Trent Williams: Yeah. From a construction well, if I look at the Australian and New Zealand market as a, as a region, I think it's, it's quite a developed region as far as construction. We've got a lot of European and international contract is based there. We have, maybe a slightly different structure in Australia where there's a lot of annual programs as opposed to a project, one project. We have a nice bit.
Ian Drennan: Right.
Trent Williams: Good sample size now first half of the year gone, we've seen insurer profits start to rise and more entrants looking at Australia as a natural place to come. How are you saying the first half of the year as we sort of head into Q into Q3 and Q4?
Ian Drennan: Well, it's been a great news message for all our clients in Australia. Market conditions are continuing to soften at an increasing rate. Segmented by different segments of the industry being civil, high-rise building, or commercial industrial construction, but on a whole very, very positive advance.
Trent Williams: The three main classes contract words construction phase liability and construction pay. I. Yeah. Is there an outline or are they all quite consistent the way that they've been sort of performing in the early part of the year?
Ian Drennan: Well, the short answer is yes. But going back to the original point in Australia, the primary position for all contracting entities is they use an annual program. A contract works under the old professional indemnity, and they only purchase project specific insurance, when necessary, either by demanded by contract or project size that just can't be accommodated under the new programs. If we're talking contract works, that's probably the most conservative of the three main clauses. They're still rate reductions available for our clients, mainly driven by market capacity, new market entrants coming in, but also existing markets looking to maintain market share by expanding, the limits they're prepared to offer while still reducing prices. I did say that it runs slightly differently. Any more industry segment you're talking about. But broadly, our clients annual portfolio is experienced between a minus five to a -10% rate reduction. On on that prior year, and at the same time, we're able to negotiate a broadening of coverage available under their own new programs. The broader is coverage is just one available sort of 12 to 18 months guide, which is which is great.
As far as the project space is concerned, there are rate reductions available. But as I said earlier, project specific insurance policies are only really purchased for the for the really large projects. And given the size and magnitude of those projects, underwriting discipline remains a little bit more, more focused. And the rate reductions are probably sort of the flat and the minus five, year on year from comparison perspective. And focuses do remain quite strong on natural cat exposed projects, be it like single site allocation, construction or or linear projects. We're talking roads, rail, high voltage distribution, electricity distribution networks.
Trent Williams: A region obviously highly affected by that cat and absolutely unseasonable approaches to, to how the sort of cycles that we go through. But I'm fascinated as a, as a market, how we've almost got a lot of European insurers based, a lot of us insurers, the big three local insurers who just announced great results of the sort of 30th June, they've got record profits combined ratio. So I'm starting to to tighten a little bit, but the claims are starting to come through. Are you saying a result in sort of tightening of terms and conditions as far as policy wording and Brexit coverage is concerned?
Ian Drennan: Not yet. I appreciate absolutely that they've been in the best position they have been from a combined ratio perspective for the last five years. As I said earlier, they are looking to maintain market share in the three big domestic insurers. They're not wanting to be beaten to the punch by these new market entrants, but each of those being credible new market entrants, I hasten to add. But no rated options are available. Underwriting discipline remains strong in contract works. But there are some enhancements in its coverage available.
Trent Williams: I guess complementing sort of the, the the cycle that we're going through from a market perspective, you have got some exciting new entrants, but some of them have always been there. But construction is now a focus full of others. Say Lloyd's indicates that are looking at Australia. And so that's where we want to set up and invest in. Construction is always part of the investment plan. Is that the perfect sort of combination for clients at the moment, to sort of make sure that you've got your incumbent legacy insurers there, but you've also got new competition as well to stress test price coverage.
Iam Drennan: Absolutely. I mean, previous slide, whose additional market capacity is come by way of underwriting agencies rather than genuine insurance companies. London does have an increasing appetite for Australian construction rates, which is great with the new market. Entrants are actually London markets setting up locally in Australia. So you know, go back to my comment earlier of credible capacity coming in with a long track record of performance in the construction insurance sector, with strong in-house claims capability.
Trent Willams: Okay. As we head into, the tail end of this year and then looking ahead to next year, clients out there either going through their annual renewal or your program files or looking at starting a project. Is there anything that we can advise our clients on how they separate their their risk from the others that insurers are looking at?
Ian Drennan: Well, we always advocate strong tripartite relationships with our clients. They should have a personal relationship with their key insurance partnerships. But the capacity sitting within insurance companies still remains quite tight. They don't have an abundance of, bums on seats. So being timely with your, approach to markets to allow us as insurance broker the best opportunities to negotiate outcomes which are market beating. It is critical, you know, that's probably the main point I'd like to make sure. Okay. I did say that contract works is probably the most conservative of the three main classes of insurance, which represents the largest construction, insurance. And, for all of our clients outside of worker's compensation. There's an even greater opportunity and good news for our clients and prospective third parties for let's eat space. In the last 12 months, we've seen almost maybe a tripling of the number of markets that are prepared to offer terms in a primary capacity, which gives up clients far enhanced, opportunities for savings. And the word enhancements, we're seeing between -5 to -20% rate reductions available in the primary sense for, for our clients and actually for the new clients we've picked up in the last 12 months. They savings have actually been even greater. Based on some of the relatively poor job that Prime Virgin had done for them.
Trent Willans: Yeah, that's a really exciting, really good call out there. I think through the last hot market cycle contract works was, yes, there was some movement with some categories coming out. But but the big challenge I think, was our, clients having sort of quite large towers on their casualty program. So the liability primary might have been 50. Now it's 20. Yeah. Some of that excess capacity that was there disappeared. Yes. It's now it's now coming back. So so you're seeing the competition being really strong. Primary level. What about it that that that sort of excess level ability to our
Ian Drennan: But similarly to the contract works market where markets are looking to maintain market share, we're actually seeing the limits on a primary basis extend back up to 50 million, not across the board, but we're starting to see that movement. And so a primary 20 is now becoming a primary 50, and probably only 15 to 20% more than primary 20 would cost you. So you're paying less. But you're also stretching stretching your limits, which is great. The excess legacy market, remains much more stable. We're not saying I want rate reductions. I of the -5 to -20, let me say in the primary it's probably still more flat to minus five. But that's because 1220 months ago, the excess level as the market was going through replacements galore. So yeah, the work's already been done that and they're now looking to maintain stability. Sitting above, what it primarily exists. Which is great. We're also seeing clients choose to know when to utilize their annual, more readily, even for the large mega projects where they're contractually allowed to do so, rather than looking to buy standalone projects, specific, third party moments.
Trent Willams: And now Australia in particular, your region highly litigious as a society in design and construction, pay. I've gone through many different market cycles and trends and insurers looking at it as a, as an avenue to, to build some market capacity and market strength and then and then pulling out how you say construction pay on.
Ian Drennan: It was probably the most acutely affected class of insurance, in the hard held market cycle, which we're now eight months out of it. And this is just generally softening up my moment to that cycle. But the discipline and the radiation of portfolios has been done, and the normalization of coverage that is readily available is, as is reached, the ears of people, like drafting contracts. So coverage isn't increasing. But it's not decreasing anymore. It's it's stable. Similar to the third party liability. The amount of primary markets, have doubled or tripled again and again. It's very good quality, longstanding tradeable insurance market capacity with in-house claims capability. And that's really driving driving outcomes for our clients. Even what we're seeing, -5 to -15% rate reductions in the primary API space, and actually even more, for clients that have been with their insurance carrier for multiple years, and those carriers have built up a premium pool sufficient to, to reward, broad, those long standing clients. So it's, it's a competitive market. And clients benefit benefiting from it. Yeah. From a project specific perspective, there's more than green shoots in, market update in March this year, we said that the green shoots were now sprouting, quite, quite readily. So, the new market entrants coming in have also got advertised for the multi year project Pi placements. And again, that's, that's not any driving competition from a rating perspective, but it's allowing our clients to build higher towers of capacity, than they were even, even 12 months ago. So 12 months ago, maybe a $50 million project Pi Tower would be a real struggle. But utilizing the newly available, appetite and capacity in the city reinsurance space, it's quite feasible to be getting, to the 75 to $100 million limit when we have a client.
Trent Willams: Yeah. I think that's an important point of differentiation is a lot of the, like, government style jobs. Yeah. Public and private partnership jobs where you project mandates a limit of, say, 100 mil for a project that might last 3 to 5 years. Plus you've got your run off period. So yeah, when when you're losing key markets out of that sector, you and you've all of a sudden you're struggling to get to 100 that that puts so much strain on all the different stakeholders.
Ian Drennan: Absolutely. There's always a lag effect. Yeah. And people but the lawyers representing was mainly governments in the major project space. Like they take 12, 18, 24 months to come to terms and market realities. 2016 megaprojects, like in Melbourne for tunneling. They were a 200 million a year project planning that overnight that went down to 25. Yeah.
Trent Willans: But huge, huge reductions, I guess. Just a final point. If I can get you to expand on this the way, Willis, as a global construction team, the way your region, for example, and works across regions to get the best results, for clients, maybe just touch on how you work with your particular London and, London specialist.
Ian Drennan: Connectivity is key. Understanding where the opportunity sits anywhere in the world, is critical. So you can arbitrage, the markets and a particular single carrier might mean arbitrage. It might be better to have it based out of Singapore or London rather than domiciled in Australia. But with paramount connectivity in particular your coordination role globally, it allows us to know where best to best access the capacity.
Trent Willams: Yeah. Great insights. Really enjoyed sitting down with you. Look forward to seeing how the rest of the year plays out across your Pacific region and into next year.
Ian Drennan: Thank you very much. Thank you. Singapore or London rather than domiciled in Australia. But with paramount connectivity in particular your coordination role globally, it allows us to know where best to best access the capacity.
Trent Willams: Yeah. Great insights. Really enjoyed sitting down with you. Look forward to seeing how the rest of the year plays out across your Pacific region and into next year.
Ian Drennan: Thank you very much. Thank you.
