Template AHG

							                      Aon Limited




       ART -
the client perspective



    Sam Dell, Aon Limited
    Global Risks ART solutions
                     ART solutions
                             Alea.ppt/1
                                                      Aon Limited

ART - the client perspective

   ART / ARF
     Definition & solutions
     Traditionally uninsurable risks

   Demand side - drivers for the corporate client

   Corporate client market research

   ART / ARF solutions and services in practice

   Conclusion - now or never for ART?




                                                     ART solutions
                                                             Alea.ppt/2
                                     Aon Limited

 ART / ARF solutions - definition



ART is an evolutionary solution driven
approach. It is not a product. It is the
 result of the buyers goal to utilise its
 capital to manage and take risk more
  efficiently than its current products
                  allow.

                                    ART solutions
                                            Alea.ppt/3
                                                                        Aon Limited

“Alternative” can mean any of the following
   Alternative Insurance Solutions
     risks already insured with new programme design
     an enhanced feature of an existing programme i.e. Profit Commission.

   Alternative Risks
     risks not traditionally insured in the (re)insurance market

   Alternative Risk Financing Solutions
     risk transfer solutions that are neither insurance or reinsurance contracts
      i.e. Funded

   Alternative Markets
     suppliers of risk capital that are not insurers or reinsurers
    In practice most deals are a combination of 2 or 3 of the above
                                                                  ART solutions
                                                                               Alea.ppt/4
                                                                  Aon Limited

Traditionally uninsurable risks
   Contingent liabilities             Economy based risks
        Asbestos                          Currency / F.X.
        Environmental impairment          Investment and interest rates
        Tobacco health hazard             Commodity exposures
        Breast implants
        Mould

   Revenue protection
        Debt repayment guarantee
        Research & development
        Ridership
        Mandatory Modifications
        Debt Repayment Guarantee
        Brand Image

                                                                ART solutions
                                                                            Alea.ppt/5
                                                                        Aon Limited

“Alternative” can mean any of the following
   Alternative Insurance Solutions
     risks already insured with new programme design
     an enhanced feature of an existing programme i.e. Profit Commission.

   Alternative Risks
     risks not traditionally insured in the (re)insurance market

   Alternative Risk Financing Solutions
     risk transfer solutions that are neither insurance or reinsurance contracts
      i.e. Funded

   Alternative Markets
     suppliers of risk capital that are not insurers or reinsurers
    In practice most deals are a combination of 2 or 3 of the above
                                                                  ART solutions
                                                                               Alea.ppt/6
                                                     Aon Limited

Example - alternative insurance solutions

   Deductible Smoothing programmes

   Use of Captive Insurers

   PCC‟s and Insurance Vehicles

   Introduction of Multi-Line / Multi-Year deals

   Finite Risk / Funded programmes

   Integrated programmes




                                                    ART solutions
                                                            Alea.ppt/7
                                                                               Aon Limited

Demand side - drivers for corporate clients (1)

   Client focus: a broader range of risks from changes in technology,
    legislation, social attitudes, globalisation, economic conditions etc. e.g
    e-risks

   Trends in corporate governance demand that clients can demonstrate
    adequate risk management (Cadbury, Turnbull, possible introduction
    of Corporate Killing)

   Client sophistication - use of Enterprise Risk Management techniques,
    segmentation, and risk management functions more closely allied to
    Treasury functions

   Investors - more sensitive to swings in earnings - focus by
    management on decreasing this volatility
     CEO/CFO’s view on risk : “anything that hurts our earnings per share or market
                               capitalisation”.

                                                                             ART solutions
                                                                                      Alea.ppt/8
                                                                       Aon Limited

Demand side - drivers for corporate clients (2)
   Demand coverage for new / broader types of business risk
     Stand alone basis or integrated into a package
     Mergers & Acquisitions enhance earnings, but at the same time increase
      potential (unknown) liabilities

   Demand for integral risk management and balance sheet
    protection

   Continuing concern over the breadth of insurance products
     indemnity agreement is usually highly conditional, specific and defined

   Most efficient use of capital

   Issue of convergence of capital, banking & insurance markets -
    credit enhancement programmes
                                                                     ART solutions
                                                                                Alea.ppt/9
                                                                                Aon Limited

Demand side - corporate client market research
   1995 - Top 5 greatest risks        2001 - Top 5 greatest risks
    facing organisations                facing organisations


        1. Fire                            1. Loss of Reputation
        2. Employers’ Liability            2. Failure to Change
        3. Health & Safety                 3. Business Interruption
        4. Business Interruption           4. Product Liability
        5. Product Liability               5. Computer Crime




                                             Source - Aon Limited
                                             Biennial Risk Management & Risk Financing Survey 2001



                                                                             ART solutions
                                                                                           Alea.ppt/10
                                                            Aon Limited

Solutions and services in practice (1)
   Long term, integrated risk financing programme with strong
    emphasis on:
     risk transfer and
     protecting company’s balance sheet

   Broad definition of risk

   Innovative, flexible and financially sound security

   Carefully structured programme
     Tax
     Accounting
     Legal

   Mutual trust and partnership between client and underwriters
                                                          ART solutions
                                                                   Alea.ppt/11
                                                           Aon Limited

Solutions and services in practice (2)
   Latest 100 “ART” enquiries passed to Aon Risk Consultants in
    the past 12-18 months :-
     Project Finance - 20 (Credit Enhancement)
     Insurance company / captive (smoothing) - 20
     Loss portfolio transfer - 15
     Operational risk - 10
     Weather - 10
     Commodity price - 5
     Accident/Health insurance schemes - 5
     Pensions mis-selling - 5
     Cat bond / CatEPut - 5
     Carbon trade/renewable Energy - 5
                                                         ART solutions
                                                                   Alea.ppt/12
                                                                  Aon Limited

Conclusion - now or never for ART? (1)

   “Alternative” market is made up of various different solutions &
    transfer methods

   There is an increase in the level of client sophistication

   Demand side - increasing demand for an ART involvement &
    solutions

   Supply side - various factors at work
     Hardening market a double edged sword - may lead to underwriters
      withdrawing “alternative” capacity




                                                                 ART solutions
                                                                         Alea.ppt/13
                                                            Aon Limited

Conclusion - now or never for ART? (2)

   Client demands for alternative risk management may provide for
    growth in services/solutions offered by insurance market - not
    linked to market conditions
      Consulting opportunities
      Transactional (risk transfer) opportunities
      options, trigger mechanisms etc.

   ART is in its infancy - likely to evolve gradually

   Client awareness and understanding needs to be raised if the
    potential of ART is to be fully developed and exploited




                                                          ART solutions
                                                                   Alea.ppt/14
                                                               Aon Limited

Future development of ART

   Corporate buyers require flexible, bespoke applications.

   This requires a different, solution-focused „mindset‟ from the
    capital providers.

   The technology will continue to evolve as demands change.

   Corporate buyers will remain cautious until the techniques and
    instruments are fully tested in real circumstances. Issues such
    as accountancy treatment, taxation treatment and legal contracts
    need to be analysed carefully.

   However, the programmes are growing in popularity with
    potential buyers and the major capital providers.


                                                             ART solutions
                                                                     Alea.ppt/15
                                Aon Limited

ART - the client perspective




                               ART solutions
                                       Alea.ppt/16
                      Aon Limited




       ART -
the client perspective



    Sam Dell, Aon Limited
    Global Risks ART solutions
                     ART solutions
                             Alea.ppt/17