AOC Aon Corp.

CHICAGO, Oct. 3 /PRNewswire-FirstCall/ -- Even before Hurricane Katrina made landfall, homeowners insurers in coastal states knew their returns were insufficient to sustain the capital required to support the growing exposure to catastrophes. An Aon study, released today, underscores this fact -- average expected results for homeowners insurance in hurricane-prone states are insufficient to cover the cost of capital. (Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO ) Randall Brubaker, head of the ratemaking support practice of Aon Re Services, Inc. commented, "Many factors combine to create the continual need for higher premiums from homeowners in coastal states. These factors include constant population growth on concentrated coastlines, increasing home sizes and values, expansion of coverage through changing interpretations of policies or statutes, and an increase in the frequency of hurricanes making landfall." While these factors generate higher premium requirements, strong resistance from regulators and consumer advocacy groups artificially delay the inevitable rise in premiums for policyholders and accelerate insurer downgrades and insolvencies. Policyholder choices are limited in most coastal states. After Hurricane Katrina and the four significant hurricanes of 2004, the underlying assumptions about the frequency and severity of storms will be adjusted by insurers to reflect their experience and expectations for the future. Capital levels have deteriorated so significantly for homeowners insurers that operating results must now generate new surplus to support even current risk levels. Coastal states insurance results are far from returning the cost of capital required to support operations. Other states have had their own challenges through the past decade. With rate changes and other underwriting changes many of these states are producing returns consistent with the cost of capital. While several non-hurricane- prone states appear to be competitive, simply earning the cost of capital is not sufficient to sustain competitive markets for policyholders nor does it allow cushion for any significant unusual events. New underwriting strategies better incorporating the component costs of catastrophe risks, including more conservative views of the uncertainty associated with such risks, will be formulated over the course of the next year, particularly in hurricane-prone states. Bryon Ehrhart, president of Aon Re Services, Inc., commented, "Policyholders likely have a better appreciation for the value of homeowners insurance given recent events and should expect that insurers may need to raise rates to continue to provide their critical service." About Aon Aon Corporation (NYSE:AOC) ( http://www.aon.com/ ) is a leading provider of risk management services, insurance and reinsurance brokerage, human capital and management consulting, and specialty insurance underwriting. There are 47,000 employees working in Aon's 500 offices in more than 120 countries. Backed by broad resources, industry knowledge and technical expertise, Aon professionals help a wide range of clients develop effective risk management and workforce productivity solutions. This press release contains certain statements related to future results, or states our intentions, beliefs and expectations or predictions for the future which are forward-looking statements as that term is defined in the Private Securities Litigation Reform Act of 1995. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from either historical or anticipated results depending on a variety of factors. Potential factors that could impact results include: general economic conditions in different countries in which we do business around the world, changes in global equity and fixed income markets that could affect the return on invested assets, fluctuations in exchange and interest rates that could influence revenue and expense, rating agency actions that could affect our ability to borrow funds, funding of our various pension plans, changes in the competitive environment, our ability to implement restructuring initiatives and other initiatives intended to yield cost savings, changes in commercial property and casualty markets and commercial premium rates that could impact revenues, changes in revenues and earnings due to the elimination of contingent commissions, other uncertainties surrounding a new compensation model, the impact of investigations brought by state attorneys general, state insurance regulators, federal prosecutors, and federal regulators, the impact of class actions and individual lawsuits including client class actions, securities class actions, derivative actions, and ERISA class actions, the cost of resolution of other contingent liabilities and loss contingencies, and the difference in ultimate paid claims in our underwriting companies from actuarial estimates. Further information concerning the Company and its business, including factors that potentially could materially affect the Company's financial results, is contained in the Company's filings with the Securities and Exchange Commission. http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO http://photoarchive.ap.org/ DATASOURCE: Aon Corporation CONTACT: Dave Van de Walle of Aon Corporation, +1-312-381-5028, Web site: http://www.aon.com/

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