2009 with 15 to 20 percent less economic capital than in 2008. Reinsurers sustained over US$10 billion in ceded catastrophe losses in 2008. However, reinsurers have maintained the core capital required to underwrite risk.

“Reinsurers have demonstrated prudent capital management during the recent financial crisis, particularly when measured against other financial institutions. Despite significant investment related losses, equity capital remains at appropriate levels to support underwriting risk for reinsurers,” said Bryon Ehrhart, chief executive officer of Aon Benfield Analytics. “Moreover, reinsurers have very low debt leverage and comparatively very low total asset leverage, relative to banks who have struggled greatly during this financial crisis.”

In addition, the report notes that the capital markets, who have played an increasing role in the mitigation of insurance risk, have also suffered from the recent financial turbulence. However, the multiple year structure of catastrophe bonds has helped cedents hedge capacity and price in the current firm market.

The impact of the credit and liquidity crisis has been considerably worse for insurers than for reinsurers. For calendar year 2008, Aon Benfield estimates that insurer capital will decrease by 25 to 30 percent. Mr. Ehrhart further commented: “Insurers too have maintained the core capital they need to continue their businesses. They may need additional capital to grow if growth opportunities materialize. Despite the erosion of insurer capital, only in limited circumstances have we seen the more stressed balance sheets driving additional reinsurance buying. Where reinsurance pricing has increased, cedents have, in some cases, tried to offset increased reinsurance spending through higher retentions.”

“Aon Benfield believes it delivers more value to insurers by identifying changes to the reinsurance markets in advance of key industry renewal dates rather than merely reporting on the varied results of actual renewals following key renewal dates,” concluded Mr. Ehrhart. “Our professionals work with each of our clients to help them understand how these global market factors will affect their property catastrophe reinsurance renewal. Factors such as insurer underwriting methods, data quality, capacity required, experience, and current modeled margin levels are all considered in order to help create the best result for our clients.”

Aon Benfield’s 2009 Global Reinsurance Market Outlook report is available for download at http://www.aonbenfield.com and http://www.aon.com

About Aon Benfield

Aon Benfield is the world’s premier reinsurance intermediary and capital advisor, providing clients with integrated capital solutions and services. The company offers clients access to every traditional and alternative market in the world, through an international network of offices spanning over 50 countries and more than 4,000 professionals. Its worldwide client base is able to access the broadest portfolio of integrated capital solutions and services, world-class talent, unparalleled global reach and local expertise to best meet their business objectives. Aon Benfield is the industry leader in treaty, facultative and capital markets transactions.

 

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