Aon launches unit to target protection gaps, will work closely with ILS team

A newly launched unit at global insurance and reinsurance brokerage Aon will target under-insurance opportunities, helping clients including governments to address insurable protection gaps, in work that will include close cooperation with the Aon Securities capital markets and ILS team.

Aon’s Reinsurance Solutions launched its new Public Private Enterprise (PPE) specialty practice yesterday.

The firm said the new unit will focus entirely on creating a centre of excellence to provide advice and solutions to entities that have evident insurable protection gaps, including governments.

The PPE unit will be led by Emma Karhan, who most recently headed up terrorism specialty and reinsurer relationships at the broker, working alongside Jon Wood.

The PPE practice will initially work out of Aon’s London base, focusing on both terrorism and natural catastrophe risk opportunities and integrating closely with the broker’s Credit & Guarantee and Government practice in the US.

As well as this, the broker said that the PPE practice will work closely with the capital markets and insurance-linked securities (ILS) team at Aon Securities, in order to provide a single global offering in the government risk transfer space.

Aon said the unit will follow its model of government de-risking through commercial insurance plan structures, recent examples of which include ongoing mortgage credit risk transfer programmes for Freddie Mac/Fannie Mae in the US – which now amount to over $20 billion of risk transferred to insurance and reinsurance market interests, as well as a $1 billion risk transfer solution for the US Exim Bank.

In addition the firm highlights the ILS market work from Aon Securities, including its structuring of the largest ever earthquake catastrophe bond for the World Bank, as well as the recent work it undertook on the FloodSmart Re Ltd. cat bond deal, the first standalone flood catastrophe bond deal in the US for the National Flood Insurance Program (NFIP), augmenting its reinsurance needs using the capital markets.

Aon said it recognises the importance of addressing the insurance protection gap globally, leading to the launching of the new PPE unit.

Nick Frankland, UK CEO of Aon’s Reinsurance Solutions business, commented, “The re/insurance industry has record levels of capital at a time when public entities need increased protection against the risks they face. In particular, there is great potential to make the most of this capital through parametric triggers. Aon has proven its ability to structure ground-breaking solutions on behalf of governmental, and quasi-governmental organisations, and we now intend to build on these successes to assist ultimately in the development of more robust economies across the world.”

Highlighting the fact that no matter how much capital is seen to be in excess and how much the market bemoans that, it is still not being put to work in the most effective way, resulting in evident protection gaps even in developed nations.

The Harvey, Irma & Maria hurricane losses of 2017 highlighted this fact, with less than 50% of the total economic loss transferred into the insurance and reinsurance industry, despite the abundant capacity available in the today.