Aon Says Property Reinsurance Rates Will Dip

The low severity of property-catastrophe hurricane losses since 2006 will result in more favorable pricing for traditional property-catastrophe reinsurance midyear renewals, according to Aon Re Global.

And the firm's parent, Aon brokerage, said with another active hurricane season predicted for this year, risk managers should remember that it will take only one hurricane event to cause a significant loss.

“While predictions of hurricane activity are important, insurance and reinsurance buyers must remember that any storm can cause massive destruction, whether that storm occurs in a season of above-normal activity or below-normal activity,” said Steven Drews, lead meteorologist and associate vice president of Impact Forecasting LLC, a unit of Aon Re Global, a subsidiary of Chicago-based Aon, in a statement.

He noted that Hurricane Andrew in 1992 and Hurricanes Dean and Felix in 2007 caused massive destruction during periods of relatively light activity.

Insurers, the firm said, can best drive shareholder value by consistently managing the enterprise risks facing their businesses. Ceding risks through the reinsurance markets is one method of doing so.

A study of insurance company stock price reaction to 2005's Hurricanes Katrina, Rita and Wilma found that insurance company stock prices were more sensitive to a single large loss, such as Hurricane Katrina, than an aggregation of loss events, for example Katrina, Rita and Wilma combined.

Managing enterprise risks should also be a strategic priority for those risk managers and finance professionals responsible for risk management, the company said.

A second Aon study, this one released in late 2007 by Aon Global Risk Consulting, found that only one in 10 of the companies surveyed had developed a fully integrated enterprise risk management strategy.

Before storms reach land, it's critical that organizations have plans to protect employees and property, and have an understanding of what losses are covered under existing policies, Aon noted.

Al Tobin, managing director and leader of Aon's property practice, said: “We advise our clients to focus on how best to protect their people, property and data, as well as the ability to communicate. Also, we urge clients to procure generators, temporary employee housing and restoration services before or early in the hurricane season, as such services are often difficult to get after a storm hits.”

Mitigating business interruption is key to preparing for tropical storm and hurricane risks and preventing a company or organization from losing revenue, Aon advised.

“Organizations may become complacent in their loss-mitigation planning if they haven't experienced a property loss in some time,” said Arnold Mascali, president of Aon Horizon and Aon Global Rapid Response. “Such complacency can leave them vulnerable to significant losses if catastrophes strike their facilities while they're not adequately prepared.”