Ab Analytics Insurance Risk Study

Aon Benfield
Insurance Risk Study

Growth, profitability, and opportunity
Ninth edition 2014
Risk. Reinsurance. Human Resources.
Table of Contents
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Global Premium, Profitability, and Opportunity. . . . . . . . . . . . . . 5
Global P&C Gross Written Premium and Growth Rates by Product Line . . 6
Growth Markets and Over/Under Performers. . . . . . . . . . . . . . . . . . . . . . . 8
Looking Ahead: Growth Projections . . . . . . . . . . . . . . . . . . . . . . 10

Uncovering Growth Opportunities . . . . . . . . . . . . . . . . . . . . . . . 15
Country Opportunity Index. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Insurance Trends: Risks and Opportunities. . . . . . . . . . . . . . . . . 17

Auto Trends. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
U.S. Health Insurance Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
U.S. Cyber Insurance Market. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
China Crop Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Global Risk Parameters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

U.S. Risk Parameters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
U.S. Profitability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
U.S. Reserve Adequacy. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
Global Correlation Between Lines . . . . . . . . . . . . . . . . . . . . . . . . 28
Big Data and Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
Sources and Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35
Introduction
The 2014 Insurance Risk Study is focused on uncovering profitable growth opportunities in the insurance
market. There are many bright spots within todays rapidly evolving insurance marketplace. Globally, property
casualty business produced an underwriting profit in 2013 with a combined ratio of 99.1 percent. In 21 of the
top 50 markets combined ratios were below 95 percent, and in ten the combined ratios were below 90 percent.
Furthermore, 16 countries showed five year premium growth in excess of 10 percent, led by very strong growth in
China. The first section of the Study presents the country and line of business detail to identify these opportunities
and discusses how to move from coarse statistics to targeted growth strategies. The second section provides an
update of our global risk parameters.
Premium, capital, and profitability highlights

At year end 2013, global premium stands at an all-time high of
Catastrophe losses have been a driver of the growth in
USD4.9 trillion, an increase of 0.9 percent over the prior year.
property premiums in many parts of the world. Impact
Property casualty premium increased 3.5 percent, and
Forecasting, Aon Benfields catastrophe model development
life premiums shrunk by 2.0 percent while health premiums
center, estimates that during 2013 insured catastrophe losses
grew 4.5 percent.
totaled USD45 billion. In perspective, catastrophe losses
Global insurance premium and capital, USD trillions
translated into 3.2 percent of property casualty premium and a

global catastrophe load of 9.9 percent of property premium.
Premium
Capital
Property & Casualty
1.4
1.3
Life & Health
3.3
2.1
Reinsurance
0.2
0.5
Total
4.9
4.0
The combined ratio for property casualty business in the

top 50 countries in 2013 was under 99.1 percent compared
to 101.1 percent last year. The global average is helped by
European countries, with an average combined ratio of 96.7
percent, compared to 101.0 percent in the Americas and
Global capital increased 3.9 percent year on year to USD4.0
100.4 percent in Asia Pacific. The five year average combined
trillion. Property casualty insurance capital increased 7.1 percent.
ratio continued under 100 percent too, at 99.8 percent. The
And reinsurance capital is at an all-time high, as we discuss at
overall global combined ratio under 100 percent, and the
greater length in Aon Benfields Reinsurance Market Outlook.
variation in results by country, clearly show there are many
Property casualty penetration is 1.9 percent of GDP, marginally
desirable areas for profitable growth in the market today.
down from 2.0 percent last year based on the top 50 countries.
Where does the insurance market go from here? We
Auto insurance accounts for 46 percent of property casualty
project that global premium will grow by 18 percent over
premium, while property accounts for 33 percent and liability
the next five years, reaching a total of USD 1.6 trillion by
for 21 percent.
2018. Auto will continue to be the largest line, driven

in part by strong growth in China. Detailed projections
by line and country are shown on pages 10 to 14.
Aon Benfield
Growth and Big Data
Using the study
The Insurance Risk Study is now in its ninth edition, and
Insurance risk remains core to the Study and pages 22
there have been many changes in the industry since we
to 30 contain our comprehensive view of risk by line
began research for the first edition in 2005. After seven
and geography using the techniques we have been
major (category 3+) U.S. hurricane landfalls from 2004
applying consistently since 2005. The Insurance Risk
to 2005 there have been no major hurricane landfalls
Study continues to be the industrys leading set of risk
in the last eight years. Adverse loss development has
parameters for modeling and benchmarking underwriting
turned into a long stream of favorable development.
risk and global profitability. Beyond risk modeling, we can
Premium growth and the locus of catastrophe losses
also provide our clients with very granular, customized
has shifted to the East. Today the emphasis is on
market intelligence to create business plans that are
making efficient use of cheaper alternative capital and
realistic, fact-based, and achievable. With a global fact
on growth in the face of an often sluggish economic
base and broad access to local market practitioners, we
environmentchallenging themes that recent editions
are equipped to provide insight across a spectrum of
of the Study have addressed with increasing detail.
lines, products, and geographies. Inpoint, the consulting
The market continues to embrace and adopt Big

Data concepts in pricing and underwritinga subject
we explore on pages 30 to 32. Big data for insurance
often really means Behavioral Data, with the industry
engaging in an active search for more detailed and
more predictive variables to add to underwriting
and pricing algorithms. Aon Benfield, and Aon more
address these challenges, from sizing market opportunities

to identifying distribution channel dynamics, assessing
competitor behavior, and understanding what it takes to
compete and win. Our approach leverages Aon Benfields
USD130 million annual investment in analytics, data,
and modeling to help our clients grow profitably.
broadly, are spearheading several initiatives to help
All of our work at Aon Benfield is motivated by client
bring more predictive variables and analytic insight to
questions. We continue to be grateful to clients who have
clients, in areas including health and crop insurance.
invited us to share in the task of helping them analyze
The growth imperative continues to stress many

industries, particularly in mature markets. For insurers, the
efficiency gains from Big Data often serve to redistribute
risks, but not to grow the piecreating clear winners and
losers. The first part of the Study now covers detailed
global information about insurance capital, premium, and
profitability. We continue to be the only comprehensive
view of combined ratio by country available in the public
domain, to the best of our knowledge. We also offer some
ideas for how to grow the pie. The Study includes global
growth projections for insurance and reinsurance as well
as sections on health, auto, crop, and cyber insurance.
division of Aon Benfield, helps insurers and reinsurers
their most complex business problems. Dynamic and

interactive working groups always lead to innovative,
and often unexpected, solutions. If you have questions
or suggestions for items we could explore in future
editions, please contact us through your local Aon Benfield
broker or one of the contacts listed on the back page.
Global Premium, Profitability, and Opportunity

An abundance of capital is providing new lower cost alternatives to traditional equity risk financing, opening
new avenues for growth. After many years of catastrophe risk management, often implemented as exposure
reductions, clients are now looking more aggressively at growth opportunities to leverage this new cheaper
capacity. To help guide growth decisions, Aon Benfield has worked through a mass of market data from many
different sources to produce the consistent, country-level profitability statistics we introduce in this section.
Our strategic decision framework identifies accessible
California is the largest U.S. state in terms of premium,
markets and high-potential customer segments to formulate
and if it were independent it would follow the U.K. as
growth programs tailored to an insurers capabilities and risk
the seventh largest insurance market in the world. Texas,
appetite. Working with our broker network and our investment
Florida, and New York would also sit among the top
bank, Aon Benfield Securities, we can develop and help
10 as independent countries, having roughly the same
execute growth plans through organic growth, acquisition,
premium as Canada, Italy, and Australia respectively.
reinsurance, and joint ventures, singly or in combination.
This section presents our unique, detailed analysis of
Part of our job is to make connections and draw comparisons
global capital, premium, and profitability, as well as
that others do not see. In that spirit, we begin this section
snapshots of trends and emerging risks that we expect to
with the map below, which overlays country names on
create both risk and opportunity in the coming years.
states with approximately equivalent premium volumes.
Global P&C premium compared to U.S. state premium

Morocco
Mountain
Region = Australia
Austria
West North Central

Region = Canada
Greece
Romania
Singapore
Luxembourg
Pacific
Region = China
Russia
Thailand
Brazil
Ireland
India
Thailand
Austria
Switzerland
Denmark
Colombia
Greece
Mexico
Morocco
Argentina
Netherlands
Sweden
Poland
Canada
West South
Central Region = U.K.
Russia
South Africa
Malaysia
Romania
Turkey
South Africa
Venezuela
Poland
Romania
Israel
Australia
Brazil
Austria
U.K.
Saudi Arabia
Morocco
New England
Region = Spain
India
Portugal
Taiwan
Romania
Mid-Atlantic
Region = China
South
Africa
Singapore
Thailand
Nigeria
East North Central

Region = Germany
Switzerland
South Atlantic
Region = Japan
Italy
East South
Central Region = Spain
Aon Benfield
Global P&C gross written premium and growth rates by product line
Premium by product line
Five-year average annual growth rate
Motor: USD 633 billion

Brazil
Motor: 3.6% annual growth

Canada
Rest of Americas
China, 10%
U.S., 34%
30
25
20
15
Japan
South Korea
Rest of APAC
France, 4%
Germany
U.K.
0
-5
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&
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Property: USD 453 billion
Ja
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Br
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U.
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da
-10
Rest of Euro Area
na
Rest of Europe
Ca
Middle East
& Africa
10
France, 6%
Germany
30
25
20
15
10
5
U.K.
0
-5
Rest of Europe
Rest of Euro Area
U.S., 45%
Rest of APAC
France, 6%
Germany
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Rest of Euro Area
Notes: All statistics are the latest available. Motor includes all motor insurance
coverages. Property includes construction, engineering, marine, aviation,
and transit insurance as well as property. Liability includes general liability,
workers compensation, surety, bonds, credit, and miscellaneous coverages.
pa
30
Br
az
Rest of Europe
U.K.
Liability: 1.6% annual growth
Middle East
& Africa
Canada
Rest of Americas
China, 2%
Japan
South Korea
U.
S
Brazil
So
ut
Liability: USD 296 billion
Ja
U.
S
-10
Ch
in
a
Middle East
& Africa
Property: 4.0% annual growth
il
Ca
na
to
da
fA
m
er
ic
as
U.S., 44%
Canada
Rest of Americas
China, 3%
Japan
South Korea
Rest of APAC
Br
az
il
Ca
Re
na
st
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of
Am a
er
ic
as
Ch
in
a
Brazil
Premium/
GDP Ratio
P&C GWP
(USD M)
Top 50 P&C markets ranked by gross written premium by region

Annualized Premium Growth
1yr
3yr
5yr
Cumulative Net Loss Ratio

1yr
3yr
5yr
Cumulative Net Expense Ratio

1yr
3yr
5yr
Cumulative Net Combined Ratio

1yr
3yr
5yr
Americas
531,838
3.0%
5.6%
5.3%
2.5%
74.8%
75.6%
74.8%
27.3%
27.2%
27.0%
102.1%
102.9%
Canada
U.S.
42,179
2.4%
0.8%
7.0%
4.6%
65.3%
69.6%
70.3%
29.0%
28.7%
28.6%
94.3%
98.3%
101.9%
99.0%
Brazil
23,647
1.1%
-3.1%
3.2%
5.9%
53.0%
53.6%
55.3%
35.3%
34.4%
30.4%
88.3%
88.1%
85.7%
104.8%
Argentina
11,835
2.9%
13.8%
19.9%
16.9%
71.2%
68.4%
67.5%
36.4%
37.3%
37.3%
107.6%
105.7%
Mexico
10,415
0.8%
11.9%
10.7%
6.2%
61.7%
64.0%
65.9%
30.4%
30.2%
31.0%
92.2%
94.2%
96.9%
6,732
2.0%
27.2%
1.6%
12.2%
58.8%
61.5%
63.7%
37.7%
35.2%
33.1%
96.5%
96.7%
96.9%
108.9%
Venezuela
Colombia
4,425
1.1%
0.5%
11.2%
11.2%
63.5%
61.4%
61.4%
48.7%
48.0%
47.6%
112.2%
109.4%
Chile
3,708
1.4%
-0.3%
11.8%
10.2%
50.4%
51.4%
51.6%
45.0%
43.0%
44.0%
95.4%
94.4%
95.6%
Ecuador
1,547
1.5%
16.5%
16.3%
14.0%
53.0%
52.3%
53.2%
35.8%
34.3%
33.7%
88.8%
86.6%
86.9%
636,325
2.6%
5.3%
5.6%
3.1%
72.7%
73.8%
73.4%
28.3%
28.2%
27.7%
101.0%
101.9%
101.1%
Subtotal
Europe, Middle East & Africa

Germany
71,432
1.8%
3.1%
2.3%
0.5%
73.3%
74.6%
73.9%
25.3%
25.7%
25.2%
98.6%
100.3%
99.0%
U.K.
65,538
2.3%
1.3%
3.5%
-3.0%
65.2%
67.1%
66.9%
34.3%
33.9%
34.3%
99.5%
101.0%
101.2%
France
66,918
2.3%
-6.5%
-1.8%
-0.3%
73.5%
74.5%
74.3%
24.2%
24.5%
24.6%
97.7%
99.0%
98.9%
Italy
37,397
1.7%
-2.4%
-2.2%
-4.2%
71.5%
74.2%
75.2%
23.7%
23.6%
23.6%
95.2%
97.7%
98.8%
Spain
28,826
2.0%
0.0%
-1.7%
-4.9%
71.2%
71.6%
71.5%
21.4%
21.0%
21.1%
92.6%
92.6%
92.5%
Russia
19,199
0.9%
8.2%
14.7%
5.9%
63.0%
64.7%
65.8%
28.6%
24.5%
22.9%
91.6%
89.3%
88.7%
101.0%
Netherlands
13,366
1.6%
-7.9%
-3.5%
-1.0%
88.8%
88.6%
88.0%
12.0%
12.7%
13.0%
100.9%
101.3%
Switzerland
14,682
2.1%
2.4%
5.3%
5.1%
68.6%
70.0%
70.9%
26.6%
26.1%
26.2%
95.2%
96.1%
97.1%
Belgium
10,880
2.0%
-4.2%
0.9%
1.7%
67.2%
70.1%
71.3%
28.1%
28.0%
27.7%
95.2%
98.1%
99.0%
Norway
9,454
1.8%
9.5%
7.9%
5.7%
71.4%
73.5%
73.8%
14.2%
15.1%
15.7%
85.7%
88.7%
89.6%
Austria
9,767
2.2%
5.9%
3.3%
0.4%
70.2%
70.8%
70.6%
28.3%
28.7%
28.5%
98.5%
99.5%
99.0%
Sweden
7,669
1.3%
-1.3%
5.2%
0.8%
74.1%
73.9%
73.4%
18.4%
17.7%
17.8%
92.4%
91.6%
91.1%
Denmark
8,473
2.4%
2.7%
1.8%
-0.1%
71.4%
76.3%
76.2%
17.2%
17.2%
17.3%
88.6%
93.5%
93.5%
Turkey
7,770
1.0%
14.2%
13.0%
5.3%
79.0%
77.7%
78.2%
26.7%
27.8%
26.9%
105.7%
105.5%
105.1%
Poland
7,439
1.4%
3.5%
3.4%
-0.2%
60.8%
65.9%
64.1%
30.6%
30.7%
31.7%
91.4%
96.7%
95.8%
South Africa
9,968
2.8%
-3.0%
9.2%
11.7%
61.0%
61.3%
63.3%
24.9%
25.0%
24.2%
86.0%
86.4%
87.6%
Finland
5,107
1.9%
15.6%
7.6%
3.2%
78.2%
81.7%
80.1%
20.5%
20.7%
20.6%
98.7%
102.4%
100.6%
Ireland
3,548
1.5%
-9.2%
-6.2%
-6.1%
73.2%
72.1%
72.6%
29.3%
29.2%
28.4%
102.5%
101.3%
101.0%
Israel
4,326
1.4%
13.3%
6.2%
4.0%
74.3%
76.2%
77.2%
32.2%
32.2%
31.5%
106.5%
108.4%
108.7%
91.0%
Czech Republic
3,935
2.0%
4.1%
-0.7%
-2.5%
62.5%
63.0%
63.1%
29.9%
29.3%
27.9%
92.4%
92.3%
U.A.E.
3,424
0.8%
-8.9%
-1.2%
0.1%
70.4%
71.5%
70.5%
22.0%
19.9%
17.6%
92.4%
91.4%
88.1%
Portugal
4,165
1.8%
-8.6%
-4.4%
-5.0%
71.7%
71.2%
70.0%
23.3%
22.8%
22.7%
95.1%
94.0%
92.7%
100.7%
Greece
2,840
1.1%
-4.9%
-2.2%
0.4%
56.4%
58.3%
62.1%
40.5%
38.8%
38.6%
96.9%
97.1%
Saudi Arabia
3,067
0.4%
27.8%
19.6%
15.8%
79.1%
74.2%
73.4%
15.0%
18.3%
18.1%
94.1%
92.5%
91.5%
Romania
1,929
1.0%
9.2%
-2.0%
-6.9%
72.1%
72.7%
75.0%
42.5%
40.5%
36.8%
114.6%
113.2%
111.8%
Morocco
1,638
1.4%
11.5%
5.9%
10.8%
57.9%
61.2%
64.5%
33.2%
33.8%
33.2%
91.1%
95.1%
97.8%
Nigeria
1,136
0.4%
8.5%
2.1%
17.2%
51.0%
49.3%
48.6%
31.4%
31.2%
31.7%
82.5%
80.5%
80.2%
101.9%
Luxembourg
951
1.5%
-3.2%
2.2%
-13.0%
66.0%
65.3%
64.7%
37.2%
37.5%
37.2%
103.2%
102.8%
Bulgaria
917
1.7%
7.6%
0.3%
-3.9%
54.6%
55.0%
54.8%
34.8%
35.8%
35.5%
89.5%
90.8%
90.3%
425,763
1.8%
0.4%
1.8%
-0.5%
72.0%
73.2%
73.3%
24.8%
24.6%
24.6%
96.7%
97.8%
97.9%
103.5%
Subtotal
Asia Pacific
Japan
94,825
2.0%
2.7%
7.3%
7.8%
69.1%
71.0%
69.1%
33.2%
33.9%
34.4%
102.3%
105.0%
China
84,431
0.8%
18.1%
26.1%
26.3%
64.4%
64.6%
66.8%
34.5%
33.3%
31.9%
98.9%
97.9%
98.7%
Australia
34,097
2.4%
0.1%
11.6%
11.0%
64.1%
69.8%
71.6%
27.7%
27.8%
28.1%
91.8%
97.6%
99.7%
S. Korea
13,298
1.0%
-12.5%
-0.7%
0.0%
78.5%
77.8%
77.9%
23.6%
23.1%
23.1%
102.1%
100.9%
101.1%
9,200
0.5%
9.3%
12.1%
10.2%
82.8%
87.7%
87.4%
28.7%
30.1%
31.1%
111.6%
117.9%
118.5%
101.0%
India
Thailand
5,651
1.5%
14.7%
18.4%
14.6%
75.6%
69.6%
64.6%
34.4%
35.5%
36.4%
110.0%
105.1%
Malaysia
4,442
1.3%
4.5%
8.3%
8.4%
59.0%
61.9%
62.3%
30.6%
28.5%
28.4%
89.7%
90.4%
90.7%
Taiwan
3,917
0.8%
2.7%
7.5%
3.1%
59.6%
58.9%
56.8%
37.3%
37.7%
40.5%
96.9%
96.6%
97.2%
120.5%
New Zealand
3,886
2.0%
10.6%
16.1%
12.1%
59.5%
90.7%
84.4%
36.6%
35.3%
36.1%
96.1%
126.1%
Indonesia
3,404
0.4%
3.5%
15.4%
11.6%
53.3%
54.3%
55.0%
33.0%
33.3%
33.2%
86.3%
87.6%
88.2%
Hong Kong
3,187
1.1%
29.6%
15.7%
11.6%
61.1%
59.9%
59.5%
45.8%
38.9%
39.1%
106.8%
98.8%
98.6%
Singapore
Subtotal
Top 50
2,501
0.8%
2.1%
6.8%
7.5%
53.8%
55.0%
55.7%
32.8%
33.2%
33.1%
86.6%
88.3%
88.9%
262,839
1.2%
6.5%
12.9%
12.2%
69.4%
70.8%
70.7%
31.0%
30.9%
31.0%
100.4%
101.8%
101.7%
1,324,927
1.9%
3.9%
5.6%
3.3%
71.6%
72.8%
72.8%
27.4%
27.3%
27.0%
99.1%
100.1%
99.8%
Aon Benfield
Growth markets and over or under performers

Aon Benfield examined premium growth and loss ratio
For all quadrant plots, growth is determined based on five
performance by country across motor, property, and liability
year annualized premium growth. Countries with values
lines of business as well as premium growth and combined ratio
greater than 7.5 percent are classified as high growth.
performance by country for all lines. The quadrant plots below

summarize the results of that analysis and identify countries as
either low growth or high growth and as loss ratio (by line) or
Loss ratio and combined ratio performance is determined

based on five year average loss ratio and five year average
combined ratio (total) out performers or under performers.
combined ratio, respectively. Each countrys loss ratio
To measure performance, the first three quadrant plots use loss
using a USD30,000 GDP per capita split between high income
ratio for each line of business while the right-most plot shows
and low income companies. Combined ratio performance
combined ratio for all lines of business. Each plot also provides
is compared against the global combined ratio. Countries
the gross written premium size, in USD millions, of each country.
with five year loss ratios lower than the average of their
performance is compared against its income level peers,
income peers, or combined ratios below the global

combined ratio, are classified as out performers.
Motor
Property
Loss ratio performance

Out performers
Out performers
Out performers
Out performers
Low
growth
Austria
Bulgaria
Canada
Czech Republic
France
Greece*
Japan
Malaysia*
Mexico
Netherlands
Nigeria
Poland
Romania
Spain
Switzerland*
Taiwan
Thailand
U.A.E.*
2,313
33
6,607
1,182
9,945
356
17,034
Austria 480
1,591
Bulgaria
2,941
Czech Republic
294
Denmark
1,209
Hong Kong
192
Japan 6,322
New Zealand
3,330
Norway*397
Switzerland
294
U.S. 1,137
Belgium
Denmark
Finland
Germany
Ireland
Israel
Italy
Luxembourg
Portugal
S. Korea
U.K.
U.S.
Belgium
3,151
Brazil*1,026
Canada1,375
Finland
16,331
France 812
Germany622
Greece5,392
Ireland 193
Israel 1,047
Italy 1,797
16,617
Luxembourg
133,766
Mexico
Netherlands
Poland
Portugal
Romania
Russia
S. Korea
Spain
Sweden
Taiwan
Turkey
U.A.E.*
U.K.
Low
growth
Australia
Brazil*
Chile*
China*
Colombia*
Ecuador*
3,999Kong*
Hong
673
India*
1,829
Indonesia*
2,903
New
Zealand*
481
Russia*
57,290
Saudi Arabia
1,179
Singapore*
3,369 Africa
South
6,449
Turkey*
206,817
Venezuela*
4,422
Argentina
14,209
Morocco
19,768
Norway
2,051
Sweden
24,785
30,671
2,006
1,520
2,401
24,799
481
5,193
5,483
4,361
1,739
1,281
11,127
8,896
12,717
3,287
2,254
4,475
1,227
23,789
11,644
1,692
742
7,007
1,078
337
1,425
China*1,764
Colombia*
487
Ecuador*
421
Indonesia*
2,231
Nigeria*251
Singapore
784
South1,144
Africa
Thailand*
595
Venezuela*
1,166
Argentina
4,830
Australia408
Chile 1,594
India 203
Malaysia
Morocco
Saudi Arabia
63,522
1,982
593
1,196
294
974
4,535
3,854
4,506
High
growth
5,160
12,854
1,181
5,213
2,388
931
1,695
High
growth
Under performers
Under performers
* Indicates country was a high growth out performer in 2013 Insurance Risk Study
Bold indicates country outperforms in all four quadrant plots.
8
Low
growth
Brazil*
Bulgaria
Greece
Hong Kong
India
Luxembourg
Malaysia
Romania
Singapore
Spain
Switzerland*
Taiwan
Turkey*
U.A.E.*
U.K.
U.S.
Venezuela*
Austria
Belgium
Brazil*
7,745
Bulgaria
Canada 210
730
Czech Republic
Denmark745
France2,223
Germany277
Italy 1,573
Mexico 456
Norway 744
10,216
Poland
5,165
Portugal
Russia*1,266
Spain 2,700
Sweden1,106
25,132
Switzerland
191,255
Taiwan
U.A.E.*1,059
Austria
Belgium
Canada
Czech Republic
Denmark
Finland
France
Germany
Ireland
Israel
Italy
Japan
Netherlands
Norway
Poland
Portugal
S. Korea
Sweden
Finland3,455
Greece3,307
Ireland
15,803
Israel 1,141
Luxembourg
4,544
Netherlands
1,682
Romania
25,672
S. Korea
23,030
Turkey1,216
U.K. 1,181
U.S. 7,206
20,501
4,943
4,916
1,868
978
2,605
4,179
Low
growth
9,767
10,880
23,647
917
42,179
3,935
8,473
66,918
71,432
37,397
China*
10,415
Colombia*
9,454
Ecuador*
7,439
Indonesia*
4,165
Mexico
19,199
Morocco*
28,826
Nigeria*
7,669
Russia*
14,682
Saudi
3,917 Arabia*
South Africa
3,424
5,107
Argentina*
2,840
Australia
3,548
Chile
4,326Zealand
New
951
Thailand
13,366
1,929
13,298
7,770
65,538
531,838
Australia
Chile*
China
13,902
Ecuador*
Hong 1,365
Kong
616
Indonesia*
1,721
Malaysia*
3,631
Morocco
Nigeria*307
548
Saudi Arabia*
5,860
Singapore*
South1,121
Africa
4,289
Venezuela*
Argentina
1,844
Colombia
11,598
India 1,784
Japan 2,287
New Zealand
1,503
Thailand*
Under performers
Under performers
34,097
3,708
84,431
1,547
3,187
3,404
4,442
1,638
1,136
3,067
2,501
9,968
672
High
growth
11,835
4,425
9,200
94,825
3,886
5,651
High
growth
Twenty countries are high growth, loss ratio outperformers
outperform the global averages for both growth
in at least one line of business. Of these twenty countries,
and profitability. Singapore, as an example, outperforms for
five appear in each of the lines of business analyzed
both motor and liability insurance, and with an all lines five year
as high growth out performers: China, Colombia,
combined ratio of 88.9 percent, it has been a significantly
Ecuador, Indonesia, and South Africa. All but China and
more profitable market than its overall Asia Pacific peer group.
(See the Top 50 P&C Markets table, page 7 for more details.)
South Africa were similarly distinguished last year.

If we compare these countries on the basis of overall combined
ratio, four of the five are outperformers globally. The exception
Using combined ratio in addition to loss history allows us

to further analyze and target high growth opportunities.
is Colombia, which underperforms its peers with a five year

net combined ratio of 108.9 percent, driven by a higher than
average expense ratio. In addition to the four outperforming
countries mentioned above, nine additional countries
Liability
All Lines
Combined ratio performance

Out performers
Out performers
Out performers
Out performers
Low
growth
Austria
Bulgaria
Canada
Czech Republic
France
Greece*
Japan
Malaysia*
Austria
Mexico3,999
Bulgaria
673
Netherlands
Czech Republic Nigeria1,829
Denmark
2,903
Poland
Hong Kong
Romania481
Japan
Spain57,290
New Zealand Switzerland*
1,179
Norway*
Taiwan3,369
Switzerland
6,449
Thailand
U.S.
206,817
U.A.E.*
Low
growth
Belgium
Brazil*
Canada
Finland
France
Germany
Greece
Ireland
Israel
Italy
Luxembourg
Mexico
Netherlands
Poland
Portugal
Romania
Russia
S. Korea
Spain
Sweden
Taiwan
Turkey
U.A.E.*
U.K.
4,422
Belgium
Denmark
14,209
Finland
19,768
Germany
2,051
Ireland
24,785
Israel30,671
Italy 2,006
Luxembourg
1,520
Portugal
2,401
S. Korea
24,799
U.K. 481
U.S. 5,193
5,483
4,361
1,739
1,281
11,127
8,896
12,717
3,287
2,254
4,475
1,227
23,789
2,313
33
6,607
1,182
9,945
356
17,034
480
1,591
China*
2,941
Colombia*
294
Ecuador*
1,209
Indonesia*
192
Nigeria*
6,322
Singapore
3,330
South
397Africa
Thailand*
294
Venezuela*
1,137
Argentina
3,151
1,026
Australia
1,375
Chile
16,331
India
812
Malaysia
622
Morocco
5,392Arabia
Saudi
193
1,047
1,797
16,617
133,766
Australia
Brazil*
Chile*
China*
Colombia*
Ecuador*
Hong Kong*
63,522
India*
1,982
Indonesia*
593
New Zealand*
1,196
Russia*
294
Saudi Arabia
974
Singapore*
South4,535
Africa
3,854
Turkey*
4,506
Venezuela*
5,160
Argentina
12,854
Morocco
1,181
Norway
5,213
Sweden
2,388
931
1,695
Under performers
Under performers
11,644
1,692
742
7,007
1,078
337
1,425
1,764
487
421
2,231
251
784
1,144
595
1,166
High
growth
4,830
408
1,594
203
High
growth
Low
growth
Austria
Belgium
Brazil*
Bulgaria
Canada
Czech Republic
Denmark
France
Germany
Italy
Mexico
Norway
Poland
Portugal
Russia*
Spain
Sweden
Switzerland
Taiwan
U.A.E.*
9,767
10,880
23,647
Brazil* 917
Bulgaria
42,179
Greece3,935
Hong 8,473
Kong
India66,918
Luxembourg
71,432
Malaysia
37,397
Romania
10,415
Singapore
9,454
Spain 7,439
Switzerland*
4,165
Taiwan
19,199
Turkey*
28,826
U.A.E.*
7,669
U.K. 14,682
U.S. 3,917
Venezuela*
3,424
Finland
Greece
Ireland
Israel
Luxembourg
Netherlands
Romania
S. Korea
Turkey
U.K.
U.S.
Austria5,107
2,840
Belgium
3,548
Canada
Czech4,326
Republic
951
Denmark
13,366
Finland
France1,929
13,298
Germany
Ireland7,770
Israel65,538
Italy531,838
Japan
Netherlands
Norway
Poland
Portugal
S. Korea
Sweden
Low
growth
7,745
210
730
745
2,223
Australia
277
Chile*
1,573
China
456
Ecuador*
744Kong
Hong
10,216
Indonesia*
5,165
Malaysia*
1,266
Morocco
2,700
Nigeria*
1,106Arabia*
Saudi
25,132
Singapore*
191,255
South Africa
1,059
Venezuela*
Argentina
3,455
Colombia
3,307
India
15,803
Japan
1,141
New
Zealand
4,544
Thailand*
1,682
25,672
23,030
1,216
1,181
7,206
20,501
4,943
4,916
1,868
978
2,605
4,179
34,097
3,708
84,431
China*
1,547
Colombia*
3,187
Ecuador*
3,404
Indonesia*
4,442
Mexico1,638
Morocco*
1,136
Nigeria*
3,067
Russia*2,501
Saudi 9,968
Arabia*
South Africa
672
11,835
Argentina*
4,425
Australia
Chile 9,200
New 94,825
Zealand
3,886
Thailand
5,651
13,902
1,365
616
1,721
3,631
307
548
5,860
1,121
4,289
High
growth
1,844
11,598
1,784
2,287
1,503
High
growth
Under performers
Under performers
Aon Benfield
Looking Ahead: Growth Projections

For the growth-seeking insurance enterprise, an analysis of historical growth trends and relative profitability will
provide a good indication of where to initially target opportunities. However, the key is to be able to understand
what is driving the trends and how they might change over the near term, and what these changes may mean for
an evolving global insurance marketplace.
We have projected global property casualty insurance premium
The United States will remain the largest property casualty
growth for the next five years, for the overall insurance market,
insurance market, representing an estimated 37 percent
and for motor, property, and liability. These projections
of global premium. China will surpass Japan to become
are based on a weighting of historic premium growth rates
the second largest market, with an expected 9 percent of
with projected country GDP and population estimates.
premium. But note that the U.S. projected annual growth

rate is 2.7 percent while Chinas is over 11 percent.
By 2018, we expect the global insurance market to grow by

18 percent to a total direct written premium of USD1.6 trillion.
Digging deeper into each line reveals similar trends. In each
Motor insurance will remain the largest property casualty
line the U.S. will remain the largest property casualty insurance
segment, accounting for 47 percent of total direct written
market, but with relatively limited growth prospects.
premium, followed by property (33 percent) and liability

(21 percent).
Global 2018 premium projections

Projected direct written premium by line
20%
800
Total DWP: $1,627
700
600
529
Motor
47%
15%
453
341
296
200
2013
2018
2013
Property
2018
2013
Liability
Motor
2018 Projected
Projected annual
growth %
Rank
DWP (USD B)
Rank
DWP (USD B)
United States
531.8
607.8
2.7%
China*
84.5
143.7
11.2%
Japan*
92.4
108.8
2.8%
Germany
73.7
81.9
2.1%
France
69.3
74.8
1.5%
China will become the second largest insurance market in the world by 2018 and account for over 10% of global DWP
*2013 DWP unavailable; 2012 used as proxy
10
Liability
21%
2018
2013
Country
Property
33%
757
633
300
100
Total Growth: 18%
17%
500
400
2018 projected premium mix
Motor
Motor, which accounts for USD633 billion of global premium
We project no change in rank amongst the top five global motor
today, will experience continued rapid growth with a
markets. Despite more limited population growth, wealth
20 percent five year rate increasing to USD757 billion of direct
generation continues in these countries at a rapid pace, with
written premium. Such projections are easy to understand,
more families owning multiple cars, supporting continued
given that we expect continued strong population growth,
steady growth; developing countries have a long way to go to
particularly in developing marketsand an early sign of middle
catch up with motor penetration in these top markets.
class life is owning a car, usually with auto insurance as a

compulsory addition.
Later in the Study we discuss the changing dynamics of the
China is already the second largest auto market, and will almost
globally, but further off in the future; the technologies gaining
certainly retain this position given its projected 11.3 percent
momentum in the U.S. will be slower to make their way into the
annual growth. Yet we must also express a note of caution: the
developing markets. As such, despite slow projected growth in
widely expected partial de-tariffing of China motor business
the U.S., global growth will remain strong.
U.S. motor insurance market. We do anticipate similar changes
later this year has the potential to shake-up the worlds fastest
growing insurance market. Companies are struggling with
the data and modeling implications of the change, as well
as the potential market reaction to new pricing flexibility. An
extremely competitive market reaction could lower the growth
rate through an adjustment period. Long term growth that is
driven by economic fundamentals is, however, unlikely to be
significantly impacted.
Motor 2018 premium projections

Projected direct written premium by country
2018 projected premium: USD757 billion
12%
Brazil
2018 est. premium

for country
10%
Canada
Rest of Americas
China
U.S.
8%
6%
Japan
South Korea
4%
Middle East
& Africa
or
an
d
ia
le
U.K.
Rest of Euro Area
nt
Ar
ge
lom
Co
do
n
In
Ec
u
Rest of Europe
in
ala
ys
ia
ud
iA
bi
6.7 796
Ch
i
2.6
es
1.6
Th
ail
1.7
ad
5.4
di
0.8
3.4
ra
b
7.5
Rest of APAC
France
Germany
Sa
Ch
in
2.3
In
108.4
0%
ia
2%
2013
Country
2018 Projected
Projected annual
growth %
Rank
DWP (USD B)
Rank
DWP (UD B)
United States
206.8
234.0
2.5
China*
63.5
108.4
11.3
Japan*
57.3
66.3
3.0
Germany
30.7
33.8
2.0
France
26.3
28.8
1.9
Aon Benfield
11
Property
Catastrophe risk potential is another important consideration
China is by far the largest of the rapidly growing property

markets in the world with an 8 percent expected growth rate,
for property lines. Economic growth and urbanization are
representing nearly USD20.5 billion of direct written premium,
creating greater risk concentrations, often in catastrophe
which will tie China with Japan for the fifth largest property
exposed areas. Property premium growth is driven, in part,
market in five years.
by catastrophe lossesboth actual and potential. Aon Benfield

can use its understanding of global catastrophe risk to produce
Many other countries with high expected premium growth
an optimal blending of target growth and acceptable risk.
currently have a relatively small premium base. Thailand, for

instance, has nearly 9 percent executed annual growth but
only USD2.3 billion of projected property premium. When
determining where and how to grow, companies must balance
the growth opportunity against the total market opportunity.
Property 2018 premium projections
Projected growth rate by country
10%
Brazil
2018 est. premium

for country
8%
U.S.
6%
Canada
Rest of Americas
China
Japan
South Korea
Rest of APAC
France
4%
Germany
2%
2.3
0.9
20.5
1.9
3.3
2.1
1.5
2.9
4.7
0.7 796
ria
ge
Ni
ico
ex
M
di
In
ia
ra
b
Sa
Ne
w
2013
Country
2018 Projected
Projected annual
growth %
Rank
DWP (USD B)
Rank
DWP (USD B)
United States
191.3
223.8
3.2
Germany
26.7
30.3
2.5
United Kingdom
25.1
27.9
2.1
France
24.8
26.4
1.2
Japan*
20.5
23.4
2.6
12
Rest of Euro Area
ud
iA
ala
ys
ia
nd
ala
Ze
g
Ko
n
a
ng
in
Ho
Ch
r
do
ua
Ec
Th
ail
an
0%
U.K.
Middle East
& Africa
Rest of Europe
Liability
Liability insurance is the smallest of the global property
China is the fastest growing market for liability
casualty segments, at approximately half the size of the global
with 16 percent projected annual growththough
motor insurance market. The U.S. will remain the largest
this will not yet make it a top five market.
market by a wide margin, and with Japan, will grow faster than
other top five markets.
Liability 2018 premium projections
Projected growth rate by country
18%
14%
Canada
Rest of Americas
Brazil
2018 est. premium

for country
16%
China
Japan
12%
South Korea
U.S.
10%
Rest of APAC
8%
France
6%
Germany
4%
2%
14.8
7.3
0.5
1.6
0.7
2.5
2.0
0.7
0.3
0.6 796
Rest of Euro Area
Rest of Europe
nd
ia
Ze
ala
ra
b
iA
2013
Country
U.K.
Middle East
& Africa
Ne
w
Sa
ud
ala
ys
ia
Ho
ng
Ko
n
a
di
In
sia
ne
bi
do
In
lom
do
r
Co
ua
Ec
nt
Ar
ge
Ch
in
in
0%
2018 Projected
Rank
DWP (USD B)
United States
France
Japan*
Projected annual
growth %
Rank
DWP (USD B)
133.8
150.0
2.3
18.1
19.6
1.6
17.0
19.1
2.3
United Kingdom
16.6
18.2
1.9
Germany
16.3
17.7
1.7
Aon Benfield
13
Reinsurance
Global reinsurance premium by year (USD billions)
We do not expect the reinsurance market to grow as rapidly

as the primary market. Excess capital in the insurance market
180
147
142 142 142
135
153
145
137 140
155
165
170
will allow companies to retain much of their expected

growth, and excess capital in the reinsurance market will
pressure rates so ceded premium will not necessarily
reflect growth in exposures. The influx of alternative capital
could have a positive or a negative impact on reinsurance
90
premium growth depending on price elasticity. Hedge fund

reinsurers are bringing new capacity to reinsurance markets,
often pricing to a break-even underwriting profit while
45
expecting to make significant returns on assets. Whether such

0
changes will serve to stimulate new reinsurance demand,

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013
Our analysis so far has focused on primary insurance

direct written premium growth without considering the
or merely to further depress prices, remains to be seen.

Aon Benfield projects five year growth of approximately
2.1 percent per year for the global reinsurance market.
impact of reinsurance. This approach is largely due to
By country, reinsurance growth estimates vary from 5 percent
data availability: reinsurance data is much more limited
annual growth in South Korea to negative growth in Japan.
and often distorted by the reporting of intercompany
On average, we expect the mature reinsurance markets to
reinsurance within global insurance conglomerates.
grow about 2 percent per year while developing markets will
Aon Benfield has worked through the available data to

estimate the size of the property casualty global reinsurance
market and project it five years forward. As of year end
2013, we believe total global ceded written premium is
approximately USD170 billion, excluding intercompany
reinsurance and other mandatory pools. This amount
represents the total opportunity for reinsurers.
grow 5 to 7 percent per year. In China, the impact of the new

C-ROSS capital standards could have a negative impact on
ceded premium in the medium term. The new standards lower
the capital requirements for writing motor business, and at the
same time, decrease the capital efficiency of certain cessions.
The new standards are expected to run in parallel with the
current approach in 2015 and to be fully adopted in 2016.
Given these dynamics, reinsurance companies are seeking
out new growth opportunities, as growth certainly will not
follow from continued rate reductions. The key to future
growth will be innovation coupled with hard data. While
capital remains plentiful, primary insurers growth will
not broadly translate into reinsurance growth. Reinsurers
must develop value propositions and seek partnership
opportunities to help primary insurers grow into new markets
and in new ways that they could not do by themselves.
14
Uncovering Growth Opportunities

Last year Aon Benfield introduced to the Study a detailed screening process that we employ to identify potential
markets worth exploring for realistic growth opportunities.
Profitability
Demographics
Contender Geographies
Deep dive on strategy,

organic growth and
M&A opportunities
Political Stability
Scale
Regulation
Growth
Broker Surveys
Our analysis entails an evaluation of basic insurance economics,
Aon Benfield has expanded the analysis this year by introducing
such as country market scale and insurance penetration, country
five year projected insurance premiums in each country,
profitability and loss ratio volatility, and overall out or under
which we have added to the Country Opportunity Index
performance relative to other opportunities. We couple those
on the next page. We have selected and analyzed several
basics with an understanding of the larger macroeconomic
specific trends that we are seeing in the market, including
environment including population changes, GDP measures,
auto, health, crop, and cyber insurance. Based on our
and an understanding of the legal and regulatory systems.
experience with carriers, reinsurers, agents, brokers, and other
Finally by combining this fact based information with qualitative
insurance service providers, we highlight some of the key
feedback from Aons local teams we can identify attractive
trends and emerging insurance opportunities in each area.
opportunities in each country. Our process reveals specific

opportunities from which to form executable growth strategies.
Aon Benfield
15
Country opportunity index
Aon Benfield country opportunity index
To summarize and sort between the various countries
5yr Cumulative
Net Combined
Ratio
outlined in this section, we have updated our

Country Opportunity Index. The index identifies
countries with a desirable mix of profitability,
5yr Annualized
Projected
Growth Rate
Political Risk
Assessment
Quartile 1
Saudi Arabia*
91.5%
8.1%
Medium Low
growth potential and a relatively stable political
Ecuador*
86.9%
7.8%
High
environment. For growth potential we used the
Singapore*
88.9%
4.6%
Low
Hong Kong
98.6%
7.0%
Low
Malaysia*
90.7%
6.8%
Medium
Indonesia*
88.2%
5.7%
Medium
Nigeria*
80.2%
4.4%
Medium High
China
98.7%
11.2%
Medium
Chile*
95.6%
5.5%
Medium Low
Medium
projections shown on pages 10 to 14 of the Study.

The table displays the top 50 P&C markets ranked
by the Index and divided into quartiles.
Ten of the thirteen countries in Quartile 1 were also
in the top quartile last year. Singapore fell from the
top spot last year to the number three position, as
we estimated its projected premium growth to be
87.6%
4.4%
Norway*
89.6%
2.9%
Low
Brazil*
85.7%
3.7%
Medium
Australia
99.7%
4.4%
Low
Switzerland*
Quartile 2
less than its recent history. Saudi Arabia is now the

top country according to our Index, with a recent
combined ratio of 91.5 percent, strong projected
growth of 8.1 percent, and only modest political risk.
The new entrants to the top quartile are all in
Asia Pacific: Hong Kong, China, and Australia.
China showed the biggest overall increase on the
Index, driven by a combined ratio improvement
from 101.7 percent down to 98.7 percent.
South Africa*
97.1%
3.2%
Low
United Arab
Emirates*
88.1%
2.5%
Medium Low
Thailand
101.0%
7.3%
Medium
Sweden*
91.1%
2.4%
Low
Taiwan
97.2%
3.3%
Medium Low
Medium
Mexico
96.9%
4.2%
New Zealand
120.5%
6.7%
Low
Morocco
97.8%
4.4%
Medium High
Canada
99.0%
2.9%
Low
India
118.5%
7.0%
Medium
Denmark
93.5%
1.6%
Low
Argentina
104.8%
6.4%
High
Quartile 3
Geography is one factor when considering a growth

strategy. Another is opportunities created by
advances in insurance products. The next section of
the Study will delve into several insurance markets
where we see significant changes at workand
with them, significant opportunity for insurers to
differentiate and create value for their clients.
Poland
95.8%
2.2%
Medium Low
South Korea
101.1%
3.7%
Medium Low
Russia
88.7%
1.7%
Medium
Finland
100.6%
2.8%
Low
Colombia
108.9%
6.1%
Medium
Israel
108.7%
3.9%
Medium Low
Luxembourg
101.9%
2.8%
Low
Germany
99.0%
2.1%
Low
Austria
99.0%
1.8%
Low
United States
101.9%
2.7%
Low
Bulgaria
90.3%
0.9%
Medium
Japan
103.5%
2.8%
Medium Low
Czech Republic
91.0%
0.2%
Medium Low
France
98.9%
1.5%
Medium Low
Turkey
105.1%
3.1%
Medium
United Kingdom
101.2%
2.3%
Medium Low
Quartile 4
Belgium
99.0%
1.6%
Medium Low
Portugal
92.7%
0.6%
Medium
Venezuela*
96.9%
1.3%
High
Spain
92.5%
-0.1%
Medium
Netherlands
101.0%
0.8%
Low
Italy
98.8%
0.4%
Medium
Greece
100.7%
0.9%
High
Ireland
101.0%
0.5%
Medium
Romania
111.8%
1.1%
Medium High
*Indicates top quartile performer in 2013.

Index defined in Sources and Notes.
16
Insurance Trends: Risks and Opportunities

The insurance industry is evolving rapidly. We are witnessing long term shifts that are changing the risks that
property casualty companies insure. Cars are becoming safer. Employers face rapidly rising health care costs.
Hardly a week goes without news of a new cyber attack. Advances in modeling are facilitating the growth of the
international crop insurance market. And technology is posing new opportunities and risks for individuals and
businesses. As the world is becoming more connected, it is also becoming riskier. These shifts present challenges,
but also opportunities for insurers.
Auto trends
Personal auto insurance, which for many years has been the
Companies are seeking ways to better leverage the data they
stable cash flow product of the property casualty universe,
have accumulated from UBI. Two commonly cited applications
is currently undergoing a revolution due to advances in
are teen driving and commercial trucking monitoring. And the
technology.
data accumulated from UBI may not only help to sell additional
Cars today are significantly safer than those that our parents
drove. The Economist reports that 90 percent of car crashes
are caused by human error. As a result, recent innovations
insurance products, but may also be monetized by companies

outside the insurance industry. While vast amounts of data exist,
companies are only beginning to understand its full value.
in vehicle safety have focused on mitigating the effects of
The insurers that have been successful in growing are doing
human error or negligence. The results speak for themselves:
so with data. Through market segmentation and targeted
the U.S. has seen a 15 percent reduction in crashes for cars
advertising, auto specialist insurers in the U.S. have expanded
with an automatic braking system for example. Between
their market sharesgrowing at an average annual rate of 7
2000 and 2011, driver deaths due to rollover crashes have
percentwhile traditional personal lines insurers premium
fallen more than 50 percent for passenger cars. And for
has on average been static over the past five years.
SUVs, the death rate has fallen roughly 90 percent.
Looking further ahead, driverless cars have the potential to
People in large metropolitan areas are changing the way
radically change the business model for auto insurers. Personal
they get around, from drive share programs to semi-
auto insurance is 45 percent of global premium, and it has
private car services such as Uber and Lyft. This is forcing
long provided ballast and stability for multiline insurers. An
the auto insurance industry to think about how to create
insurance world without this ballast would have very different
and better price policies for uberX and Lyft drivers, who
risk dynamics. For example, we estimate that without personal
need a commercial policy when they have passengers and
auto, loss ratio volatility for the U.S. market would have been
personal policies when they do not. Recent incidents have
nearly 40 percent higher for the period 1995 to 2013.
posed questions about how these policies overlap.
Such changes, while not on the immediate horizon, could
Telematics and usage-based insurance (UBI) are becoming
increase industry capital intensity and lower premium to
widespread across the industry, with many of the largest U.S.
surplus ratios by more than 30 percentage points, from
and U.K. auto insurers now having some form of UBI. Insurers
0.84x to 0.50x. We estimate that surplus needed in the
believe UBI will allow them to better segment price and risks
U.S. to support personal auto is USD100 to 125 billion.
accordingly. Good drivers should benefit, as in theory drivers

who opt for UBI will pay less while other drivers rates will
increase. While the potential discount varies by carrier and
driver, the average quoted is 30 percent. Smaller insurers are
struggling to enter the UBI market, as they lack the scale to
The changing dynamics of the auto industry do not

foreshadow the death of the auto insurance industry but
do represent a clear emerging risk. Insurers need to keep
pace with the changes and innovate accordingly.
offset the up-front investment in telematics infrastructure.
Aon Benfield
17
U.S. health insurance market

In 2014, the individual mandate of the Affordable Care Act
The implications for growth in the private health care insurance
aka Obamacarecame into effect. With the ACA, state-run
market are significant. We estimate that if 20 percent of U.S.
public health care exchanges have become operational, and
employers move to private exchanges, then an additional
as of May 2014 approximately 20 million Americans have
USD350 billion in premium will flow into the private health
purchased insurance through these public exchanges. At
insurance market. Twenty percent is the minimum level
the same time, and with much less controversy, a revolution
of interest quoted in recent surveys. The median is 33
has been taking place in the private health care insurance
percentif one in three U.S. employers move to a private
marketthe advent of corporate health care exchanges.
exchange, this will generate an additional USD500 billion
Aon Hewitt has been a pioneer in this market, with 330,000
of premium flow into the market. As a reference point, this
employees enrolled in its Corporate Health Exchange for 2014.
number is roughly the size of the entire U.S. property casualty
Currently, about 60 percent of U.S. workers who receive
insurance market, as shown in the statistics on page seven.
health insurance through their employers are covered under
While the potential premium growth can seem staggering,
self-insured plans. For companies with over 5,000 employees
insurers must also consider the capital required to support
this number is even higherby some estimates as many as
this growth. We estimate that the U.S. health insurance
94 percent of larger employers run self-insured health plans.
industrys capital adequacy, as defined by A.M. Bests BCAR
In these cases, the role of the health insurer is simply to
model, is currently 225 percentroughly in line with the
process payments and bill claims back to the employerhence
U.S. property casualty industrys 230 percent. Depending
these plans are called Administrative Services Only plans.
on how much premium flows into private exchanges,
But over the past several years, several significant

developments in the industry have begun to change how
people buy health insurance and increase the flow of
insurance premiums into the market. These changes are a
real and material opportunity for the insurance industry.
Health care costs have risen at a 7 percent annual rate during
the 10 years to 2012, with long term trends estimated at
8 to 9 percent per year. At most companies, revenue growth
has not kept pace with this expansion in costs. Given these
we estimate that health insurers capital adequacy could

fall between 107 and 128 percent if capital levels remain
constant. To maintain a 225 percent capital adequacy level,
insurers will need to raise a significant new level of capital:
USD105 billion at the minimum, and USD150 billion at the
median. The table below summarizes these estimates.
Impact of private exchanges on health insurers

% of Employers
Moving to Corporate
Exchanges
New health insurance

premium
(USD billions)
Additional required
capital to maintain BCAR
(USD billions)
trends, companies are seeking ways to manage costs while

continuing to provide essential benefits to their employees.
20% (minimum)
350
105
One such way is to rethink the traditional model of a self-
33% (median)
500
150
insured health plan. This trend has led to the creation of private
health care exchanges. Under this model, companies enroll
in a private exchange, which allows insurance companies
to compete for their employees health care insurance
business. Insurers bear the risk from these policies.
A capital demand of USD105 billion to USD150 billion is a

significant opportunity not only for investors but also for
property casualty insurers that are currently sitting on record
levels of capital and actively seeking new opportunities in
which to deploy it. For traditional property casualty insurers,
The private exchange market is still small; analysts at JP Morgan
it is an opportunity to diversify into new lines of (potentially
estimate that less than 1 percent of active employees will be
uncorrelated) business. For reinsurers it is an opportunity as
enrolled in private exchanges in 2014. Yet interest is high,
well. Reinsurance can provide a substitute to traditional capital
with an average of 40 percent of employers in recent surveys
and help health insurers lower their capital requirements by
saying they are considering a switch to a private exchange.
sharing risk with the reinsurers. The U.S. group health insurance
market has only three insurers who are truly national in scope,
so a significant amount of the new commercial premium could
fall to regional carriers who are bigger users of reinsurance.
18
Earlier, we mentioned the potential market changes that could
Finally, the Ponemon study included a shocking statistic: that
take place if driverless cars cause the personal auto insurance
roughly 19 percent of businesses are expected to have a data
market to shrink. Perhaps health insurance will become the
breach in the next 24 months. These percentages vary by
new ballast to property casualty commercial lines volatility
industry, but every company in todays economy is vulnerable to
in the future.
the risks of a cyber attack.
Average total cost of a data breach (USD millions)
U.S. cyber insurance market

In the past year, cyber risk has come into the mainstream as a
+3% trend
significant threat to businesses of all sizes. The data breach at

Target affected as many as one-third of all U.S. consumers, and the
Heartbleed bug exposed weaknesses in 17 percent (500,000) of

the internets secure web servers. Both the frequency and severity
of cyber attacks are on the rise. Attitudes are changing; businesses
now see a data breach as inevitable: not if but when.

Different sources count data breaches differently but all agree
there is an increasing trend. Symantec released a study counting

253 breaches, a 62 percent increase over 2012. The Identity
Theft Resource Center counted 614 data breaches last year,
rising at an annual trend rate of 11 percent, as shown below.
2006 2007 2008 2009 2010 2011 2012 2013 2014
Excludes breaches with more than 100,000 records
From its beginnings 15 years ago, cyber insurance has
Number of U.S. data breaches by year
now become a standard product offered by many large

+11% trend
800
commercial insurers. Common coverage includes thirdparty liability protection as well as first-party indemnity
protection for breach response expenses, business
600
interruption, forensics, and cyber extortion. Although

statistics on the business are difficult to come by, cyber
insurance has generally been seen as profitable. That said,
400
a growing number of entrants are offering the coverage,

and prices are beginning to fall as competition expands.
200
Takeup of cyber insurance is increasing, and the U.S. cyber

0
market is now estimated at roughly USD1.5 billion in gross

2005 2006 2007 2008 2009 2010 2011 2012 2013
written premium. Aon Risk Solutions has seen cyber premium
All studies suggest that 2013 was a banner year, of sorts, for data
rise at a compound annual growth rate of 38 percent over the
breaches. Notably, 2013 saw eight mega breaches, each more
last five years, according to data from the Aon GRIP platform.
than 10 million records; the previous high was the five breaches
Nearly one-third of companies buy some kind of cyber policy.
in 2011, according to Symantec. In total, 552 million identities

were exposedroughly 7.8 percent of the world population.
Main Street businesses have been slower to adapt than large

corporations. This presents a significant market opportunity for
And while breaches are increasing, the cost of a breach is
enterprising insurers, given that small and medium enterprises
increasing as well. Data from the Ponemon Institute suggest
are often the most vulnerable to a cyber attack. A study by
that the cost of the average breach is now USD5.9 millionand
Verizon found that 71 percent of cyber attacks are targeted
this number excludes breaches of more than 100,000 records.
at companies with fewer than 100 employees. Moreover,
The Ponemon study also indicates that customers are fleeing
attacks against small businesses shot up by 91 percent in
from breached companies more than in the past: lost business
2013. Small businesses often lack the time and resources to
following a breach rose 15 percent last year.
develop sophisticated cyber risk management strategies.
Aon Benfield
19
Many smaller businesses are responding to such limitations by
Cyber coverage must evolve in order to meet the needs of
outsourcing their network security to managed security service
buyers, and underwriting practices will need to evolve with it.
providers (MSSPs). While MSSPs can provide valuable services
Cyber underwriting is currently focused more on compliance
to help companies protect themselves, they are not insurers.
with industry standard practices than on actual risk assessment.
Insurers have a vital role to play, by providing indemnity
And cyber risk still has an image challenge to overcome: often, it
protection as well as sharing their security expertise in this area.
is seen by companies merely as an IT problem, not tied into the
Current cyber insurance policies only provide basic protection.

Cyber insurance for large companies has focused primarily
on first party indemnity protection. This is not surprising,
given that since 2004 companies have been required to
larger ERM framework. This suggests a failure by corporate risk

managers to translate cyber exposure into a potential bottomline impact that executives can understand and manage.
notify customers in the event their personal information is
China crop insurance
compromisedand the costs of doing so can be considerable.
Global population growth and emerging middle classes are
Yet the potential for other kinds of expense is significant.
driving a rising demand for agricultural products including
Increasingly, lawyers are pursuing directors and officers in the
those used for animal feed.
event that a company fails to protect its data. Targets data

breach has generated at least 40 lawsuits against the retailer.
China is the second largest crop insurance market globally,

with USD3 billion premium of a global USD22 billion market.
Moreover, the current cyber insurance policies focus solely on
The U.S. market is much larger, and fairly mature. The China
the direct costs and ramifications of a data breach. They do not
market, in contrast, is primed for growth. Chinas population
contemplate the risk a cyber attack can cause other kinds of
is expected to grow by 4 percent by 2017 totaling nearly 1.4
damage. Most property and general liability policies exclude
billion people. Even more impressive, GDP is expected to grow
cyber risk. The first cyber difference-in-conditions policy to fill
by 50 percent by 2018. These significant expectations, coupled
such coverage gaps was just made available earlier this year.
with the Chinese governments focus on providing government

support to the agricultural industry and rural population,
For Main Street, the coverage options can be confusing,
warrant attention when considering growth opportunities.
and risk leaving the buyer exposed should an actual event

occur. Many insurers will include data breach coverage in
their business owners policies but subject to a USD10,000 or
Global crop insurance premium (USD billions)
USD25,000 limit. Given the size of the potential costs discussed
14
previously, such coverage limits are very low, and may create
12
a false sense of security that businesses are covered.
10
8
6
4
2
0
20
USA
China
Europe
Canada
India Latin America
Since 2004, China crop premium has quadrupled, from
China premium and claims performance
RMB5 billion in 2007 to RMB20 billion in 2012. The business

Loss ratio
loss ratio over these years. Considering Chinas trajectory, we

expect the crop insurance market to continue growing quickly.
The size of the crop insurance opportunity and the number
last ten years, four new specialized agricultural insurance
companies were established in China that now collectively
write more than a quarter of the market. This growth has
not come without resistance: the largest crop insurers in
the market have been active for almost 30 years, and have
worked to limit competition and protect their market share.
For carriers seeking to enter this market, Aon Benfield can
provide detailed and data-driven support to help navigate the
vast and dynamic China agricultural landscape. The Aon Crop
Reinsurance System (ACReS) is built on 30+ years of county-level
yield data at the crop level, 60 years of city and provincial level
data and weather data from 160 weather stations. It is the only
model in the market built at this level of granularity. The ACReS
model provides PMLs per province for an insurers major crop
Claims
Premium
20
80%
15
70%
10
60%
50%
2005 2006 2007 2008 2009 2010 2011
Loss ratio
of players in the market are simultaneously increasing. In the
Premium/claims (RMB billions)
has also been relatively profitable, with an average 63 percent
40%
Additionally, ACReS is a tool to help insurers grow

strategically in China, because it identifies the varying risk
by region and allows insurers to select those provinces
with an acceptable risk level for future growth. The model
demonstrates the effect of changes in policy terms or exposure
levels on underwriting results as well as the efficiency
and adequacy of various reinsurance arrangements.
portfolio. It also incorporates correlation coefficients between

provinces so that we can model multi-province portfolios.
Aon Benfield
21
Global Risk Parameters

The first part of the Study focused on insurance premium, profitability, and growth opportunities. Once insurers
have set a strategy and identified opportunities for growth, they must address the tactical matters of operations:
underwriting, claims and risk management. Insurance is a tradeoff between risk and potential return, and we
now turn to the risk side of the equation. Measuring the volatility and correlation of risk has always been the
core of the Study.
The 2014 edition of the Study quantifies the systemic risk by
level of economic activity, and other macroeconomic factors. It
line for 49 countries worldwide. By systemic risk, or volatility,
also includes the risk to smaller and specialty lines of business
we mean the coefficient of variation of loss ratio for a large
caused by a lack of credible data. For many lines of business
book of business. Coefficient of variation (CV) is a commonly
systemic risk is the major component of underwriting volatility.
used normalized measure of risk defined as the standard

deviation divided by the mean. Systemic risk typically comes
from non-diversifiable risk sources such as changing market rate
adequacy, unknown prospective frequency and severity trends,
weather-related losses, legal reforms and court decisions, the
The systemic risk factors for major lines by region appear

on the facing page. Detailed charts comparing motor
and property risk by country appear below. The factors
measure the volatility of gross loss ratios. If gross loss
ratios are not available the net loss ratio is used.
Coefficient of variation of gross loss ratio by country

Property
Motor
Thailand
Taiwan
South Korea
Israel
Japan
France
Switzerland
Hungary
Spain
Australia
Bolivia
Austria
Germany
Czech Republic
El Salvador
Netherlands
Malaysia
Chile
Mexico
Uruguay
Italy
India
Vietnam
Peru
Brazil
U.K.
Dominican Republic
Argentina
Poland
Pakistan
Honduras
Canada
U.S.
China
Colombia
Turkey
Singapore
Venezuela
Ecuador
Denmark
Indonesia
Slovakia
South Africa
Panama
Nicaragua
Romania
Hong Kong
Greece
Philippines
3%
5%
5%
5%
6%
6%
7%
8%
8%
8%
8%
8%
9%
9%
9%
9%
10%
10%
11%
11%
12%
12%
13%
13%
13%
13%
13%
14%
14%
14%
15%
15%
16%
16%
16%
17%
18%
18%
19%
19%
21%
22%
22%
22%
34%
37%
43%
50%
Venezuela
Denmark
Netherlands
South Africa
Germany
Australia
Bolivia
Austria
Italy
Israel
U.K.
Canada
Spain
Switzerland
France
China
Japan
Malaysia
Chile
India
Ecuador
Hungary
Poland
Turkey
El Salvador
Uruguay
Colombia
Honduras
South Korea
U.S.
Argentina
Slovakia
Panama
Nicaragua
Romania
Vietnam
Pakistan
Dominican Republic
Taiwan
Indonesia
Brazil
Hong Kong
Greece
Philippines
Peru
Mexico
Singapore
70%
Thailand
10%
12%
12%
14%
15%
16%
18%
18%
18%
21%
22%
22%
23%
25%
27%
33%
33%
33%
33%
33%
34%
34%
35%
35%
36%
39%
40%
40%
42%
42%

Asia Pacific
Americas
52%
53%
54%
55%
57%
57%
58%
61%
66%
68%
68%
69%
77%
83%
85%
99%
110%
124%
Underwriting Volatility for Major Lines by Country, Coefficient of Variation of Loss Ratio for Each Line
Reported CVs are of gross loss ratios, except for Argentina, Australia, Bolivia, Chile, Ecuador, India, Malaysia, Singapore, Thailand, Uruguay and Venezuela, which are of net loss ratios.
Accident & Health is defined differently in each country; it may include pure accident A&H coverage, credit A&H, and individual or group A&H. In the U.S., A&H makes up about 80 percent of the Other line of
business with the balance of the line being primarily credit insurance.
22
Fidelity
& Surety
Credit
Workers
Compensation
Marine,
Aviation
& Transit
Accident
& Health
General
Liability
Property
Commercial
Property
Personal
Property
Motor
Commercial
Motor
Personal
Motor
Coefficient of variation of loss ratio for major lines by country
Americas
Argentina
Bolivia
14%
52%
57%
8%
18%
16%
29%
8%
240%
Brazil
13%
68%
46%
65%
83%
51%
40%
82%
Canada
15%
22%
17%
34%
35%
38%
64%
102%
Chile
10%
33%
44%
61%
34%
Colombia
16%
40%
29%
28%
68%
Dominican Republic
13%
61%
88%
72%
Ecuador
19%
34%
39%
161%
El Salvador
9%
36%
18%
137%
Honduras
15%
40%
Mexico
11%
99%
Nicaragua
34%
55%
67%
Panama
22%
54%
18%
Peru
13%
85%
Uruguay
11%
U.S.
16%
Venezuela
18%
71%
97%
46%
225%
71%
45%
200%
85%
56%
23%
28%
38%
54%
39%
114%
39%
14%
24%
43%
47%
36%
10%
27%
71%
20%
314%
Asia Pacific
Australia
8%
16%
23%
32%
54%
33%
57%
29%
21%
19%
21%
88%
21%
66%
6%
28%
68%
117%
46%
139%
33%
11%
10%
18%
10%
97%
31%
54%
97%
China
16%
Hong Kong
43%
69%
India
12%
33%
Indonesia
21%
6%
Japan
16%
Malaysia
10%
33%
Pakistan
14%
58%
Philippines
70%
83%
Singapore
18%
111%
10%
30%
62%
75%
123%
124%
41%
85%
88%
124%
48%
49%
20%
69%
21%
33%
54%
22%
45%
22%
11%
23%
South Korea
5%
6%
42%
33%
Taiwan
5%
5%
66%
43%
Thailand
3%
124%
Vietnam
13%
57%
Austria
8%
18%
Czech Republic
9%
124%
166%
31%
52%
49%
Denmark
France
Germany
51%
19%
12%
11%
10%
25%
15%
30%
6%
27%
30%
28%
36%
23%
60%
16%
30%
26%
20%
19%
83%
84%
45%
31%
9%
15%
50%
77%
Hungary
8%
34%
Israel
5%
21%
Italy
12%
18%
25%
19%
41%
43%
9%
12%
20%
49%
25%
44%
Poland
14%
35%
Romania
37%
57%
Slovakia
22%
53%
South Africa
22%
Greece
Netherlands
13%
Spain
8%
Switzerland
7%
Turkey
17%
U.K.
13%
53%
23%
12%
62%
37%
39%
41%
13%
33%
37%
18%
8%
47%
86%
35%
43%
18%
58%
86%
25%
32%
6%
27%
25%
12%
17%
35%
18%
22%
63%
94%
14%
8%
48%
23%
139%
Aon Benfield
23
U.S. Risk Parameters

For the U.S. risk parameters, we use data from 13 years of
The charts below show the loss ratio volatility for each
NAIC annual statements for 2,108 individual groups and
Schedule P line, with and without the effect of the
companies. Our database covers all 22 Schedule P lines
underwriting cycle. The effect of the underwriting cycle is
of business and contains 1.9 million records of individual
removed by normalizing loss ratios by accident year prior

to computing volatility. This adjustment decomposes loss
company observations from accident years 1992-2013.
ratio volatility into its loss and premium components.
Coefficient of variation of gross loss ratio (1992-2013)

All Risk
Private Passenger Auto
Auto Physical Damage
Commercial Auto
Workers Compensation
Warranty
No Underwriting Cycle Risk

14%
17%
24%
26%
18%
19%
32%
Warranty
36%
Medical PL Occurrence
Commercial Multi Peril
36%
Other Liability Occurrence
38%
Other Liability Occurrence
Special Liability
39%
Special Liability
Other Liability Claims-Made
39%
Other Liability Claims-Made
43%
15%
Commercial Auto
Medical PL Occurrence
Medical PL Claims-Made
13%
Medical PL Claims-Made
32%
36%
31%
26%
30%
26%
32%
Homeowners
46%
Homeowners
39%
Products Liability Occurrence
47%
Products Liability Occurrence
37%
Other
Other
52%
Reinsurance Liability
67%
Reinsurance Liability
Fidelity and Surety
68%
Fidelity and Surety
International
Reinsurance Property
56%
Reinsurance Property
57%
58%
Special Property
92%
Special Property
Reinsurance Financial
93%
Reinsurance Financial
Products Liability Claims-Made
Products Liability Claims-Made
99%
Financial Guaranty
The underwriting cycle acts simultaneously across many lines
49%
International
72%
86%
48%
44%
139%
63%
49%
Financial Guaranty
101%
U.S. underwriting cycle impact on volatility
of business, driving correlation between the results of different

lines and amplifying the effect of underwriting risk to primary
Line of Business
Impact
insurers and reinsurers. Our analysis demonstrates that the cycle
ReinsuranceLiability
55%
increases volatility substantially for all major commercial lines,
Other LiabilityClaims-Made
51%
Other LiabilityOccurrence
42%
40%
rated and thus show a lower cycle effect, with private passenger
Commercial Auto
36%
auto volatility only increasing by 6 percent because of the cycle.
Medical PLClaims-Made
37%
Special Liability
30%
Homeowners
19%
15%
6%
as shown in the table. For example, the underwriting volatility

of reinsurance liability increases by 55 percent and commercial
auto liability by 36 percent. Personal lines are more formula-
24
U.S. Profitability
In many areas of the world, profitability data is both scarce
Over the past 10 accident years the property casualty
and coarse. In the U.S., however, the NAIC statutory
industry achieved a 99 percent combined ratio. However,
financial statements provide a wealth of detailed information
insurance companies between the 25th and 75th percentiles
summarizing profitability of property casualty insurance
had combined ratios ranging from 92 percent to
by company, line of business, and geography.
103 percent, illustrating that there is ample opportunity
The table below summarizes current net premium volume
for individual companies to outperform average results.
and net accident year loss ratio, expense ratio, and
The magnitude of the opportunity to outperform varies
combined ratio over the last 10 years. The last five columns
by line of business. For example, top quartile private
summarize individual company 10 year combined ratios
passenger auto liability writers achieved 98 percent
at the 10th, 25th, 50th, 75th, and 90th percentiles. The
combined ratio or better, which is four points better than
percentiles are computed on a premium weighted basis.
the industry average. However, in commercial multiple peril

top quartile writers outperformed the industry by at least
12 points. Clearly, when considering new underwriting
opportunities, average profitability is only part of the story.
U.S. profitability by line of business

Line of business
Private Passenger Auto Liability
Net loss
ratio 10yr
Net expense
ratio 10yr
Net combined
ratio 10yr
10yr combined ratio percentiles

10%
25%
50%
75%
90%
106,183
77%
25%
102%
94%
98%
103%
105%
106%
Homeowner & Farmowners
72,689
73%
31%
103%
91%
94%
103%
110%
120%
71,613
69%
25%
95%
84%
86%
97%
103%
103%
Other Liability
41,680
65%
30%
95%
84%
90%
95%
96%
105%
Workers' Compensation
40,610
74%
25%
99%
90%
93%
99%
106%
109%
Special Property
36,199
63%
28%
91%
71%
80%
89%
106%
110%
Commercial Multiple Peril
32,381
65%
35%
99%
65%
87%
98%
102%
109%
Commercial Auto Liability
17,908
69%
30%
99%
90%
95%
97%
102%
105%
Reinsurance
14,029
65%
26%
91%
44%
85%
87%
87%
95%
8,617
69%
21%
89%
76%
79%
84%
93%
113%
Other (Inc Credit, Accident & Health)
8,178
72%
35%
107%
53%
72%
95%
105%
127%
Fidelity & Surety
5,937
37%
46%
83%
36%
48%
67%
73%
97%
Special Liability
5,881
57%
33%
90%
55%
78%
93%
97%
109%
Financial Guaranty
5,494
152%
25%
177%
94%
124%
130%
140%
259%
Product Liability
2,629
64%
27%
91%
69%
80%
90%
97%
110%
Warranty
1,524
74%
24%
98%
43%
64%
64%
81%
88%
111
76%
31%
107%
52%
52%
74%
115%
115%
471,664
71%
28%
99%
90%
92%
99%
103%
104%
Medical Professional Liability
International
All Lines
2013 NEP
USD Millions
Aon Benfield
25
U.S. Reserve Adequacy

The analysis reveals that commercial lines continued to
Reserve releases in the U.S. are now in their eighth consecutive

year, heightening concerns that insurers are cutting reserves
move further into an overall deficiency position of USD2.8
too aggressively. We can form an independent opinion
billion at year end 2013 compared to an estimated USD0.9
about the adequacy of statutory reserves using the high
billion deficiency at year end 2012. Reserve positions
quality, uniform data at the legal entity available through
deteriorated across the commercial lines sector, which
the NAIC Schedule P in statutory accounts. These accounts
includes commercial property, commercial liability, and
provide U.S. regulators with a clear view into insurance
workers compensation. Financial guaranty moved to
companies and are part of a very effective system of solvency
a slightly less deficient position, though it represents a
regulation based on consistent and transparent reporting.
small portion of the overall commercial lines sector.
Five years ago Aon Benfield started publicly tracking the
The drivers of year-over-year change in our reserve estimates
reported reserve adequacy of U.S. companies. Each year
are illustrated in the waterfall chart on the next page. It shows
we analyze the aggregated net loss development data
the year end 2012 estimate of the property casualty industry
by Schedule P line of business. Working at an aggregate
reserve redundancy was USD9.2 billion. During calendar
level allows our actuaries to use different methods, and
year 2013, the industry released USD14.8 billion of reserves.
to weight the results in different ways, than is possible for
Offsetting the impact of reserve releases were two factors:
company actuaries who are working with smaller and less
2013 calendar year favorable loss emergence and redundantly
stable data sets. Unlike some other public studies, each of
booked reserves in the 2013 accident year. Favorable
our reports has indicated overall reserve redundancies.
development of case-incurred losses in calendar year 2013

contributed to a decrease in ultimate loss estimates of USD11.9
The table below summarizes the analysis of year end 2013
billion, while the 2013 accident year contributed an additional
data. The overall industry redundancy position decreased
USD0.2 billion of reserve redundancy. The sum of these pieces
to USD6.5 billion at YE2013equivalent to only 1.1 percent
drives our year end 2013 redundancy estimate of USD6.5 billion.
of total booked reserves. This compares to an USD9.2 billion

total industry redundancy position at YE2012, while USD14.8
When we separate the year-over-year waterfall into personal
billion was released by insurers during 2013. The amount of
and commercial lines, a different picture emerges. On the
reserves released in 2013 was the highest since 2009. However,
personal lines side, a reduction in booked reserves during
a closer inspection of the results shows a fundamental shift in
the 2013 calendar year was somewhat offset by favorable
the view of reserve adequacy on the commercial lines sector.
loss emergence on prior years and redundancy in the 2013

accident year. However, on the commercial lines side,
despite having favorable loss emergence offsetting the
calendar year 2013 reserve releases, the 2013 accident year
appears under-reserved. This results in a worsening negative
overall position for the industrys commercial lines.
U.S. reserve estimated adequacy and loss development summary (USD Billions)
Booked
reserves
Remaining
redundancy
at YE 2013
2009
2010
2011
2012
2013
Average
Years at
run rate
Personal Lines
128.5
137.9
9.3
5.8
6.7
7.6
7.1
6.0
6.6
1.4
Commercial Lines
Line
440.8
438.0
(2.8)
12.8
3.9
5.1
5.1
8.8
7.1
N/A
Commercial Property
42.8
43.4
0.5
2.4
2.7
1.4
1.1
1.7
1.9
0.3
Commercial Liability
231.3
233.9
2.6
3.8
2.4
4.1
2.5
2.8
3.1
0.8
146.1
141.5
(4.6)
(0.5)
(1.6)
(0.0)
0.0
0.6
(0.3)
N/A
20.5
19.2
(1.4)
7.0
0.4
(0.4)
1.4
3.7
2.4
N/A
569.3
575.8
6.5
18.5
10.5
12.7
12.2
14.8
13.7
0.5
Financial Guaranty
Total
26
Favorableor (adverse) development
Estimated
reserves
Drivers of 2013 reserve redundancy or deficiency (USD billions)

All Lines
12
+9.2
(14.8)
+11.9
+0.2
+6.5
4
0
-4
-8
-12
Personal Lines
12
+10.1
(6.0)
+1.7
+3.6
+9.4
(3.4)
(2.9)
4
0
-4
-8
-12
Commercial Lines
12
8
4
0
(0.9)
(8.8)
+10.2
2012 Year End Reserve

Redundancy/Deficiency
2013 Calendar Year

Change in Booked Reserves
2013 Calendar Year

Favorable/Adverse
Loss Emergence
-4
-8
-12
2013 Accident Year
2013 Year End Reserve

We estimate that companies will continue to release reserves
As we have discussed in past editions of the Study,
through year end 2014, possibly extinguishing overall
understanding reserve risk is critical for effectively modeling
redundancy in the industry. Through the first quarter
company solvency. It is also a notoriously difficult problem:
of 2014 companies have already released an additional
whereas all companies face broadly similar insurance risks, such
USD5.4 billion of reserves. USD4.1 billion of this release
as weather, legal, social, and medical trends, each companys
is from personal lines, while commercial lines released
reserving practices are idiosyncratic. Moving forward, rate
an additional USD1.4 billion. The release in the personal
adequacy and rate monitoringnot on an aggregate premium
lines may be attributable to conservatism in booked
basis but on a rate per exposure basiswill be critical to the
results at year end 2012 related to Superstorm Sandy.
operating results of companies. Aon Benfield Analytics has
With reduced equity in reserves going forward, mistakes in

underwriting, rate monitoring, and primary pricing will no
longer be covered up by a reserve cushion. Compounding
this issue is a continued low interest rate environment.

developed effective models of industry loss drivers for some

U.S. lines and continues to work to expand its understanding
of macro drivers across all classes of business. We can also
assist clients with exposure-adjusted rate monitoring in
this challenging reserve and investment environment.
Aon Benfield
27
Global Correlation Between Lines

Correlation between lines of business is central to a realistic
The Study determines correlations between lines within
assessment of aggregate portfolio risk, and in fact becomes
each country. Correlation between lines is computed
increasingly significant for larger companies where there is little
by examining the results from larger companies
idiosyncratic risk to mask correlation. Most modeling exercises
that write pairs of lines in the same country.
are carried out at the product or business unit level and then
Aon Benfield Analytics has correlation tables for most
aggregated to the company level. In many applications, the
countries readily available and can produce custom analyses of
results are more sensitive to the correlation and dependency
correlation for many insurance markets globally upon request.
assumptions made when aggregating results than to all the
As examples, tables for Colombia and France appear below.
detailed assumptions made at the business unit level.
Fidelity &
Surety
General
Liability
Life
Marine,
Aviation &
Transit
Motor
Property
Special
Liability
Special
Property
Surety
Accident & Health
Crop & Animal
Accident &
Health
Colombia
25%
12%
27%
42%
4%
34%
17%
13%
26%
-1%
24%
8%
46%
46%
27%
29%
8%
-10%
36%
17%
12%
62%
8%
12%
29%
General Liability
27%
15%
48%
Life
42%
24%
8%
46%
4%
7%
4%
-10%
12%
Motor
34%
46%
29%
36%
62%
8%
Property
17%
27%
8%
17%
37%
8%
35%
Special Liability
13%
19%
17%
18%
27%
19%
26%
13%
Special Property
26%
6%
8%
14%
47%
12%
46%
39%
14%
-1%
4%
5%
1%
13%
-3%
9%
4%
1%
Surety
15%
48%
4%
25%
Marine, Aviation & Transit
29%
7%
Crop & Animal

Fidelity & Surety
19%
6%
4%
17%
8%
5%
18%
14%
1%
37%
27%
47%
13%
8%
19%
12%
-3%
35%
26%
46%
9%
13%
39%
4%
14%
1%
11%
11%
Motor
Property
Reinsurance
Accident & Health
General
Liability
Accident &
Health
France
80%
31%
-5%
46%
55%
65%
88%
27%
66%
General Liability
80%
Motor
31%
55%
Property
-5%
65%
27%
Reinsurance
46%
88%
66%
51%
51%
Correlation is a measure of association between two random quantities. It varies between -1 and +1, with +1 indicating a perfect increasing linear relationship and -1 a perfect decreasing relationship. The closer
the coefficient is to either +1 or -1 the stronger the linear association between the two variables. A value of 0 indicates no linear relationship whatsoever.
All correlations in the Study are estimated using the Pearson sample correlation coefficient.
In each table the correlations shown in bold are statistically different from zero at the 90 percent confidence level.
28
World Bank relative

ease of doing
business
Aon Hewitt people

risk assessment
Aon terrorism risk

assessment
Political risk
assessment
Corporate tax rate
Unemployment rate
Inflation rate
Net foreign direct

investment
USD billions
General government
debt as % of GDP
Actual individual
consumption as
% of GDP
Government
consumption as
% of GDP
GDP Per Capita

PPP, USD
Population 5yr
annualized growth
Population millions
GDP 5yr
real growth
Country
GDPPPP,
USD billions
Macroeconomic, demographic, and social indicators
Argentina
793.8
6.5%
42.0
1.1%
18,917
23.4%
69.1%
n/a
12.1
n/a
7.6%
35.0%
High
Medium
Australia
1041.5
4.3%
23.5
1.4%
44,346
31.3%
58.9%
16.1%
56.6
2.3%
6.2%
30.0%
Low
Negligible
Low
Easiest
Austria
373.1
3.1%
8.5
0.4%
43,796
25.8%
59.7%
58.3%
4.1
1.8%
5.0%
25.0%
Low
Negligible
Low
Easiest
Belgium
434.5
2.7%
11.2
0.8%
38,826
29.8%
58.4%
82.5%
-1.9
1.0%
9.1%
34.0%
Medium Low
Negligible
Low
Easiest
2505.2
4.7%
200.0
0.9%
12,526
21.0%
67.2%
33.3%
76.1
5.9%
5.6%
25.0%
Medium
High
Brazil
High More difficult
Medium More difficult
Bulgaria
108.3
2.7%
7.2
-1.0%
15,031
19.3%
55.8%
-7.0%
2.1
-0.4%
12.5%
10.0%
Medium
Low
Very high
Easier
Canada
1585.0
4.0%
35.5
1.1%
44,656
25.4%
60.9%
39.5%
43.1
1.5%
7.0%
26.5%
Low
Negligible
Very low
Easiest
Low
Easiest
Chile
352.2
6.6%
17.7
0.9%
19,887
29.0%
64.2%
-5.9%
30.3
3.5%
6.1%
20.0%
Medium Low
Medium
China
14625.2
10.2%
1367.5
0.5%
10,695
51.2%
27.9%
n/a
253.5
3.0%
4.1%
25.0%
Medium
Medium
Medium More difficult
Colombia
559.7
6.4%
47.7
1.2%
11,730
25.5%
68.6%
25.2%
15.6
1.9%
9.3%
25.0%
Medium
High
High
Czech Republic
295.9
2.5%
10.5
0.2%
28,086
23.7%
53.4%
n/a
10.6
1.0%
6.7%
19.0%
Medium Low
Low
Low
Easiest
Easier
Denmark
218.3
2.4%
5.6
0.4%
38,917
23.3%
49.3%
8.9%
1.3
1.5%
6.8%
24.5%
Low
Negligible
Very low
Easiest
Ecuador
168.2
6.6%
16.0
1.7%
10,492
26.1%
65.1%
n/a
0.6
2.8%
5.0%
22.0%
High
Medium
Finland
197.8
2.4%
5.5
0.5%
36,122
24.8%
55.6%
-48.6%
4.3
1.7%
8.1%
20.0%
Low
Negligible
Low
Easiest
France
2336.6
2.6%
64.0
0.5%
36,537
23.2%
61.9%
89.5%
28.1
1.0%
11.0%
33.3%
Medium Low
Low
Low
Easiest
Germany
3338.0
3.7%
80.9
-0.2%
41,248
18.7%
58.7%
52.9%
27.2
1.4%
5.2%
29.6%
Low
Negligible
Low
Easiest
Greece
271.3
-3.0%
11.0
-0.3%
24,574
16.5%
76.9%
169.3%
1.7
-0.4%
26.3%
26.0%
High
Medium
Very high
Easier
Hong Kong
402.3
5.6%
7.3
0.9%
55,026
28.4%
62.6%
n/a
74.6
4.0%
3.1%
16.5%
Low
Low
Very low
Easiest
India
5425.4
8.0%
1259.7
1.3%
4,307
28.7%
51.8%
n/a
24.0
8.0%
0.0%
34.0%
Medium
High
High More difficult
Indonesia
1382.9
7.7%
251.5
1.4%
5,499
22.9%
58.2%
n/a
19.6
6.3%
6.1%
25.0%
Medium
High
High More difficult
Ireland
195.0
2.1%
4.8
1.2%
40,586
13.2%
41.2%
103.5%
41.0
0.6%
11.2%
12.5%
Medium
Negligible
Low
Easiest
Israel
286.8
5.7%
8.0
2.2%
35,659
23.2%
60.5%
65.1%
9.5
1.6%
6.7%
26.5%
Medium Low
High
Low
Easiest
n/a More difficult
Italy
1846.9
1.3%
60.0
0.3%
30,803
22.6%
63.3%
112.4%
6.7
0.7%
12.4%
31.4%
Medium
Low
Medium
Easier
Japan
4835.0
3.3%
127.1
-0.2%
38,053
20.7%
59.5%
137.1%
2.5
2.8%
3.9%
35.6%
Medium Low
Low
Low
Easiest
44.2
3.4%
0.6
2.1%
79,977
32.1%
44.6%
n/a
27.9
1.6%
7.1%
29.2%
Low
Negligible
n/a
Easier
Malaysia
Luxembourg
561.5
7.3%
30.1
1.4%
18,639
30.3%
52.2%
n/a
9.7
3.3%
3.0%
25.0%
Medium
Low
Low
Easiest
Mexico
1926.6
5.0%
119.6
1.2%
16,111
19.9%
66.9%
42.2%
15.5
4.0%
4.5%
30.0%
Medium
Medium
Medium
Easier
Morocco
189.1
5.6%
33.2
1.0%
5,699
38.2%
66.0%
62.2%
2.8
2.5%
9.1%
30.0%
Medium High
Medium
High
Easier
Netherlands
717.1
1.8%
16.8
0.4%
42,586
19.8%
46.2%
37.8%
6.7
0.8%
7.3%
25.0%
Low
Low
Very low
Easiest
New Zealand
143.2
4.1%
4.5
0.9%
31,692
18.2%
64.7%
25.3%
2.2
2.2%
5.2%
28.0%
Low
Negligible
Low
Easiest
Nigeria
521.4
8.8%
173.9
2.8%
2,997
9.6%
58.9%
20.0%
7.1
7.3%
n/a
30.0%
Medium High
Severe
Very high Most difficult
Norway
289.4
3.0%
5.1
1.2%
56,223
22.4%
37.0%
-205.2%
23.0
2.0%
3.5%
27.0%
Low
Negligible
Very low
Poland
855.6
4.6%
38.5
0.2%
22,201
18.4%
62.4%
21.8%
6.7
1.5%
10.2%
19.0%
Medium Low
Low
Medium
Easiest
Portugal
251.5
1.0%
10.6
0.0%
23,671
22.0%
66.2%
119.9%
13.4
0.7%
15.7%
23.0%
Medium
Low
Medium
Easiest
Romania
Russia
Easiest
296.0
3.1%
21.2
-0.2%
13,932
24.8%
59.3%
n/a
2.0
2.2%
7.2%
16.0%
Medium High
Low
High
Easier
2629.7
4.6%
142.9
0.0%
18,408
16.4%
55.5%
n/a
50.7
5.8%
6.2%
20.0%
Medium
Medium
High
Easier
Easiest
Saudi Arabia
990.4
7.6%
30.6
2.8%
32,340
33.0%
31.1%
-62.3%
12.2
3.0%
n/a
20.0%
Medium Low
Medium
Low
Singapore
366.9
7.7%
5.5
1.9%
67,035
31.5%
33.1%
n/a
56.7
2.3%
2.0%
17.0%
Low
Negligible
Very low
Easiest
South Africa
619.8
4.3%
53.7
1.3%
11,543
22.2%
71.6%
41.5%
4.6
6.0%
24.7%
28.0%
Medium
Low
Medium
Easiest
South Korea
1755.0
5.3%
50.4
0.5%
34,795
13.3%
50.8%
37.4%
5.0
1.8%
3.1%
24.2%
Medium Low
Low
Low
Easiest
Spain
1424.9
1.2%
46.5
0.1%
30,637
25.5%
57.9%
65.7%
36.2
0.3%
25.5%
30.0%
Medium
Low
Low
Easier
Sweden
414.1
4.6%
9.7
0.8%
42,624
21.7%
52.2%
-17.8%
4.0
0.4%
8.0%
22.0%
Low
Negligible
Very low
Easiest
Switzerland
385.3
3.6%
8.1
0.9%
47,863
23.6%
58.1%
27.4%
2.7
0.2%
3.2%
17.9%
Low
Negligible
Very low
Easiest
Taiwan
973.3
5.9%
23.4
0.3%
41,540
18.2%
55.8%
n/a
n/a
1.4%
4.2%
17.0%
Medium Low
Low
Low
Easiest
Easiest
Thailand
701.1
5.6%
68.6
0.5%
10,227
25.2%
52.8%
n/a
10.7
2.3%
0.7%
20.0%
Medium
High
Medium
Turkey
1219.2
7.0%
77.3
1.4%
15,767
20.9%
65.0%
27.2%
12.5
7.8%
10.2%
20.0%
Medium
High
High
Easier
U.A.E.
288.2
5.5%
9.3
2.6%
30,985
n/a
n/a
-96.0%
9.6
2.2%
0.0%
55.0%
Medium Low
Low
Very low
Easiest
U.K.
2497.3
3.1%
64.5
0.9%
38,711
19.8%
65.7%
84.4%
56.1
1.9%
6.9%
21.0%
Medium Low
Low
Very low
Easiest
U.S.
17528.4
4.0%
318.8
0.7%
54,980
11.6%
75.9%
82.3%
203.8
1.4%
6.4%
40.0%
Low
Low
Very low
Easiest
412.1
3.3%
30.5
1.6%
13,531
22.7%
57.6%
n/a
2.2
50.7%
11.2%
34.0%
High
High
Venezuela
Very high Most difficult
Aon Benfield
29
Big Data and Insurance

Big Data is ever present in the media, and we hear of new innovations and predictions derived from massive
on-line data sources almost daily. What is Big Data and what tools are used to analyze it? How are these concepts
being applied in the insurance industry and what are the potential implications? Now we explore Big Data in the
insurance space.
What is Big Data?

There are a number of different views of what comprises
Big Data, but two themes appear again and again.
The first theme is the three-Vs: big data has volume, variety,
How does traditional insurance data compare

to Big Data?
Insurance data
Internet big data
Sparse, expensive data
Massive, free data
without volume. Variety expresses the broad range of data
Policy, claim, client
Internet of Things
types, from free-form text to photographs, and from video to
Expensive to collect & maintain
manufacturing and scientific instrument output. Velocity refers
Static
to the real-time and streaming nature of many types of Big
Structured
and velocity. Volume is obvious: the data would not be big
Data. Financial market data, voice feeds, social media, security

camera feeds, embedded devices, and the whole internet of
things cast off a massive volume of data on a continuous basis.
Inhomogeneous within type
Free: user contributed, digital exhaust

Streaming
Unstructuredvariety
Homogeneous within type
Potentially high value density
Low value density
Low to medium volume
Very high volume
The second theme relates to computational capacity. Highvelocity streaming data must be processed in real time to
be useful, which stresses traditional computing devices.
This definition is evolving with computer technology, but
today it means data in the petabyte rangea petabyte
being 1,000 terabytes. When working with this mass of data,
one key criterion is an algorithms tolerance of hardware
failures, since the data will be stored on so many individual
hard drives that failures become relatively common.
Traditional Big Data, such as social media feeds, delivers
a massive amount of cheap user-contributed content
characterized by the three Vs. Insurance data, in comparison,
is sparse, occurs at discrete intervals (a renewal, a claim) and is
often expensive to collect and maintain (on-site inspection). It is
typically structured but inhomogeneous within type: different
databases have the same general columns (construction,
occupancy, protection) but the values are coded differently
between different systems. This inhomogeneity makes data
aggregation difficult.
Whereas traditional Big Data is high frequency and low

value, insurance data is lower frequency but potentially
much higher valuein part explaining company concerns
over data security. Companies in personal lines and small
commercial lines use data as a key competitive advantage,
and they are able to glean important pricing insights from it.
From data to action

Big Data is like iron ore: bulky and useless in its raw state.
It has to be refined through several stages before it yields
up actionable and consumable information. Transforming
raw data into usable information is typically an IT problem.
In the insurance industry it often involves combining
database and data sources, remapping, recoding, cleansing,
and normalizing data. Insights are then the result of
applying analysis to the resulting information. Insights
draw out connections and linkages. They suggest patterns,
causation, and ultimately actions for new products,
coverages, pricing variables, and risk management.
30
Data
Information
Insight
Action
New data sources

The data available to insurers today far exceeds that available
construction project, changes in roofs, and, in the infrared
to underwriters twenty five years ago. As catastrophe
spectrum, an assessment of the energy efficiency of each home.
modeling was introduced to the industry, an early complaint
Beyond property, there are exciting potential applications in
was that the data is not available. But, driven by huge
agricultural insurance, logistics, and exposure analysis. For
losses from Hurricane Andrew in 1992 and the Northridge
example, is reported revenue consistent with parking lot usage?
earthquake in 1994, the industry quickly adapted and

implemented vastly improved data standards. Today our
understanding of property risks far exceeds anything
available then. We see the implications for the industry in
the market every day. And yet we have barely scratched
the surface of the new data sources potentially available in
todays connected world. We touch on three emerging data
sources: near real-time satellite imagery; embedded medical
Big Data for insurance is often synonymous with Behavioral

Data. Behavioral Data starts with credit based variables, which
have been used successfully for many years. But credit is a
window into behavior that can be detected in other ways.
Shopping habits are a good example. Personal fitness devices
are increasingly popular, linking activity wirelessly to on-line
databases and there are insurance behavioral implications
and personal fitness devices; and streaming location data.
in the data they collect. Related data comes from smart
Todays technology has enabled a new generation of micro-
based insurance feeds, time-stamped location data has a
satellites that can be deployed relatively cheaply and in
myriad of insurance applications, particularly for auto.
sufficient numbers to provide a view of anywhere on earth

multiple times each day. The possibilities are endless. In
underwriting we can document the property on the day the
policy is written. We can look at tree proximity and brush
clearance as it exists today, without the need for a costly
phone records of location. Not as detailed as auto usage
We all leave a trail of digital exhaust that can be

exploited not just to assess our personal risk footprint
more accurately, but also to design and offer risk
protections more tailored to our personal situation.
on-site survey. We can also see the property just before

and immediately after a claim. Still under development, but
theoretically possible, are tracking systems monitoring for
signs of construction or the progress of a large commercial
Aon Benfield
31
The future
We end with some ideas about how the future could unfold.
Big Data will create new insurance markets, more aligned with
how customers want to buy protection. It is already possible
to source many of the required rating variables for personal
lines protections from public and quasi-public data sources.
insurance applications. This will include both new

applications of existing feeds and the creation of
wholly new data sources, such as micro-satellites.
Greater understanding of risk will lead to better
The next step could be a lifestyle policy covering all first and
risk management and behavioral nudges,
third party liabilities for an individual, replacing separate
continuing the trend of greater safety and fewer
homeowners, auto and umbrella policies. Such a policy
accidents in mainstream insurance products.
could be priced almost entirely based on Big Data feeds:

credit and financial information delivering both behavioral
and risk insights as well as an inventory of possessions for
first party coverages, potentially enhanced via location and
activity feeds. Given the relative size of property casualty
and health insurance premiums, such a policy could evolve
into an add-on to a health policy, potentially bought through
a corporate or private exchange shopping environment.
Provision through an exchange would greatly improve
the customer shopping experience, clarifying pricing and
coverage options, and facilitating easy comparative shopping.
Big Data and technology will stress or kill some existing
markets. Driverless cars have the potential to transform
auto insurance, and given the importance of auto to
overall industry results and capital needs, the whole
property casualty industry. The industry of the future
will be even more capital intensive than today, but will
offer more material limits to commercial buyersoften
syndicated to the global reinsurance markethelping
to offset the decline in attritional loss volume.
32
New data sources will continue to be tapped for
Larger insurance companies will continue to prosper at the

expense of smaller companies in many lines, driving explicit
consolidation or concentration through natural selection.
Smaller companies will be forced to form data unions to pool
data and to leverage their customer and local geographic
knowledge advantages more effectively. Concentration in the
U.S. market will increase to mirror that seen in other countries.
Data and analytics will increasingly create and drive value
creation in the future. The Aon Benfield team invests
heavily in order to stay at the forefront of emerging data
technologies to be able to offer meaningful support
and collaboration to our clients as we all work to stay
relevant and competitive in the risk marketplace.
Sources and Notes

Foreword
Sources:
A.M. Best, Axco Insurance Information Services, Impact Forecasting 2013 Annual Global Climate and Catastrophe Report, SNL Financial
Global Premium, Profitability & Opportunities

Sources:
A.M. Best, Axco Insurance Information Services, IMF World Economic Outlook Database April 2014 Edition, SNL Financial, Standard & Poors, World Bank
Notes:
Pages 5-15P&C GWP from Axco converted to USD by Axco.
Page 5 MapCountry premiums from Axco matched against U.S. state premiums from SNL.
Page 7 TableGDP (PPP) is nominal GDP in local currency adjusted using purchasing power parity (PPP) exchange rate into U.S. dollars. The PPP exchange rate
is the rate at which the currency of one country would need to be converted in order to purchase the same amount of goods and services in another country.
Pages 7-9 Table and Quadrant PlotsPremium and growth calculated using Axco data. Loss ratios for motor, property and liability lines also calculated using
Axco. All lines loss, expense, and combined ratios are calculated using A.M. Bests Statement FileGlobal and are based on the net results of the largest 25
writers for a given country (where available).
Looking Ahead: Growth Projections

Sources:
Axco Insurance Information Services, IMF World Economic Outlook Database April 2014 Edition, and annual financial statements
Notes:
Pages 10-13 TablesCompound annual growth rate is a measure of growth over multiple time periods, in this case years. It can be understood as the growth
rate from an initial period to a final period if we assume annual compounding at a consistent rate. GWP projections were made using an equal weighting of
projected GDP growth, projected population growth, and past 5-year GWP growth for each country, for motor, property and liability business.
Strategies for Growth

Sources:
Axco Insurance Information Services, Euromoney, IMF World Economic Outlook Database April 2014 Edition, World Bank, and annual financial statements
Notes:
Opportunity Index Calculation: For each combined ratio, growth and political risk statistic, countries were ranked from 1 to 50. A combined score was then
calculated from these metrics. Opportunity Index Score = 1/3 * combined ratio score + 1/2 * projected GWP growth rate + 1/6 * political risk score
Insurance Trends: Risks and Opportunities

Sources:
A.M. Best, Aon Global Risk Insight Platform (GRIP), Aon Hewitt, The Economist, Identity Theft Resource Center, JP Morgan, Kaiser Family Foundation: Employer
Health Benefits 2012 Annual Survey, Mondaq.com, Onlineautoinsurance.com, Ponemon Institute, SNL Financial, Symantec, Verizon, Yearbooks Of Chinas
Insurance
Global Risk Parameters and U.S. Risk Parameters

Sources:
ANIA (Italy), Association of Vietnam Insurers, BaFin (Germany), Banco Central del Uruguay, Bank Negara Malaysia, CADOAR (Dominican Republic), Cmara de
Aseguradores de Venezuela, Comisin Nacional de Bancos y Seguros de Honduras, Comisin Nacional de Seguros y Fianzas (Mexico), Danish FSA (Denmark),
Direccin General de Seguros (Spain), DNB (Netherlands), Ernst & Young Annual Statements (Israel), Finma (Switzerland), FMA (Austria), FSA (U.K.), HKOCI
(Hong Kong), http://www.bapepam.go.id/perasuransian/index.htm (Indonesia), ICA (Australia), Insurance Commission (Philippines), IRDA Handbook on
Indian Insurance Statistics, Korea Financial Supervisory Service, Monetary Authority of Singapore, MSA Research Inc. (Canada), Quest Data Report (South
Africa), Romanian Insurance Association, Slovak Insurance Association, SNL Financial (U.S.), Superintendencia de Banca y Seguros (Peru), Superintendencia
de Bancos y Otras Instituciones Financieras de Nicaragua, Superintendencia de Bancos y Seguros (Ecuador), Superintendencia de Pensiones de El Salvador,
Superintendencia de Pensiones, Valores y Seguros (Bolivia), Superintendencia de Seguros de la Nacin (Argentina), Superintendencia de Seguros Privados
(Brazil), Superintendencia de Seguros y Reaseguros de Panama, Superintendencia de Valores y Seguros de Chile, Superintendencia Financiera de Colombia,
Taiwan Insurance Institution, The Insurance Association of Pakistan, The Statistics of Japanese Non-Life Insurance Business, Turkish Insurance and Reinsurance
Companies Association, Yearbooks Of Chinas Insurance, and annual financial statements
Aon Benfield
33
Asset portfolio risk
Insurance portfolio risk
Portfolio risk
Insurance risk
Portfolio Risk
Systemic
Insurance
Risk
Systemic
Market Risk
Nave Model
Number of stocks
Volume
Notes:
Modern portfolio theory for assets teaches that increasing the number of stocks in a portfolio will diversify and reduce the portfolios risk, but will not eliminate
risk completely; the systemic market risk remains. This behavior is illustrated in the left hand chart below. In the same way, insurers can reduce underwriting
volatility by increasing account volume, but they cannot reduce their volatility to zero. A certain level of systemic insurance risk will always remain, due to factors
such as the underwriting cycle, macroeconomic trends, legal changes and weather, see right chart. The Study calculates this systemic risk by line of business
and country. The Nave Model on the right hand plot shows the relationship between risk and volume using a Poisson assumption for claim counta textbook
actuarial approach. The Study clearly shows that this assumption does not fit with empirical data for any line of business in any country. It will underestimate
underwriting risk if used in an ERM model.
U.S. Reserve Adequacy and U.S. Profitability

Sources:
SNL Financial
Notes:
See the Aon Benfield Analytics U.S. P&C Industry Statutory Reserve Study for additional analysis at: http://thoughtleadership.aonbenfield.com/
Documents/20140604_ab_analytics_industry_reserves_study_2013.pdf
Page 25 tableResults based on universe of U.S. statutory top level companies and single companies. Combined ratio calculated by combining accident year
loss ratios from Schedule P with IEE expense ratios on a net basis. Combined ratio percentiles are weighted by 10-year average premium volume. Individual
company combined ratios below 30 percent or greater than 600 percent were excluded from the calculation.
Global Correlation between Lines

Sources:
Superintendencia Financiera de Colombia, and annual financial statements (France)
Macroeconomic Demographic and Social Indicators

Sources:
Aon Political Risk Map 2014, Aon Terrorism & Political Violence Map 2014, Axco Insurance Information Services, Bloomberg, Ernst & Young, Euromoney, Fitch
Ratings, IMF World Economic Outlook Database April 2014 Edition, KPMG, Moodys, Penn World Table Version 8.0, Standard & Poors, World Bank
34
Contacts
For more information on the Insurance Risk Study or our analytic capabilities,
please contact your local Aon Benfield broker or:
Stephen Mildenhall
Global Chief Executive Officer of Analytics
Aon Center for Innovation and Analytics, Singapore
+65 6231 6481
stephen.mildenhall@aon.com
Kelly Superczynski
Partner, Inpoint
Aon Benfield
+1 312 381 5351
kelly.superczynski@inpoint.com
Greg Heerde
Head of Analytics & Inpoint, Americas
Aon Benfield
+1 312 381 5364
greg.heerde@aonbenfield.com
Will Street
Principal, Inpoint
Aon Benfield
+44 (0) 20 7086 4497
william.street@inpoint.com
John Moore
Head of Analytics, International
Aon Benfield
+44 (0)20 7522 3973
john.moore@aonbenfield.com
Andrew Hare
Principal, Inpoint
Aon Benfield
+65 6512 0263
andrew.hare@inpoint.com
George Attard
Head of Analytics, Asia Pacific
Aon Benfield
+65 6239 8739
george.attard@aonbenfield.com
About Aon Benfield

Aon Benfield, a division of Aon plc (NYSE: AON), is the worlds
advisory. Through our professionals expertise and experience,
leading reinsurance intermediary and full-service capital
we advise clients in making optimal capital choices that will
advisor. We empower our clients to better understand,
empower results and improve operational effectiveness for
manage and transfer risk through innovative solutions and
their business. With more than 80 offices in 50 countries, our
personalized access to all forms of global reinsurance capital
worldwide client base has access to the broadest portfolio of
across treaty, facultative and capital markets. As a trusted
integrated capital solutions and services. To learn how Aon
advocate, we deliver local reach to the worlds markets, an
Benfield helps empower results, please visit aonbenfield.com.
unparalleled investment in innovative analytics, including

catastrophe management, actuarial and rating agency
Aon Benfield Inc. 2014.
All rights reserved. This document is intended for general information purposes only and should not be construed as advice or opinions on any specific facts or
circumstances. This analysis is based upon information from sources we consider to be reliable, however Aon Benfield Inc. does not warrant the accuracy of the
data or calculations herein. The content of this document is made available on an as is basis, without warranty of any kind. Aon Benfield Inc. disclaims any legal
liability to any person or organization for loss or damage caused by or resulting from any reliance placed on that content. Members of Aon Benfield Analytics will
be pleased to consult on any specific situations and to provide further information regarding the matters.
About Aon
Aon plc (NYSE:AON) is the leading global provider
of risk management, insurance and reinsurance
brokerage, and human resources solutions and
outsourcing services. Through its more than 66,000
colleagues worldwide, Aon unites to empower
results for clients in over 120 countries via innovative
and effective risk and people solutions and through
industry-leading global resources and technical
expertise. Aon has been named repeatedly as the
worlds best broker, best insurance intermediary,
best reinsurance intermediary, best captives
manager, and best employee benefits consulting
firm by multiple industry sources. Visit aon.com
for more information on Aon and aon.com/
manchesterunited to learn about Aons global
partnership with Manchester United.
Aon plc 2014. All rights reserved.
The information contained herein and the statements expressed are of
a general nature and are not intended to address the circumstances of
any particular individual or entity. Although we endeavor to provide
accurate and timely information and use sources we consider reliable,
there can be no guarantee that such information is accurate as of the
date it is received or that it will continue to be accurate in the future.
No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.
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Aon Benfield

Insurance Risk Study

Risk. Reinsurance. Human Resources.

Looking Ahead: Growth Projections . . . . . . . . . . . . . . . . . . . . . . 10

Insurance Trends: Risks and Opportunities. . . . . . . . . . . . . . . . . 17

Global Risk Parameters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22

Premium, capital, and profitability highlights

Catastrophe losses have been a driver of the growth in

USD4.9 trillion, an increase of 0.9 percent over the prior year.

property premiums in many parts of the world. Impact

Property casualty premium increased 3.5 percent, and

Forecasting, Aon Benfields catastrophe model development

life premiums shrunk by 2.0 percent while health premiums

center, estimates that during 2013 insured catastrophe losses

grew 4.5 percent.

totaled USD45 billion. In perspective, catastrophe losses

Global insurance premium and capital, USD trillions

translated into 3.2 percent of property casualty premium and a

Property & Casualty

Life & Health

The combined ratio for property casualty business in the

Global capital increased 3.9 percent year on year to USD4.0

100.4 percent in Asia Pacific. The five year average combined

trillion. Property casualty insurance capital increased 7.1 percent.

ratio continued under 100 percent too, at 99.8 percent. The

And reinsurance capital is at an all-time high, as we discuss at

overall global combined ratio under 100 percent, and the

greater length in Aon Benfields Reinsurance Market Outlook.

variation in results by country, clearly show there are many

Property casualty penetration is 1.9 percent of GDP, marginally

desirable areas for profitable growth in the market today.

Where does the insurance market go from here? We

Auto insurance accounts for 46 percent of property casualty

project that global premium will grow by 18 percent over

premium, while property accounts for 33 percent and liability

the next five years, reaching a total of USD 1.6 trillion by

2018. Auto will continue to be the largest line, driven

Growth and Big Data

Using the study

The Insurance Risk Study is now in its ninth edition, and

Insurance risk remains core to the Study and pages 22

there have been many changes in the industry since we

to 30 contain our comprehensive view of risk by line

began research for the first edition in 2005. After seven

and geography using the techniques we have been

major (category 3+) U.S. hurricane landfalls from 2004

applying consistently since 2005. The Insurance Risk

to 2005 there have been no major hurricane landfalls

Study continues to be the industrys leading set of risk

in the last eight years. Adverse loss development has

parameters for modeling and benchmarking underwriting

turned into a long stream of favorable development.

risk and global profitability. Beyond risk modeling, we can

Premium growth and the locus of catastrophe losses

also provide our clients with very granular, customized

has shifted to the East. Today the emphasis is on

market intelligence to create business plans that are

making efficient use of cheaper alternative capital and

realistic, fact-based, and achievable. With a global fact

on growth in the face of an often sluggish economic

base and broad access to local market practitioners, we

environmentchallenging themes that recent editions

are equipped to provide insight across a spectrum of