Aon Limited
ART the client perspective
Sam Dell, Aon Limited
Global Risks ART solutions
ART solutions
Alea.ppt/1
Aon Limited
ART - the client perspective

ART / ARF
 Definition & solutions
 Traditionally uninsurable risks

Demand side - drivers for the corporate client

Corporate client market research

ART / ARF solutions and services in practice

Conclusion - now or never for ART?
ART solutions
Alea.ppt/2
Aon Limited
ART / ARF solutions - definition
ART is an evolutionary solution driven
approach. It is not a product. It is the
result of the buyers goal to utilise its
capital to manage and take risk more
efficiently than its current products
allow.
ART solutions
Alea.ppt/3
Aon Limited
“Alternative” can mean any of the following

Alternative Insurance Solutions
 risks already insured with new programme design
 an enhanced feature of an existing programme i.e. Profit Commission.

Alternative Risks
 risks not traditionally insured in the (re)insurance market

Alternative Risk Financing Solutions
 risk transfer solutions that are neither insurance or reinsurance contracts
i.e. Funded

Alternative Markets
 suppliers of risk capital that are not insurers or reinsurers
In practice most deals are a combination of 2 or 3 of the above
ART solutions
Alea.ppt/4
Aon Limited
Traditionally uninsurable risks


Contingent liabilities

Economy based risks

Asbestos

Currency / F.X.

Environmental impairment

Investment and interest rates

Tobacco health hazard

Commodity exposures

Breast implants

Mould
Revenue protection

Debt repayment guarantee

Research & development

Ridership

Mandatory Modifications

Debt Repayment Guarantee

Brand Image
ART solutions
Alea.ppt/5
Aon Limited
“Alternative” can mean any of the following

Alternative Insurance Solutions
 risks already insured with new programme design
 an enhanced feature of an existing programme i.e. Profit Commission.

Alternative Risks
 risks not traditionally insured in the (re)insurance market

Alternative Risk Financing Solutions
 risk transfer solutions that are neither insurance or reinsurance contracts
i.e. Funded

Alternative Markets
 suppliers of risk capital that are not insurers or reinsurers
In practice most deals are a combination of 2 or 3 of the above
ART solutions
Alea.ppt/6
Aon Limited
Example - alternative insurance solutions

Deductible Smoothing programmes

Use of Captive Insurers

PCC’s and Insurance Vehicles

Introduction of Multi-Line / Multi-Year deals

Finite Risk / Funded programmes

Integrated programmes
ART solutions
Alea.ppt/7
Aon Limited
Demand side - drivers for corporate clients (1)

Client focus: a broader range of risks from changes in technology,
legislation, social attitudes, globalisation, economic conditions etc. e.g
e-risks

Trends in corporate governance demand that clients can demonstrate
adequate risk management (Cadbury, Turnbull, possible introduction of
Corporate Killing)

Client sophistication - use of Enterprise Risk Management techniques,
segmentation, and risk management functions more closely allied to
Treasury functions

Investors - more sensitive to swings in earnings - focus by
management on decreasing this volatility
CEO/CFO’s view on risk : “anything that hurts our earnings per share or market
capitalisation”.
ART solutions
Alea.ppt/8
Aon Limited
Demand side - drivers for corporate clients (2)

Demand coverage for new / broader types of business risk
 Stand alone basis or integrated into a package
 Mergers & Acquisitions enhance earnings, but at the same time increase
potential (unknown) liabilities

Demand for integral risk management and balance sheet
protection

Continuing concern over the breadth of insurance products
 indemnity agreement is usually highly conditional, specific and defined

Most efficient use of capital

Issue of convergence of capital, banking & insurance markets credit enhancement programmes
ART solutions
Alea.ppt/9
Aon Limited
Demand side - corporate client market research

1995 - Top 5 greatest risks
facing organisations

2001 - Top 5 greatest risks
facing organisations

1. Fire

1. Loss of Reputation

2. Employers’ Liability

2. Failure to Change

3. Health & Safety

3. Business Interruption

4. Business Interruption

4. Product Liability

5. Product Liability

5. Computer Crime
Source - Aon Limited
Biennial Risk Management & Risk Financing Survey 2001
ART solutions
Alea.ppt/10
Aon Limited
Solutions and services in practice (1)

Long term, integrated risk financing programme with strong
emphasis on:
 risk transfer and
 protecting company’s balance sheet

Broad definition of risk

Innovative, flexible and financially sound security

Carefully structured programme
 Tax
 Accounting
 Legal

Mutual trust and partnership between client and underwriters
ART solutions
Alea.ppt/11
Aon Limited
Solutions and services in practice (2)

Latest 100 “ART” enquiries passed to Aon Risk Consultants in
the past 12-18 months : Project Finance - 20 (Credit Enhancement)
 Insurance company / captive (smoothing) - 20
 Loss portfolio transfer - 15
 Operational risk - 10
 Weather - 10
 Commodity price - 5
 Accident/Health insurance schemes - 5
 Pensions mis-selling - 5
 Cat bond / CatEPut - 5
 Carbon trade/renewable Energy - 5
ART solutions
Alea.ppt/12
Aon Limited
Conclusion - now or never for ART? (1)

“Alternative” market is made up of various different solutions &
transfer methods

There is an increase in the level of client sophistication

Demand side - increasing demand for an ART involvement &
solutions

Supply side - various factors at work
 Hardening market a double edged sword - may lead to underwriters
withdrawing “alternative” capacity
ART solutions
Alea.ppt/13
Aon Limited
Conclusion - now or never for ART? (2)

Client demands for alternative risk management may provide for
growth in services/solutions offered by insurance market - not
linked to market conditions
 Consulting opportunities
 Transactional (risk transfer) opportunities
 options, trigger mechanisms etc.

ART is in its infancy - likely to evolve gradually

Client awareness and understanding needs to be raised if the
potential of ART is to be fully developed and exploited
ART solutions
Alea.ppt/14
Aon Limited
Future development of ART

Corporate buyers require flexible, bespoke applications.

This requires a different, solution-focused ‘mindset’ from the
capital providers.

The technology will continue to evolve as demands change.

Corporate buyers will remain cautious until the techniques and
instruments are fully tested in real circumstances. Issues such
as accountancy treatment, taxation treatment and legal contracts
need to be analysed carefully.

However, the programmes are growing in popularity with
potential buyers and the major capital providers.
ART solutions
Alea.ppt/15
Aon Limited
ART - the client perspective
ART solutions
Alea.ppt/16
Aon Limited
ART the client perspective
Sam Dell, Aon Limited
Global Risks ART solutions
ART solutions
Alea.ppt/17