Alex & Al: Coast to Coast - Alex and Al Welcome Duncan Ellis, Head of Retail Property, AIG, North America General Insurance
Alex Littlejohn and Al Tobin, Alliant welcome Duncan Ellis, Head of Retail Property, AIG, North America General Insurance, to discuss trends for 2022 and how 2021 will shape up for retail and wholesale property.
This is Alex and Al: Coast to Coast, a show dedicated to exploring insurance news topics and trends shaping the market today. Here are your hosts, Alex Littlejohn and Al Tobin.
Alex Littlejohn (00:14):
Well, welcome to Alex & Al. Of course, with my partner Al Tobin. We've been away for a little bit, but we're back. Before we introduce our featured guest today. Maybe there's a couple of highlights. What have you observed over the last, you know, 2021 coming to an end? What a weird and wonky year. What are your key observations?
Al Tobin (00:34):
I agree. It's been wonky. That's a great radio term there, Alex, and, you know, also welcome to our clients and colleagues that are on Alex and Al: Coast to Coast. It's been a fun year in that regard, just updating everybody on what's going on. With all the storms in the mid-twenties on the property side with Henri and Ida scaring us here in the Northeast. It's very much on everybody's mind. I was just in New Orleans over the weekend and the storm damage down there is still very apparent. I was hoping I wouldn't have to say New Orleans and storms again for the rest of my life after Katrina, but that's not going away, which clearly now that we're in the, you know, very much in the fourth quarter, we're seeing some insurance company reaction due to that, generally, a little bit of shrinking. And I think folks had some losses, especially in excess layers, but then they took a hard look at it and said, Hey, we don't have enough for this business to make money at. So that's made for some changes. So that's kind of a property and market observation, but I would be remiss here, Alex, not to congratulate Alex Littlejohn for being a 2021 Business Insurance, Woman to Watch.
Alex Littlejohn (01:39):
You know what, you're always, you're always one to watch Al. Thanks so much. That's, it's been an honor to be recognized and yeah, it's been, it's been a fun year from that regard. But I'm with you, you know, and I think on the other lines of business, I don't see the excess liability market loosening up. I think there's a lot of new capacity that's helping. I don't think that the new capacity is going to help drive down prices and it's an opportunistic market. And just from a cyber perspective, I mean, wow, that market is just on fire and we have a lot of other podcasts that are dealing with it specifically, and we encourage our listeners to join our cyber podcasts, but it's going to be a very tough year, I think in 2022 for the cyber market; whether that's in property, whether it's in casualties, the cyber market overall, I just think it's going to be the line of business to watch, which unfortunately is not going to be necessarily the most positive news for some of our clients and our prospects out there.
Alex Littlejohn (02:38):
When we move on now to introduce Duncan, one of the areas that I know you and I have talked about, and we've seen happen over just the last two, three months, and I'm sure Duncan can give us some real insight on this is just sort of the Exodus of either capacity, so line shrinking or exodus of the market altogether, stop writing, especially in property where we've seen the market, just really drying in certain areas where they're no longer going to grant capacity worldwide. They may be restricting it to the United States, or they're going to move from the United States and only be accessed in areas like London and Bermuda. So there has been a lot of gearing up for 2022 happening in the last couple of months. So I'm sure that Duncan can give us some great insights so out. Why don't you introduce our very special guest?
Al Tobin (03:21):
We're very, very pleased to have Mr. Duncan Ellis, Head of Retail Property at AIG. A lot of people, clients, and colleagues know Duncan from his previous roles in the insurance industry. He is very much a veteran. It's nice to say he's head of property, retail, but he's, he's a real insurance guy. And with that Duncan, welcome to Alex & Al: Coast to Coast.
Duncan Ellis (03:43):
Thank you, Al. I appreciate the introduction and pleasure to be invited to this event and Alex & Al: Coast to Coast, I love it. So thank you for inviting me.
Al Tobin (03:51):
It's a pleasure to have you here. Maybe just to kick us off Duncan, you could just give us a little bit of a view of how you've seen your organization past, I guess, 24, 36 months evolve and where you are here today. And then we'll jump into some questions.
Duncan Ellis (04:06):
Sure. It will be my pleasure. So I enjoyed listening to your introduction there. And two sorts of things jumped out at me and one was what you're talking about, shrinking capacity and markets that are exiting the business. So my comments will be focused on retail property in North America. And we'll get into that a little bit about what that means, but I can safely say that we did have our period of time, probably roughly two years ago within AIG retail property, where we were repositioning the book and obviously a number of people felt that along with terms, conditions and pricing moving, but I can safely say that within the retail property in North America, we are, we are well beyond now, our repositioning and we are not looking to shrink our capacity and we are not looking to exit the market.
Duncan Ellis (04:53):
So we are alive and well and looking for measured growth. We had a very good 2020 for new business. We had a good 2021 for the new business so I'm not really anticipating anything changing in 2022, other than commentary like you had before around people starting to look at things a little bit differently in property, especially around the catastrophes that we've seen, as you mentioned, Henri and Ida. And of course, there was Uri at the beginning of the year. So I think 2022 is going to be interesting, but I think it's certainly going to be a lot of focus going forward on CAT business. But I will say that from a retail property perspective, we are open for business. We are looking to write business. We are very comfortable with the book that we have. We like our book of business and that starts we're going from there.
Alex Littlejohn (05:40):
Great. So Duncan, in light of that, how has new business been? I mean, have you guys made your corrections, you spent some time examining the book and how's the new business been this year? I mean, as a result, are you capitalizing on those changes that you've made? Give us a little flavor about how the book looks and what we could look forward to for to prepare our clients.
Duncan Ellis (05:57):
Yeah, so I mean, the book as I said our new business has been very strong. We exceeded our plan in 2021 and we feel really good about 2022 as well. Obviously, we've had Alex, strong support from the brokers and clients who are happy to see that AIG is back and more than anything clear in where you can go for what within AIG. I mean, as Al stated, I've been in this insurance industry a long time, and AIG was always one of those companies where I was always a little confused as to where to go for certain things. And I think what we've done within AIG over the past number of years is to really clarify and be clearer on our message around what we're looking to do and where we're looking to do it. So that said, Alex, I think that what we've done specifically again within retail property is we've focused on the occupancies that we want to emphasize.
Duncan Ellis (06:50):
And also then those occupancies that we won't de-emphasize right? Perhaps some of those occupancies, which have not performed as well as they should, or, just every year, it seems to have some other issue associated with them. So we really focused very heavily on what we should versus what we should not be looking at. And we obviously focus very, very clearly on risk, quality. Truth be told, everybody thinks they're best in class. Sadly, everybody isn't the best in class. So we're looking to really focus on those insureds and those occupancies, which are best in class. We're then looking at how we deploy limits. i.e. big limits, smaller limits, limited lines plays, getting terms, conditions, and deductibles, and then truth be told, Alex dead last is rate and premium because we feel strongly that if you've gotten the occupancy wrong, the risk quality wrong, the terms, conditions, deductibles wrong, and the limits deployed wrong, it really doesn't matter what you're charging for it, it's not going to be winning bet. So we feel very comfortable where we are right now. And we're going to continue to exercise that philosophy.
Al Tobin (07:55):
Yeah. From an occupancy perspective, Duncan, is that the best way to differentiate retail property versus wholesale property within the organization at AIG?
Duncan Ellis (08:05):
Sure. That's a question that we get a lot, right? It's a bit of a head-scratcher sometimes with people saying well wholesale property versus retail property, what's the difference? So let me try and try and sort of explain that over the next minute and then obviously follow-up questions. I'd love to have them. So the appetite of retail property, that the area that I run is that a non-E&S business. Now I emphasize the word non-E&S business. So E&S being excess and surplus lines being of course, typically speaking challenged occupancies, right? One which might call higher hazard type occupancies, both wholesale property and retail property can technically do the same thing. But as a firm, AIG is looking to direct the challenge lines more so towards the excess and surplus lines, wholesale channel, which is what we call wholesale property. So retail property may only be approached by retailers, right?
Duncan Ellis (09:04):
So I am retail property and I can accept business from retailers, retailers like Alliant, right? You can come to me directly. So that's what we're calling retail property, conversely wholesale property, which is run by my counterpart, Cliff Hope. And let's start calling that now Lexington wholesale property, right? May only be approached by wholesalers. So that will be RT, AmWINS, CRC, your pick. So in addition to the challenging nature of the business, as I've mentioned, funneling into the wholesale channel, Lexington's right. I'm shortening now from Lexington wholesale property to Lexington, I'm doing that for a reason guys is their available capacity is typically 25 million or less with about 80% of their accounts right now deploying 10 million or less. So the contrary, retail, as I mentioned before, the part that I run has available capacity up to 750 million with our average line size deployment of around a hundred million.
Duncan Ellis (10:07):
So within a retail property, Al we can do single carrier deals, meaning that's where AIG is riding a hundred percent of the program. So a two, three, $400 million limit. Typically, I would say more so for middle market type business. We can do excess. I think you mentioned an introduction, a few carriers who are looking at excess. We can do that. We can do primary. So if we don't like the excess, we could look at the primary, but if we don't like the primary, we can look at excess, and then last but not least quarter share meaning from the bottom of the program, all the way up to the top, frankly speaking, I don't care. You could do all of those four. It just really depends on the risk. So truth be told in past years, the lines got blurred between where Lexington was versus the balance of AIG. So what AIG has tried to do, successfully in my opinion, is to reposition Lexington as the excess and surplus lines division of AIG. So hopefully that's cleared up what is often misunderstood or not too familiar with everybody in the marketplace.
Al Tobin (11:12):
Yea thanks Duncan, that's very useful because as you guys evolve a little bit too, it's refreshing to hear that on the retail side of the house, that you have limits that are that significant because not everybody can say that. So congratulations.
Duncan Ellis (11:25):
If I could, sorry. And then just add to that a little bit, right? So it's, it's, the limits are important, right? And, how we deploy them is also equally important. But the capabilities that we have around the claims promise where we agreed to advance 50% of an agreed loss estimate on the property damage portion of a claim within seven days really puts us in a different position. And then also our multinational and fronting capabilities. There's only a limited number of companies that can actually do that. And I would say even a limited number of those limited companies who do it well. So we feel Al, that we're really in a good position going forward, not only with capacity to deploy with a new strategy around how we're going to deploy it but also those additional benefits for your clients.
Al Tobin (12:09):
Yeah. Well, thanks for pointing that out. As Al Tobin, being an out-of-college AIU disciple, I recognize that that's never left my background. So that's, that's good news. So I like to say insurance has a season. We have flood season when the snow melts and we have hurricane season when things brew in the Atlantic and the Pacific, we have ice season now in Texas, which we all could do without. But I think from a carrier perspective, it's, it's known to be re-insurance season when you guys kind of reload. If you have one treaty, or if you're thinking about early 2022 treating renewals, how does that market look for you? If you can tell us and are you guys looking to do things from a capacity standpoint? Are you gonna approach that a little bit differently this year? Or are you going to just look to continue with this considerable amount of limits that you have? I know that's about four questions in one, Duncan, but try your best.
Duncan Ellis (13:01):
Yeah, I'll do my best on all of those. So we have purchased re-insurance for the past few years, at least a few years that I've been there, and thus become much more intimate with what we buy and why we buy it. But we have several treaties that come into play for retail property. The first obviously is a CAT XOL treaty for the company as a whole, that property participates in, right? So catastrophes as you well know, don't just pick on retail property. They'll pick on wholesale property. They'll pick on energy, they'll pick on private client groups, et cetera. So as you said, wind season doesn't just blow over retail property accounts. It impacts the entire book. So we buy a CAT XOL on a company-wide basis. There are then two other treaties that are specific to retail property, and we use those two treaties in conjunction with a spot back to help manage volatility in our book.
Duncan Ellis (13:55):
So I would say that in the marketplace that we're trading in you can read us as do I, all of the publications, which are talking about why that market is or isn't in the capacity, which is out there, we're in the early stages of those treaties. And we'll know more probably in the next few weeks, but I will say this, I mean, our book, our underlying book, that those treaties backstop has been improving by leaps and bounds. Over the past few years, 2021 was significantly better than 2020, which was significantly better than 2019. So our book continues to, to improve, improve on an accident year, a calendar year basis. And that will be hopefully reflected, in the final placement of our treaties.
Al Tobin (14:39):
That’s a really positive story, Duncan. And we're excited about that. And you know, when it comes to your capacity, your appetite for retail business, you know, we haven't mentioned COVID in this conversation. So not to beat something that we've been talking about for almost two years now, are you guys coming out of the COVID malaise from the standpoint of seeing clients and more importantly, your staff you're actually visiting clients?
Duncan Ellis (15:02):
Actually, the answer to all of those is yes. So interestingly enough, I mean, from a personal point of view, I'll say I've been in the office since May. We opened a new headquarters in New York City, and we were given permission to come in, on a voluntary basis, and myself and a number of people took advantage of that because I certainly prefer being the in the office and working from home. But the answer to that question is yes, I mean, local COVID rules trump all, obviously. So local rules permitting, we've had several face-to-face meetings, both with clients and brokers, as well as some much larger gatherings. Interesting. Interestingly enough, like the one that we did with Alliant in Idaho, a few weeks back, I am a firm believer Al, that face-to-face is the way business gets done. And as well as being in the office is the way business gets done because it promotes collaboration and learning.
Duncan Ellis (15:55):
I told this to somebody the other day, which was, I've been and you very politely referred to me as a veteran of the industry, so I've made a lot of contacts in the 30-plus years that I've been doing this, this business. And I made so many of those contacts when I was in my twenties, to be very honest with you, and those contacts who stayed with me throughout my career. I think the people getting most impacted here are the people who were in their twenties currently, who are not having that face-to-face interaction with A) one another, but b) people like us who can help steward them and sort of imparting the knowledge that we've gained over all of these years. So we are definitely coming out of as you called it this malaise, and I'm pretty excited about it.
Alex Littlejohn (16:31):
I just think that's a really good point for the young people and people that have joined the insurance industry. So much of it's based around the network that they develop and the people that they learn from. And in the end, if they don't have all of that, then they just have insurance. So we need to keep it entertaining. We certainly had our benefits when we were young to not only create an incredible network but learn a lot from those that were around us. So good observation on that. I think.
Duncan Ellis (16:57):
I was going to say if I could say one funny anecdote. I was just down in Atlanta and we were meeting with a number of people and some of these people have been hired since obviously within the pandemic. So if people haven't seen them other than on Zoom meetings or Teams or, or, or WebEx, whatever it is, and one comment that was made that maybe actually laughed and someone said, wow, “you're taller than I thought you were going to be.” Which I thought was kind of funny.
Al Tobin (17:24):
We all got to accumulate our stories that Zoom has created in the past year and a half and, you know, put a little anecdote together for that.
Alex Littlejohn (17:31):
So Duncan, is there anything else that you'd like to add on?
Duncan Ellis (17:33):
I just really wanted to say, lastly, thank you for this opportunity to address not only you, both who have known for a long time, but also the Alliant organization and, and also your clients, but we are very, very positive about 2022 and what it means for, for retail property. We're closing out 21’ with north of a 90% retention of our client base. And we couldn't be happier with that. And we feel the book is exactly where it needs to be and looking at what we're doing around normal loss expectancy, risk quality scores, looking at the percentage of the risk that we assume, and the capacities that we're deploying, we are no longer an AIG of you not knowing what we're going to do. We're going to be consistent and we're going to be sustainable over the long run. And I am very happy to say that retail property is in an enviable position on that one. So thanks again for the time.
Alex Littlejohn (18:29):
Yeah. Thanks, Duncan. We really do appreciate your time. We know that every minute we take away from doing some things on your day-to-day, it's taking away from things we're doing with clients and otherwise. So we really do appreciate it. And Al my friend, I look forward to seeing you and talking to you as soon as we can.
Al Tobin (18:45):
Thanks for your message.
We’ll be in touch shortly.
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