Capital Markets Use Won't Hurt Insurers: Broker

NEW YORK--Insurance provided by standard carriers will not be undermined by the use of capital market mechanisms to insure risks, the head of a brokerage firm told an industry meeting yesterday.

Addressing the Association of Professional Insurance Woman here, Gregory C. Case, president and chief executive officer of the Chicago-based Aon, said that demand for insurance is "going through the roof" and the major challenge the industry faces today is how to fulfill that demand.

At the same time, "Capital market solutions [such as catastrophe bonds] in addition to basic market solutions are a reality, they are here to stay," he said.

Aon, he related, is "leveraging the heck" out of capital bonds for its clients, and the future remains "a little fuzzy" as to where the allocation of risk will go.

The current mix of private equity and traditional insurance coverage is an opportunity for an industry that needs to be exploited, Mr. Case added.

The actions of the capital markets affect the insurance industry, underscoring the interrelationship they have developed, he noted. "That is why we have to be proactive and go after [those markets]," he said.

He said there remains a need for more capacity for risks, and the private equity markets can fill that need.

However, the access to capital is volatile, he said, noting that some deals are hung up because they can not get adequate credit ratings, but the money will eventually find a way in and "make a big difference."

But the talk about transferring risk to the capital markets does not undermine the need for traditional insurance contracts.

"We value our insurance clients very much," said Mr. Case. "That's a rock. That's stability. Sometimes the private capital markets can be less expensive, but it's volatile. The insurance markets are there for a very clear reason and play a valuable role."

In response to a question about protecting insurance markets while turning to the capital markets for placements, Mr. Case said that the first step is to sit down with clients and discuss the advantages and disadvantages to placements in both.

Insurance, he said, tends to be very specialized while capital markets are looking for broader, more harmonized risks. Aon's focus is to provide business based on what is in the client's best interest.

"We are the largest supporter of the insurance markets in the world," said Mr. Case. "We move $60 billion of premium every year. No one does more premium than we do and we talk to more companies because of our middle market position. And we talk to them more often than any firm on the planet on the topic of risk management.

"To us, the insurance markets play an absolutely vital role and have done so for a long period of time," he said.