Commercial Property: Tightening at a faster pace



-1762125-13335000031754836795Presented: March 17, 2020Line(s) of Coverage: Property, Terrorism, Boiler & MachineryCoverage Effective: April 25, 2019Judith A. Arenz, CPCU | Area Senior Vice PresidentTom Gill, MBA, CIC, CRM | Area Assistant Vice PresidentArthur J. Gallagher Risk Management Services, Inc. 2255 Glades Rd., Suite 200EBoca Raton, FL 33431 00Presented: March 17, 2020Line(s) of Coverage: Property, Terrorism, Boiler & MachineryCoverage Effective: April 25, 2019Judith A. Arenz, CPCU | Area Senior Vice PresidentTom Gill, MBA, CIC, CRM | Area Assistant Vice PresidentArthur J. Gallagher Risk Management Services, Inc. 2255 Glades Rd., Suite 200EBoca Raton, FL 33431 31753581400The School Board of Brevard County, FL2700 Judge Fran Jamieson Way, Viera, FL 329402020 Property Program Renewal 00The School Board of Brevard County, FL2700 Judge Fran Jamieson Way, Viera, FL 329402020 Property Program Renewal 0441452000 OverviewThank you for the opportunity to present this Strategic Review. The purpose of the report and this meeting is to set the stage for your upcoming Property Program renewal. The intent of our CORE360? approach is to help you optimize your total cost of risk, thereby improving your profitability, and this discussion is critical to this evaluation. Arthur J. Gallagher Risk Management Services, Inc. and your Service Team have prepared this overview to discuss the renewal of your program effective April 25, 2020.Property Boiler and Machinery TerrorismThe report summarizes the key accomplishments from your last renewal (current program) and it examines the current marketplace, our past results and any changes to your organization or risk appetite. It also challenges our past work and suggests future improvements. We highlight each CORE360? cost driver, beginning with Insurance Premiums and ending with Contractual Liability. This will not only organize the document, but also ensure we are deliberate in driving value to each of your six cost drivers, which represent your total cost of risk. This is an interactive process and we look forward to your strategic input to ensure a successful renewal. The results of this strategy will be summarized in the Executive Summary, which will accompany your renewal proposal. We know that you have a choice and we appreciate your business.Based on our past risk strategies and results, the current State of the Market and any changes of risk or risk appetite, the overriding goal of this meeting is to answer the following questions:What is our go-to-market strategy by line of coverage?Do we approach additional markets, and if so, which ones?What are our renewal expectations or goals by cost driver?What additional tools or resources do we need to implement?CORE360 Stewardship ScorecardYour CORE360? Stewardship Scorecard has been developed for you to get a quick snapshot of how we’ve impacted your total cost of risk over time, by monetizing the cost of risk changes by cost driver. This represents accomplishments over the past 5 years. -356062209665Increased named wind limits from $70M to $120MIncreased AOP limits from $100M to $150MImplemented maximum cap on named wind deductible at $15M in 2015Lowered the cap to $10M in 2016Lowered the named wind deductible from 3% to 2% in 2016 Mitigated recent premium increases in 2018 and 2019 driven by market pressures while maintaining coverage improvements.00Increased named wind limits from $70M to $120MIncreased AOP limits from $100M to $150MImplemented maximum cap on named wind deductible at $15M in 2015Lowered the cap to $10M in 2016Lowered the named wind deductible from 3% to 2% in 2016 Mitigated recent premium increases in 2018 and 2019 driven by market pressures while maintaining coverage improvements.2020 Program Objectives and StrategyProperty: Property Go To Market Strategy – Negotiate with property markets, including the incumbents. There is sufficient capacity should any of the current markets not match the target pricingOur goal is to keep the aggressive deductible terms in place.We will provide options as follows:terms and conditions as expiring premium as expiring Terrorism: There is pressure on this premium due to the liability coverage and loss potential. Boiler and Machinery: This placement is through an exclusive program and we are targeting a flat premium.State of the MarketCommercial Property: Tightening at a faster paceAfter consistent double-digit rate increases throughout 2019, the prevailing expectation is that the U.S. commercial property insurance market will continue to firm through at least the first half of 2020. Although insured property losses in 2018 and 2019 averaged less than half those of 2017, when a record $105.7 billion in insured catastrophic losses occurred, insurers are still playing catch-up. In 2018, the U.S. saw 55 catastrophes—defined as incidents incurring $25 million or more in insured damage—the highest number to occur in a single year. And during 2019, the U.S. experienced 14 separate billion-dollar disasters, marking the fifth consecutive year in which 10 or more separate billion-dollar events have impacted property owners, according to the National Oceanic and Atmospheric Administration.Property accounts likely to see the biggest price increases this year are those that enjoyed significant rate reductions over the last few years.Underwriters, many of whom have never experienced a firm market before, are under significant pressure to restore profitability to the property insurance market, especially for those lines of business located in regions of the country exposed to hurricanes, tornadoes, hail, flooding and wildfires. There also is more scrutiny being placed on property valuations since replacement costs have been outpacing insured values across the country for several years. The lack of competitively priced reinsurance also is affecting carriers’ appetite for taking on property risks in catastrophe-prone areas. Lastly, because of significant payouts by investors in the insurance-linked securities market for losses from the storm seasons of 2017 and 2018, less capital is flowing into the ILS market, which had been providing additional reinsurance support to insurers and reinsurers. Some investors also are reserving capital to pay unresolved claims from these years rather than reinvesting in next year’s ILS placements.Current Program Structure5662930838200002019–2020 Current Property ProgramLIMITS$150M All Perils / $120M Named StormNAMED WINDSTORM DEDUCTIBLE2% Subject to $500,000 Minimum and $10 Million MaximumExposures – Statement of ValuesDescription2018-20192019-20202019-2020Real Property Values includes:? Buildings? Portables$1,552,924,576$1,552,924,576$1,552,924,576Personal Property /Contents Values includes:? Contents of the portables? Property at Off-Site Storage Facilities? Personal Property of officers and employees while on the premises of the insured? Property in Care, Custody, Control? Valuable Papers and Records? Fine Arts (Owned & Non Owned)? EDP Equipment/Hardware (including file servers, telephone systems and other computer systems)? EDP Media/Software (including printed material, audio visual, and tapes)$197,420,610$197,420,610$197,420,610Land Improvements includes:? Playground Equipment? Backstops? Bleachers/Grandstands? Scoreboards? Covered Walkways$111,171,700$111,171,700$111,171,700Business Income/Extra Expense$4,000,000$4,000,000$4,000,000Automobile Fleet Values$2,757,290$2,757,290$36,396,767Bus Fleet Values$25,860,102$25,860,102$7,535,857EquipmentIncludedIncluded$1,137,438Above Ground Storage Tanks$254,435$254,435$318,655Combined Values/Totals$1,894,388,713$1,894,388,713$1,910,905,602Catastrophic Wind Modeling PML (PROBABLE MAXIMUM LOSS) RESULTS MUNICIPALITY RESULTSRMS v18.1Hurricane – Including Storm Surge: The School Board of Brevard County has approximately $1.9 Billion in values exposed to hurricane related events in the State of Florida. Figure 1-1 illustrates the probability of ground up losses exceeding various amounts due to one event in a given year, as described by the Occurrence Exceedance Probability (OEP). The 100 year event loss probability is commonly used by the insurance marketplace as a gauge for insurance pricing. Insurance Premiums EFFECTIVE 4/25/2020774509583820000PREMIUM HISTORY AND 2020 RENEWAL ESTIMATES2016-20172017-20182018-20192019-2020 2020-2021Property LimitsMunicipal PropertyAll Other PerilsNamed Wind$150 Million$120 Million$150 Million$120 Million$150 Million$120 Million$150 Million$120 Million$150 Million$120 MillionNamed Windstorm Deductible2%$500,000 Minimum$10 Million Maximum2%$500,000 Minimum$10 Million Maximum2%$500,000 Minimum$10 Million Maximum2%$500,000 Minimum$10 Million Maximum2%$500,000 Minimum$10 Million MaximumPremiums (including taxes, fees, assessments)Property$4,614,150.00$4,601,650.00$4,709,223.00$4,873,016.00 $5,601,053.00 Taxes, fees & surcharges$92.00$100.00$100.00$100.00$100.00Terrorism$53,970.00$48,578.00$43,000.00$43,000.00$72,250.00Boiler & Machinery$28,410.00$28,410.00$28,985.00$28,985.00$30,608.00TOTAL COST$4,696,622.00 $4,678,738.00 $4,781,308.00 $4,945,101.00 $5,703,911.00 COST VARIANCE TO EXPIRING($17,884.00)- 0.4%$102,570.00+ 2.2%$163,793.00+ 3.4%$758,910.00+ 15.3%Program NotesProperty: We are targeting terms and conditions to remain as expiring.Initial market feedback is in the range of 12-16% rate increase – we are continuing to negotiate with the markets. The primary layer is being contained at an approximate increase of 11-13%.The excess lines are presenting major issues as they model poorly for most carries based on the deductible of 2% and maximum cap. We can evaluate program structure options such as limits and deductibles to contain cost if necessary. Some market partners may change based on pricing targets and revised appetite. Other Lines: Terrorism premium is increasing due to the liability exposure and losses.Boiler & Machinery is quoted and we do not expect any surprisesLayerExpiring PremiumLow Estimate Variance High Estimate Variance $45,000,000 Primary$3,540,110$3,917,47210.7%$4,018,88513.5%$15,000,000 xs $45,000,000$399,090$462,42615.9%$462,42615.9%$10,000,000 xs $60,000,000$207,500$240,43015.9%$240,43015.9%$30,000,000 xs $70,000,000 Excluding Named Windstorm$47,360$53,45512.9%$55,00016.1%$10,000,000 xs $70,000,000 Named Windstorm Only$178,704$207,30016.0%$207,30016.0%$20,000,000 xs $80,000,000 Named Windstorm Only$268,438$360,00034.1%$360,00034.1%$50,000,000 xs $100,000,000 - $20M Named Windstorm Limit$231,814$257,01210.9%$257,01210.9%PROPERTY SUB-TOTAL$4,873,016$5,498,09512.8%$5,601,05314.9%Terrorism Property$19,000$19,0000.0%$22,50018.4%Terrorism Liability$24,000$24,0000.0%$49,750107.3%Boiler and Machinery$28,985$30,6085.6%$30,6085.6%GRAND TOTAL$4,945,001$5,571,70312.7%$5,703,91115.3%TOTAL PREMIUM VARIANCE??$626,702?$758,910Layer Discussions: The $20 Million excess pf $80 Million is presenting the most difficulty – Scottsdale if driving a major increase. We are working to replace their share in order to control the percentage of rate increase. We can discuss moving the $20 Million Named Wind limit provided by Everest down to the $20 Million excess $80 Million to fill the departure of Scottsdale. This would reduce your limit to $100 Million for Named Storm and create some premium relief.Your TeamJudith A. Arenz has primary service responsibility for your company. Your Gallagher team is a true partner. We have the expertise to understand your business and we are here to service and stay alongside you, every step of the way. Your Service Team consists of:Name/TitlePhoneEmailRolePrimary Service TeamJudith A. Arenz, CPCU Area Senior Vice President561.998.6780c.561.719.2085Judy_Arenz@ProducerTom GillArea Assistant Vice President561.998-6812c.561.866.0574Tom_Gill@Account ExecutiveAgnes PolomSenior Account Manager561-998.6799Agnes_Polom@Account ManagerBridgette GeistClient Service Associate561.998.6771Bridgette_Geist@Technical AssistantClaims & Loss ControlAndrea TomasekClaims Advocate561.998.6757Andrea_Tomasek@Claims AdvocateSteven TylerSenior Risk Control Specialist561.998.6801Stephen_Tyler@Loss Control SpecialistSenior ResourcesDave MarcusArea Chairman561.998.6800Dave_Marcus@Surplus Lines BrokerZeb HoltRegional Executive Vice President – Florida305.639.3113Zeb_Holt@ AJG LeadershipWholesale Market Partners – Risk Placement Services (RPS)Rep PlasenciaArea Senior Vice President561.241.9757Rep_Plasencia@Wholesale BrokerJeff McNattExecutive Vice President321.872.7631Jeff.mcnatt@Wholesale BrokerSusan FlemmingArea Vice President321.872.7632Susan.flemming@Wholesale BrokerRenewal TimelineTaskDateAssigned toRequest Renewal Information December 31, 2019GallagherReceive Renewal Information from ClientJanuary 22, 2020ClientSubmission to MarketsJanuary 25, 2019GallagherStrategic Review – Not to Exceed to ClientFebruary 26, 2020GallagherQuotations from MarketsMarch 25, 2020GallagherCORE360TM Executive Summary & Proposal to ClientApril 1, 2020GallagherBind Policies (sign required forms)April,15 2020ClientBinders to ClientApril 20, 2020GallagherRenewal DateApril 25, 2020?Policies from MarketsJune 25, 2020GallagherPolicies to ClientJuly 25, 2020GallagherThank You for Your BusinessWe have enjoyed our partnership and we appreciate the continued time, support and confidence you have placed in us as your risk management team. This past year has been successful as evidenced by your scorecard and we look to continue this trend. Our strategy for this upcoming renewal continues to focus on ways to improve this positive impact on your total cost of risk and profitability. Thank you-2667007785100Legal DisclaimerGallagher provides insurance and risk management advice that is tailored to our clients’ risk transfer needs. Our review can include evaluation of insurance premium, risk transfer options, finance agreements, insurance limits, indemnification obligations, and contracts to ascertain appropriate coverage. We do emphasize that any risk management advice, insurance analysis, and limited review of contract terms and conditions, is only provided from an insurance/risk management perspective and is NOT legal advice. We do not provide legal advice and always recommend that our clients seek advice from legal counsel to become fully apprised of all legal implications from their business transactions.00Legal DisclaimerGallagher provides insurance and risk management advice that is tailored to our clients’ risk transfer needs. Our review can include evaluation of insurance premium, risk transfer options, finance agreements, insurance limits, indemnification obligations, and contracts to ascertain appropriate coverage. We do emphasize that any risk management advice, insurance analysis, and limited review of contract terms and conditions, is only provided from an insurance/risk management perspective and is NOT legal advice. We do not provide legal advice and always recommend that our clients seek advice from legal counsel to become fully apprised of all legal implications from their business transactions. ................
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