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Leased Space Price Insurance
The Situation
A leading brokerage firm was concerned about managing a major cost component, office leasing expenses, during an economic downturn. In a downturn, commission revenues might fall due to reduced stock market trading, and the firm could be forced to layoff employees and lease excess office space. But if office lease rates were also falling due to the poor business conditions, then rental income would not cover excess lease expenses.
NERA's Role
NERA's risk experts worked closely with Marsh Inc. and an insurance underwriter to design and price insurance coverage.
The Result
Our experts developed statistical models for excess office space and lease rates and then designed "double-trigger" lease expense insurance. The policy payout was triggered by specified reductions in two variables: a proxy for excess office space and observed office lease rates.