By ERIN GAZICA, associate editor of Risk & Insurance®, and CYRIL TUOHY, managing editor
The big story in 2008 for the nation's top commercial brokers wasn't a sudden shortage of property/catastrophe capacity brought on by a pair of hurricanes. Nor was it a rate change from soft to hard in certain lines. Neither was it the shocking downfall of one former attorney general who did so much to force brokers to come clean and level with buyers.
No, the big story was the financial institutions sector itself and the 800-pound gorilla of the P/C sector, American International Group Inc. The firm that so many said was too big to fail, the firm set up to ensure that brokers could go to bed assured that their clients would be made whole in the event of calamity, AIG was late last year itself the subject of speculation and doubt about its own survival.
Insurance buyers, many with multimillion-dollar insurance programs of all stripes, were suddenly terrified about the collapse of the one firm so many had come to rely on, and brokers found themselves doing a lot of babysitting in the form of reassuring clients about the stability of AIG
While the headlines blared the bad news about AIG teetering on the brink of extinction absent a bailout, it had become clear by Thanksgiving that AIG's property/casualty divisions were in relatively good shape.
But risk managers could be forgiven if they'd not heard the sliver of good news buried among the daily revelations of reckless excesses wrought by AIG's Financial Products division. Would AIG benefit from government largesse? And if so, what would it have to give up? And if AIG did survive, would the insurance giant with the advertising tagline "We Know Risk" emerge from this crisis in its current form or as a vastly diminished shell of its former self?
Brokers labored for hours comforting worried buyers, trying to help them understand the legal boundaries between the parent company and AIG's solvent and profitable insurance operations.
Those operations, funded through premiums and operating with ample cash reserves required by state regulators, will be able to pay claims, the brokers told their clients. Property/casualty operations will remain in business, and clients had nothing to worry about. In the end buyers breathed a sigh of relief.
"I do know that the clients do understand AIG, and what they want to know is more about the issue," said the chief financial officer for a major U.S.-based insurance brokerage. Clients, it turned out, were resilient as the panic that swept through the stock market in September and October subsided and buyers backed off moving their accounts, a testament to the calming, moderating influence of the level-headed middlemen.
AIG's liquidity crunch in the end had little to do with restructuring insurance placements and more to do with communicating in plain English to nervous buyers that programs placed through the property/casualty units were going to be just fine.
Still, all this communicating kept brokers up at night as they grabbed their BlackBerry devices to return frantic calls from risk managers like Citigroup's Senior Risk Officer David Bushnell, Bank of America's Chief Risk Officer Amy Brinkley and Fidelity National Financial's CRO Paul Perez.
During one day last October at the height of the AIG crisis, recalled Daniel S. Glaser, president and CEO of Marsh Inc., more than 10,000 calls from clients jammed Marsh's phone lines with concerns about the soundness of their insurance programs.
Glaser, during a January conference panel, said he'd noted a "significant amount" of shopping around for different brokers on the part of clients this year. There's a "flight to diversification," he said. Still, shopping and buying are two different things. "Clients are seeking alternatives, but that doesn't mean they are completing the move," he said.
Whether buyers ultimately switched their entire program or just a part of it from AIG to a competitor, many clients had their brokers evaluating their book of business with the troubled insurer.
Kathleen Roth, an account executive for Roach Howard Smith & Barton and a winner in the Fine Arts category, impressed one of her clients with her handling of AIG last fall.
"We wanted to know if we should switch, and Kathleen very quickly offered me a set of options," said the CEO of a large captive insurer. "Ultimately, we decided to stay with AIG, but we felt a lot more comfortable in doing it based on Kathleen's analysis."
(For a look at Roth's profile, and a look at all the winners' profiles, please see the 2009 Power BrokerTM winners page.)
If ever there was a time to shine for brokers serving clients in the financial services industry, this was it, and the most highly skilled brokers featured in the Power BrokerTM Awards did just that.
With the implosion of Bear Stearns and JP Morgan stepping in to the rescue at the behest of the Federal Reserve and the Treasury Department, the U.S. government takeover of mortgage lenders Fannie Mae and Freddie Mac, the bankruptcy of Lehman Brothers and the sale of Merrill Lynch to Bank of America, insurance brokers faced unprecedented challenges.
Siobhan O'Brien, a senior vice president with Marsh, rose to the challenge, helping her clients get the directors' and officers' and fidelity bond coverage they needed.
"Siobhan led the charge to negotiate with all the potential carriers," said one client at a large financial institution, praising O'Brien's ability to act on short notice last September when the extent of the crisis peaked.
"It was a pretty challenging time--to get the coverage we got in the time frame we did," said another client with an early October renewal. To put together the program that O'Brien's team did "was a big win."
Another buyer, who found it almost impossible for her company to place its financial institutions bond and errors-and-omissions coverage earlier in 2008 after the market for such programs hardened in the wake of spectacular defaults by bedrock bond insurers, had much to be thankful for in Michael K. O'Connell.
O'Connell, managing director and financial institutions practice leader for Aon Corp., was able to secure terms and get the coverage placed within two weeks.
"He personally made phone calls to insurers, he had relationships," she said.
And as far as this client was concerned, O'Connell's contacts came in mighty handy.
THE HUNT FOR CAPACITY
With the AIG troubles leaving the brokerage and risk management communities in cold sweats, there was plenty of room for brokers outside of the financial institutions sector to claim some of the spotlight in 2008. They could be found in the retail and workers' comp segments, among others.
These brokers did their best to find more capacity in a cycle during which prices in many lines continued to slide, and in an economy that had officially entered recession back in December 2007.
With some carriers tightening their underwriting standards and contract terms, the brokers who could pull strings, restructure programs or tease out an extra $5 million in capacity were the ones who provided clients with the most value in 2008.
While it's true that brokers are paid, many quite handsomely, to tweak policies in one direction or another to make sure clients are covered, preferably at a lower price, it's worth keeping in mind that brokers didn't get much help from the gyrating market this year.
The last half of 2008 in particular left everyone guessing. Rates in some lines, like financial institutions D&O, were almost guaranteed to go up.
Yet Jan. 1, 2008, renewals for plain-vanilla property coverage were still softening, as were prices in workers' comp. Following the September and October whip-saw rocket rides of the stock market, anyone predicting the direction of rate renewals in January was bound to be disappointed, or just plain wrong.
But luckily brokers like Anthony Wagar, a senior vice president with Willis HRH, were on the case. He placed one of the largest, if not the largest, risk transfer programs in the environmental insurance market in 2008 for the World Trade Center site in New York City.
For a notorious project that equally fascinated and scared the pants off underwriters, Shari Natovitz, risk manager of Silverstein Properties Inc./World Trade Center Properties, last year found that capacity in the area of Ground Zero had already been drained by the Port Authority of New York and New Jersey, which has authority over the site.
Yet Natovitz was still required to obtain a $50 million policy for the construction on each building. After she'd been told it would be an impossible feat, she hired Wagar.
"At the end of the day, Anthony got us over $200 million of coverage," said Natovitz. "It was $100 million for contractors' pollution and $100 million for site pollution, but from the same carrier, which is not easy. He blew us away."
At competitor Aon, it was a good year for Carol L. Murphy, a managing director based in Chicago, who rung up the business of one of the largest retailers in the country.
Murphy's team at Aon Risk Services was able to cut the client's collateral requirements by $20 million versus expected growth of $100 million in those same requirements.
"Our first casualty placement with Carol was this year, and we had a great result. She knows the markets extremely well," said the vice president of risk management at this retail client. "She has the respect of the market and can go straight to the top with insureds and underwriters."
In an ordinary year, hurricanes like Gustav and Ike, which swept through the Gulf and crashed into the U.S. coast, would have made life difficult for buyers, who will forever remember how property-catastrophe rates skyrocketed in the wake of the 2005 hurricane season.
But, as everyone now knows, this was no ordinary year. While Ike and Gustav did cause more than $20 billion in insured losses, these two natural catastrophes were also up against Aon's Boston-based Managing Director Richard (Rick) Miller. Miller, for people who don't know him, takes his hurricane capacity very seriously.
In fact, Ike and Gustav were no match for Miller, who managed to squeeze more coverage for a client's very large commercial portfolio of Class-A office space with substantial Southeastern U.S. exposures.
The broader coverage came with a rate cut.
Just how Miller, who's an expert on securing coverage for big real estate clients, was able to do that remains a trade secret.
Surety is a type of insurance often overlooked, but in today's credit-crunched world, surety insurance has fast become one of the most innovative ways to overcome the limitations and costs of letters of credit.
Richard A. Moore Jr., out of Aon's Chicago office, is a surety superstar who managed to double the surety credit for one mammoth hospitality client.
As the corporation's risk management executive reported, when he started at the company a handful of years ago, his surety credit was about $700 million. Moore managed to raise that to about $1.2 billion by the start of 2008, then to more than $1.4 billion at the start of this year. Just how important is that?
"Surety capacity keeps our company developing and in business," said the risk manager.
(For a look at all the winners' profiles, please see the 2009 Power BrokerTM winners page.)
MATTHEW BRODSKY, senior editor/Web editor, and Senior Editor DAN REYNOLDS contributed to this story.
February 20, 2009
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