Aon Benfield, the global reinsurance intermediary and capital advisor of Aon Corporation (NYSE: AON), today releases its 2011 Insurance Risk Study, which continues to be the industry's leading set of risk parameters for modeling and benchmarking underwriting risk.
The study, now in its sixth edition, provides underwriting volatility benchmarks that are a valuable resource to chief risk officers, actuaries and other economic capital modeling professionals, as well as comprehensive analyses of notable specific risks to the industry. Its data spans 47 countries and key business lines representing more than 90% of global property-casualty insurance premium.
Again this year, the study ranks global underwriting volatility by line of business and by territory. It reveals that property remains substantially more volatile than other major lines. In Germany and Spain property is nearly twice as volatile as motor, the most stable line; in the U.S., property is nearly three times as volatile, and in France, it is four times as risky. Overall volatility parameters are in line with last year's study, but they do not yet reflect 2011's significant catastrophe activity.
The study also provides a detailed summary of U.S. risk parameters and reserves, and highlights that despite recent favorable development in the P&C industry's reserves position, reserve risk remains a potential significant source of leveraged cyclical uncertainty and a continued threat to insurer solvency. Based on historical variance in reserve patterns the study estimates that aggregate U.S. industry reserve development of more than USD60bn can occur once every fifteen years, or roughly once per cycle – consistent with experience from the last two soft markets.
Meanwhile, it ranks the top 50 global markets by P&C Gross Written Premium (GWP), and reveals that the U.S. market leads the way with a GWP of USD455.98bn and 3.1% insurance penetration (defined as the ratio of premium to GDP), followed by Japan (USD76.93bn), Germany (USD67.79bn), the U.K. (USD62.66bn) and France (USD59.76bn). China ranks 6th, with a GWP of USD45.83bn and 0.8% insurance penetration.
International premium growth remains a challenge for the industry with none of the top ten countries showing an increase in insurance penetration. Absolute premiums decreased in five of the top ten countries, and, other than China, showed only modest increases in the others. Combined with depressed investment yields, insurers remain under significant pressure to expand their top line results.
The 26-page study includes a chapter dedicated to innovations in crop insurance modelling; a chapter focusing on achieving optimal performance in the Solvency II regime, and a section examining recent developments in the hedging of risk in variable annuity insurance products. It also analyzes the link between firms' price to book ratio and their prospective return on equity (ROE), showing that companies with more stable earnings over time have higher valuations for a given ROE.
Stephen Mildenhall, CEO of Aon Benfield Analytics, said: "The Insurance Risk Study is based on many years of modeling innovation, and actuarial research work from Aon Benfield's 400-strong global Analytics team. It offers a series of valuable benchmarks that will be of use to a wide range of risk professionals, and provides analyses of the key insurance risk considerations for insurers, as well as a macroeconomic perspective to highlight the wider issues influencing and affecting our industry. The Analytics team continues to develop a range of tools to address key challenges in specific markets, such as the Aon Benfield Crop Reinsurance Solution (ACReS), which assists insurers to manage their agriculture exposures, and Pathwise, the industry's fastest variable annuity hedging product. Capabilities such as these ensure that our firm continues to bring real differentiating value to our clients."
To view the full 2011 Insurance Risk Study report, please follow the link below:
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