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LONDON and CHICAGO, April 15 /PRNewswire-FirstCall/ — Pricing is projected to be favorable for traditional property catastrophe reinsurance programs when insurers seek mid-year renewals, according to an analysis conducted by Aon Re Global, a unit of the Aon Corporation . While terms and conditions are expected to continue to improve, Aon Re Global expects price reductions will be a higher priority for cedents. The underlying fundamentals that drove the softening of price and terms and conditions at January 1, 2008 are expected to continue though the June and July renewal season.
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“Supply continues to grow at a faster rate than that of cedent demand, which implies continued softening,” said Bryon Ehrhart, president and CEO of Aon Re Services.
Aon Re Global’s market expectations for the June 1 and July 1 renewals, detailed by region:
Region Rate On Line Capacity Retention
Changes Changes Changes

Americas
U.S. national
personal lines -10 to -15% 10 to 15% 5 to 10%
U.S. regional
personal lines -15 to -25% 15 to 20% 5 %
U.S. standard
commercial lines -10 to -15% 10 to 15% Stable
U.S. complex
commercial lines -10 to -15% 10 to 15% Stable to -10%

Canada -7.5 to -12.5% 10 to 15% Stable

Caribbean -5 to -10% 10 to 15% Stable

Mexico -5 to -10% 10 to 15% Stable

South America -5 to -10% 10 to 15% Stable

Europe
Northern Europe
(wind dominating) Flat to -10% 10 to 15% Stable
Southern Europe
(quake dominating) -5 to -15% 10 to 15% Stable
UK Flat to -10% 10 to 15% Stable

Asia
Asia Pacific
(excluding Japan) Flat to -10% 20 to 25% Stable
Japan Flat to -10% -5 to -10% Stable
Australia Flat 10 to 15% Stable

Assumes no changes in insured catastrophe exposures. Rate of change
measured from June 1 and July 1, 2007 terms.

Expectations for property and casualty reinsurers leading up to the June 1 and July 1 renewals are driven by the following factors:
— Low severity of property catastrophe losses in 2006, 2007 and the
first quarter of 2008
— 15 to 20 percent returns on equity in 2007
— Significant reserve releases in 2007 and further reserve releases
anticipated in 2008
— Growing capital bases, due in part to lighter share repurchases than
anticipated
— Stability or anticipated decreases in key U.S. perils of property
catastrophe loss models
— Limited impact on most reinsurers from mortgage security losses and
the repricing of credit risk
— Increased interest in assuming property catastrophe and other
insurance risks from capital markets investors through insurance-
linked securities, industry loss warranty swaps or collateralized
reinsurance transactions at prices comparable to projected decreases
in traditional reinsurance costs

At current pricing levels, and with the capitalization of the property and casualty reinsurance market, Aon Re Global estimates that it would require a ground-up property catastrophe occurrence loss in the range of $30 billion to $50 billion to change the direction of property catastrophe reinsurance rates, terms and conditions.
A substantial majority of the world’s largest property insurers now utilize risk transfer capacity through sponsorship of catastrophe bond transactions. This alternative facility now represents between 10 and 30 percent of program capacity for insurers buying more than $500 million of coverage for peak reinsurance aggregate zones. Aon Re Global expects this trend to continue through 2008 as even more catastrophe bond funds are raised.
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About Aon Corporation
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 is the leading global provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting. Through its 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. Aon also was ranked by A.M. Best as the number one global insurance brokerage in 2007 based on brokerage revenues, and voted best insurance intermediary, best reinsurance intermediary, and best employee benefits consulting firm in 2007 by the readers of Business Insurance. For more information on Aon, log onto
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