Aon Study Finds 2003 P/C Earnings Volatility Lower

June 21, 2004

Aon Corporation announced that the results of its 2003 P/C Earnings Volatility Study showed that insurers and reinsurers were more effective at minimizing earnings volatility in 2003.

“The study measures earnings volatility on a cumulative basis over the one, two, three and five-year earnings periods ending December 31, 2003,” said Aon. It covered “more than 60 public companies within commercial lines, specialty lines, personal lines and reinsurance,” and concluded that “solid underwriting and effective capital management are the key drivers to more predictable earnings.”

“Once a year we want to recognize the companies that led their respective sectors in generating the least volatile earnings,” stated Michael Bungert, president of Aon Re Global, which the bulletin described as the world’s largest reinsurance brokerage. “Research on this topic is limited in availability and we are pleased to have published our analysis on an annual basis over the past several years.”

The leaders and runners-up were measured by sector and were measured over a period of up to 10 years. ACE, Hartford, Old Republic and AIG were noted as the least volatile over all. In Specialty Lines the least volatile were RLI and Baldwin & Lyons.

Aon noted that on a “year-over-year basis, earnings volatility for all of the companies included in our study, on average, was 18 percent lower than 2002. Earnings reflected solid underwriting results stemming from prior rate increases and only marginally higher catastrophe losses. On a relative basis, earnings volatility in 2003 was the lowest in personal lines in three of the four measurement periods compared with the other sectors, consistent with the results published last year.”

The 2003 study also included, for the first time, rankings based on return on equity (ROE). It found that “over 90 percent of this year’s leaders and runners-up also placed in the top half of the ROE rankings for their respective sectors. The weighted average ROE for all of the insurers and reinsurers in the 2003 study improved to 10.9 percent from 6.5 percent in 2002 and 3.5 percent in 2001.”

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