Property Market Overview Richard Terlecki, CPCU, ARM, ARe Area Senior Vice President January 12, 2018 2017 Power Broker Aviation
Events Taking Place in 2017 2
2017 Will Be Record Year For Industry Cat Losses The re/insurance industry will bear record catastrophe losses of $135 billion in 2017 following hurricanes Harvey, Irma and Maria as well as a severe earthquake in Mexico, according to Munich Re s calculations. It also notes that overall losses including uninsured losses amounted to $330 billion, the second-highest figure ever recorded for natural disasters. The only costlier year so far was 2011, when the Tohoku earthquake in Japan contributed to overall losses of $354 billion in today s dollars. 3
Property and Casualty Industry Results Net Income After Taxes The chart shows: Industry net income after taxes for the first half of the year (adjusted for inflation). The takeaway: Even before three major hurricanes and the California wildfires, profits were declining for 2017. 4
Commercial Lines Combined Ratio 1990-2017F* 2017 Combined Ratio is expected to be in the 109.5% range. That will make 2017 the worst year since 2001 and 2002 with the 9/11 catastrophe. 5
Let s Sum Up Current Market Conditions A market that has been underpriced for several years, especially in shorttail lines. Today, margins are thin. + Prices in 2017 fell to their lowest point in 17 years, according to a Guy Carpenter index of global property-catastrophe reinsurance pricing. + Reinsurance costs are increasingly driven by alternative capital; these investors will support the market post-event but are also demanding higher returns going forward. + In the wake of these events, the returns shareholders expect from catastrophe-exposed re/insurers will only go up. = Conversations with brokers and clients at renewal are likely to have a different dynamic compared with the last several years. 6
What Can You or Your Broker Do 1. Hope that you are in a Multiple (2 or 3 Year) rate stabilization program or with FM Global on a Successive Renewal Agreement 2. Go to Market early, give your broker and you plenty of time to negotiate. Carriers do not want to lose business and competition will give you negotiating leverage. 3. Especially if you are in a Shared and Layered program be ready to rehang the pieces differently. 4. Prepare a long term (5-10 years) premium vs. losses paid chart, depending on which time frame is more advantageous. 5. Be slightly willing to negotiate deductibles or terms in exchange for premium increase. Underwriters must show they got something if it was not premium. 7
Finally What Can You Expect (No Crystal Ball) 1. Because of excessive capacity the later in the year your renewal the better off you may be. Unless 2018 is a bad year also then you may be worse off. 2. A flat renewal would be an absolute win for any client in 2018 3. If you have beat the price down yearly for the last 10 years expect underwriters to not swing the hatchet lightly. 4. The highest increases we are seeing for January 1 renewals are 5% for loss free programs and up 10% to 20% percent for loss affected business. 5. I have had two January renewals one loss free program with a 2% rate increase and one where the insurer was underwater with a 35% increase. 8
Update on Blockchain & Lemonade Within the plethora of articles we have provided you with there is one on Blockchain that you heard of here first. 23 new brokers and re/insurers help to test market There is now a working market testing prototype of this distributed ledger technology Lemonade gets $120M investment from Softbank, other investors include Google, Sequoia Capital, etc. Property and casualty policies for homeowners and renters in eight states licensed currently in 25 states in all. Included a recent article in your packet on Lemonade also 9
BREXIT Potential Impacts on the Global (Re)Insurance Industry Brexit will dominate 2018 Contingency plans already in place Lloyd s has made it clear that it is not Lloyd s of London Lloyd s has established a hub in Brussels to ensure access to a single market following UK s departure Little to no affect on global market 10
2015 Property & Casualty Insurance Regulatory Report Card *Not Graded: District of Columbia Source: R Street Insurance Regulation Report Card, December 2015 11
How You Rate Large Insurance Carriers and Brokers Overall customer satisfaction with large commercial insurers increased in 2017 Insurers focused more on tailored and diversified products for you Understanding your needs is one of the most significant performance metric for insurers Five factors were measured for insurers 1. Service interaction 2. Program offerings 3. Price 4. Billing process 5. Claims On a 1,000 point scale insurers rank is as follows: 1. XL Catlin ranks highest with a score of 806 2. Chubb ranks second at 783 3. The Hartford ranks third at 772 12
How You Rate Large Insurance Carriers and Brokers Satisfaction with brokers is based on ten attributes: 1. Quality of advice and guidance provided 2. Reasonableness of fees 3. Ease of the renewal process 4. Effectiveness of risk control 5. Variety of program offerings 6. Effectiveness of program review 7. Price 8. Given services received 9. Billing and payment process 10. Claims process On a 1,000 point scale brokers rank is as follows: 1. Lockton ranks highest among brokers at 856 2. Arthur J. Gallagher & Co. ranks second at 855 3. Aon ranks third at 822 *This article is also included in your packet. 13
Thank You! Any Questions? Richard Terlecki, CPCU, ARM, ARe 407.563.3512 Richard_Terlecki@ajg.com 200 South Orange Avenue Orlando, FL 32801 U.S.A.