AOC Aon Corp.

CHICAGO, May 31 /PRNewswire-FirstCall/ -- Aon has responded to the U.S. Treasury's Request for Comment on the state of the U.S. terrorism insurance marketplace, warning of the danger of allowing the Terrorism Risk Insurance Act of 2002 (TRIA), or its successor legislation, TRIEA, to expire without a replacement reinsurance backstop. (Logo: http://www.newscom.com/cgi-bin/prnh/20041215/CGW049LOGO ) Aon Property Director Aaron Davis says the potential expiration of TRIA at the end of 2007 continues to be a major concern for the property terrorism marketplace, even more so now given the current state of the property insurance marketplace following the natural catastrophes of 2005. Insurance ratings agencies have recently taken action, imposing "fundamentally higher" capital requirements and loss thresholds on insurance carriers. Davis says the agencies made their decision to ensure that another catastrophe as severe as Hurricane Katrina, followed closely in time by another terrorist strike on the scale of 9/11, would not exhaust industry surpluses available to pay claims. "The significantly higher cost of conducting business that would follow a lowered rating, or maintaining the higher capital requirements, would provide a momentous disincentive for a majority of insurance carriers to write terrorism insurance once TRIEA (the Terrorism Risk Insurance Extension Act of 2005) expires at the end of next year," Davis said. As the gatekeepers of risk capital for the insurance and reinsurance industries, Davis says the role of rating agencies will be a key factor in the future of terrorism risk transfer -- whether TRIA expires at the end of 2007 or is extended or replaced by another terrorism backstop mechanism. Davis says the last two active hurricane seasons plus terrorism coverage concerns may have prompted the rating agencies to take a second, hard look at permanently changing how the rating agencies determine capital adequacy for the insurance industry. Without mechanisms like TRIA, Standard & Poor's has said it may lower its investment ratings of insurance companies that offer terrorism insurance. Davis says the $100 billion certified terrorism reinsurance provided by TRIA has effectively increased the total market capacity for terrorism coverage in the U.S. by over 80% and, to the benefit of policyholders in the U.S., significantly lowered the cost of such coverage in the process. Since the passage of TRIA in 2002, Davis says premiums paid by U.S. businesses for terrorism insurance have fallen by nearly 50%. Moreover, the changes to rating agency capital adequacy requirements, when coupled with forthcoming changes to natural catastrophe models that will raise expected loss severity and frequency assumptions, represent a fundamental change to the property insurance marketplace, Davis says. These changes will result in long-term pricing and capacity constraints that will be further aggravated by the disappearance of TRIA at the end of 2007. "Within the context of these property insurance pressures," Davis says, "we hope that the U.S. Treasury and all parties with a vested interest in maintaining affordable and available terrorism insurance capacity will reconsider their positions on the issue of TRIA's future and work diligently to provide a long-term solution to terrorism insurance in the U.S." Copies of Aon's response to the U.S. Treasury are available at http://aon.com/tria . 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 46,000 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. Contact: Al Orendorff Aon Public Relations 312-381-3153 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, our ability to execute the stock repurchase program, 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: Al Orendorff, Aon Public Relations, +1-312-381-3153 Web site: http://www.aon.com/ http://aon.com/tria

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