NU Online News Service, Nov. 11, 1:07 p.m. EST

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Insurers and reinsurers should prepare for higher rating agencyscrutiny of catastrophe risk in Asia, and many companies will haveto make substantial investments to address this, according to AonBenfield.

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Aon Benfield said, "The recent Indonesian earthquake and the flooding in Pakistan are recent evidence of the region'sexposure to natural disasters."

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While Aon Benfield said these events, while causing extensivelocal devastation, have not severely impacted global insurers andreinsurers due to low insurance penetration, the reinsuranceintermediary and capital advisor said concerns will mount asinsurance penetration grows in developing Asia Pacificcountries.

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"This will increase rating agency scrutiny of [insurer andreinsurer] catastrophe risk, including the quality of datacollected, the systems used to monitor exposures and the modelsused to determine probable maximum losses."

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Aon Benfield noted that rating agencies have been restricted intheir analyses up to now because of the lack of catastrophe modelsfor many Asian perils. But data quality is improving as insurersinvest in systems capable of capturing location and constructioninformation of a global best practice standard, the companyadded.

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Rade Musulin, chief operating officer of Aon Benfield Analyticsin Asia Pacific, said, "While rating agencies have alwaysconsidered catastrophe risk in rating companies in Asia Pacific,their focus on the issue will increase as the insurance systemplays a greater role in funding natural disaster losses in theregion. [Insurers and reinsurers] with significant catastropheexposure wishing to earn strong ratings will have to makesubstantial investments in several areas such as technologicalsolutions to capture data and human capital to evaluate,underwrite, price, and reinsure property exposures."

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He said many of these tasks will take years to implement, so theindustry should begin to make investments today to meet futurerequirements.

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