ACE: Global Recession Creates New Supply Chain Risk

Speaking at The Economist Risk Summit in London today, Phil Wall -
Senior Account Engineer at ACE, urged businesses to recognise that
initiatives designed to reduce costs and streamline operations can
create unforeseen side effects, such as increasing property loss and
business interruption exposures within their supply chains.

He also called on businesses to consider adopting specific measures to
mitigate these exposures. These include more rigorous risk
identification, 'best of class' loss prevention standards in supply
chains, greater communication with suppliers, and creating more robust
alternative supplier arrangements.

The supply chain has been a key area of focus during the economic
downturn, with companies adopting a number of different measures to
achieve cost savings - in a recent survey sponsored by ACE, it was
revealed that close to 60% of global businesses had negotiated lower
prices with suppliers over the last year. Other measures taken by
businesses include more outsourcing to third party suppliers, the
placing of larger contracts with a reduced number of suppliers to
achieve economies of scale, the consolidation of operations into large
production facilities, the use of 'mega' distribution warehouses and a
move to 'just-in-time' production.

Wall said: "Whilst such measures represent short-term gains on the
balance sheet, businesses need to be aware of the potential impact of
these initiatives and understand the additional longer term exposures
that may come with these. The failure of one supplier in a small chain
or an incident in a large scale warehouse creates very real and major
risk exposures that could significantly damage a company."

The use of suppliers in new and more cost effective territories is one
area that highlights the scale of the new risk exposures. Wall
explained: "These emerging markets can look like attractive options with
cheaper labour costs. However, issues such as unknown loss prevention
standards, political and infrastructure uncertainty, cultural
differences and unforeseen natural hazard exposures can make them
riskier and more costly options in the long-term."

Wall called on the Summit audience of senior European executives
involved in risk, strategy, finance and compliance across a broad range
of industry sectors, to ensure the appropriate level of focus on the
identification of new and emerging risk exposures is being applied
within their organisations. He also urged businesses to demand "best of
class" property loss prevention standards at critical facilities to help
ensure that the supply chain is protected. In addition he advocated
building stronger relationships, adopting a team approach with key
suppliers to identify potential exposures and agree action plans to
address them and identifying alternative suppliers to minimise the
interruption in the supply chain.

Wall concluded: "Supply chain risk management needs more Board-level
priority. Businesses cannot afford to underestimate the potential impact
of these emerging risks."

ENDS

Notes to editors:

The Economist Risk Summit -- New perspectives on decision-making was held
on 19th November 2009 at The Dorchester Hotel in London.

For more information visit www.therisksummit.com

ENDS

About ACE Part of the ACE Group, ACE European Group
comprises the operations of ACE Europe, ACE Global Markets and ACE
Tempest Re Group. ACE Europe provides a range of tailored Property and
Casualty, Accident and Health and Personal Lines solutions for a diverse
range of clients. ACE Global Markets (AGM) is ACE's specialty
international business, underwriting through ACE's Lloyd's Syndicate
2488 and ACE European Group Limited. Specialty lines include excess and
surplus lines business, Marine, Aviation, Energy and Political Risk as
well as Property, Financial Lines and Accident and Health. Additional
information on ACE European Group can be found at www.aceeuropeangroup.com

The ACE Group of Companies is a global leader in insurance and
reinsurance serving a diverse group of clients. Headed by ACE Limited
(NYSE: ACE), the ACE Group conducts its business on a worldwide basis
with operating subsidiaries in more than 50 countries. Additional
information can be found at: www.acelimited.com

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SOURCE: ACE Group

ACE Group 
Katie Weeks, Communications Manager 
+ 44(0)20-7173-7585 
katie.weeks@acegroup.com

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