alesco news - Alesco Risk Management Services

ALESCO
NEWS
ISSUE 6 – JUNE 2016
NO CHALLENGE
TOO GREAT
USING ALTERNATIVE RISK
TRANSFER FOR EXPOSURES
THE TRADITIONAL MARKETS
CANNOT ADDRESS
THIS ISSUE
RENEWABLE
ENERGY
Market overview and
developments
LOSS UPDATE
LLOYD’S STATS
Latest losses in the
energy market
Overview of the Lloyd’s
annual review
KNOWING
WHAT MATTERS
FOCUS ON
AFRICA
A global insurance
programme case study
Latest developments
in the region
ALESCO NEWS
WELCOME TO
ALESCO
NEWS
Welcome to the
latest edition of
Alesco News
We are often approached by clients
to find solutions to risks after they
have been unsuccessful having
looked elsewhere or in the traditional
marketplace and. In our first article,
Martin Emkes explains the approach
we take with Alternative Risk Transfer
and what makes this stand out for
our clients. Following the problem
solving theme, we also look at the
application of our brokers’ expertise
for international clients through a
case study that provides insight into
our approach on projects that need
both local and global knowledge.
As well as our usual updates on
the energy market including the
loss update and OIL update, this
bulletin introduces our latest new
joiners in the renewables sector.
Here they provide an update on key
developments and give an overview of
the characteristics of the onshore and
offshore renewable energy market.
Looking to the wider insurance
market, we provide a short summary
of the latest Statistics at Lloyd’s
report with data on the Property,
Casualty, Marine, Energy and
Aviation markets. And finally in our
country focus, we give an update
on the African market ahead of our
attendance at the Africa Energy
Forum conference this month.
We hope you enjoy reading!
Simon Matson
CEO
2
AN INTERVIEW
WITH…
In the latest in our series of interviews with our newly
expanded teams, Alesco CEO Simon Matson interviews
Martin Emkes, Alesco Chairman and Managing Partner
of the Alternative Risk Transfer team.
Having worked together on various
projects over the years, I’m so pleased to
now formally welcome you into Alesco.
Can you tell our readers how they will
benefit from the Alternative Risk Transfer
(ART) team joining us?
Our starting point is that just about
anything is insurable – it is just a question
of A) structure and B) pricing. The deals
we do tend to be relatively few (perhaps
one or two a year) but generally quite large
and usually have a common feature in that
they are pretty much uninsurable in the
traditional marketplace. Our usual maxim
is that ART is no replacement for cheap
insurance and we know at the moment
that the market – even for difficult
exposures such as Gulf of Mexico wind is
as “cheap as chips”. From time to time
however risk issues do crop up which the
traditional market cannot address and it is
typically these deals which are best suited
for an ART solution. The energy sector
for example has many difficult risks and
by way of example, often quite significant
deductibles. We can, for example, place
deals which buy down large deductibles
imposed by the traditional markets on a
multiyear basis (usually 3 – 5 years) with
very significant elements of profit share
(often up to 80% - 90%).
Tell us about your client base?
Our clients are extremely varied – ranging
from hotel companies, to mines and
financial institutions. As far as territorial
scope is concerned, in today’s world, I
think territory is largely irrelevant – the
country of domicile of large corporates
these days is really an accident of fate or
influenced by tax.
What makes ART solutions stand out from
traditional insurance solutions?
In my view, from the insurance brokers’
perspective, they shouldn’t stand out at
all from traditional solutions. It is our
job to come up with solutions/products
which fix the clients problem – whether
they are traditional risk transfer deals
or ART deals shouldn’t matter – they are
all just tools, structures and solutions
which are at our disposal to resolve clients
problems and win new business. It is true
to say that there are very few practitioners
in the market who have a track record
of getting these deals done but this is a
big advantage of ours – our competition
is really very weak in this area and this
allows us to differentiate ourselves.
Ultimately, a good deal of our traditional
business is won by the use or proven
capability to do alternative deals.
And what types of insurance risks
do you cover?
The most “traditional” ART deals are in
the area of captive reinsurance where the
captive reinsures its exposure over a long
term with significant profit share. This
has numerous potential advantages to the
captive and its parent – capital relief from
new Solvency II regulations is one of the
benefits but not usually the driving factor.
We have provided cross class solutions,
for example, for large municipalities
across as many as six separate classes of
business in one deal. We have done some
large Loss Portfolio Transfers where we
have insured away long historic tails of
liability giving balance sheet relief and
transferring deterioration risk. Our largest
deal (over £150m of premium) covered
ISSUE 6 JUNE 2016
future risk relating to a particular financial
instrument which our competitors had all
failed to get done over the preceding five
years. It took us over two years to get it
done but it was more than worth it!
Does the current insurance market
impact the choice of solutions available
to clients?
A super cheap traditional market does
mean that, for example, retention
financing deals are less frequent for
deductible buy backs as the traditional
market just drops its retentions. But
there are still some areas – particularly
mining – where low deductibles are just
not attainable, so a method of funding
“
expected losses and transferring risk
is valuable to some clients who need
budgetary and cash flow stability together
with real risk transfer and a desire to
insure other uninsurable risks, such as
silicosis.
Knowing what matters to our clients is
key to Alesco - what approach do you take
to finding the right solution for a client?
The approach really starts from the point
of believing that just about everything
must be insurable in some way – we just
need to work out the way to do it. Although
there are some relatively standard
“products”, most deals are reactive – i.e.
they are a solution to a problem that can’t
be fixed in any other way. Size does matter
– they need to be in the millions of dollars
to get going and they do usually take a
long time to get done (usually between six
months and up to two and a half years for
the most difficult one we have done). The
really difficult thing is to try to pick the
ones which will actually close as opposed
to wasting a huge amount of time on a
deal that the client won’t actually buy.
VICo is the wholly owned and self-managed captive of Volkswagen AG and as such, it is our mission to add value to our
parent by provision of insurance and reinsurance solutions across many areas of risk. The environment facing both
the automotive industry and captives is a challenging one at present where we face a difficult and perhaps constricting
insurance market together with increased regulatory and capital burden. Some two years ago, we initiated a process to find
an insurance broker who was able to help us redesign our reinsurance buying philosophy to not only provide long term,
stable reinsurance capacity but to address forthcoming capital adequacy issues under Solvency II.
We selected the team [at Alesco] as they were the best placed brokers we felt fulfilled the requirements of being able to look
at our risk on a true cross class basis and had the practical skill and actual execution experience on complex alternative risk
transfer structures which filled our requirements. The process of design was long and detailed and the actual placement
of our programme was difficult and complex as there were so many moving parts but the programme was incepted
successfully and fulfilled a number of key features for us including significant long term price stable capacity in the most
difficult primary area, substantial profit share, highly credit rated reinsurance, capital efficiency and many other benefits.
Insurance Operations Manager, Volkswagen Insurance Company DAC
”
3
ALESCO NEWS
EXPANDING OUR
RENEWABLES OFFERING
We are delighted to announce that Murray Haynes and John Abraham have joined our
renewable energy division in London, bringing with them extensive experience of the
renewable energy and power sectors, having advised numerous global independent power,
utility, construction and engineering companies.
Murray brings over thirty years of experience in the energy
and environmental sectors. He has an MSc in Pollution and
Environmental Control and previously worked for a specialty
insurance provider focused on contaminated land development
solutions.
During his career, John has played a key role working with global
renewable energy clients and insurance markets. He has also been
part of a weather and energy specialty products team, delivering
unique alternative risk transfer products to the European, Pacific,
Latin American and African markets.
Over the last 12-18 months there has been a significant increase
in investment in the renewable energy industry and we are seeing
a marked increase in the number of enquiries from our clients. It
is a key growth area for us and we are delighted to welcome two
well respected and experienced brokers in Murray and John. Their
breadth of geographical knowledge complements our existing
offering and will be vital as we look to expand and develop our
expertise in this class.
RENEWABLE ENERGY MARKET OVERVIEW
Author: Murray Haynes and John Abraham
Market Characteristics
(Onshore)
Market Characteristics
(Offshore)
Market Developments
•Majority of commercial assets valued in
•Majority of commercial assets valued in
$ hundreds million / max. $ 2.5 billion
•Warren Diogo (Senior Underwriter)
leaving Ascot Renewco – destination not
disclosed
$ tens million / $ low hundreds million
•Capacity is not a typical constraint
to placement (standalone x/s nat cat
placements effected as required)
•Increasing sector appetite from
previously marginal players and new
entrants including local / regional
markets
•Continued downward rating pressure
•Modest but increasing number of
market leaders
•Capacity not a typical constraint due
to low nat cat environment of current
North European waters locations
•Proposed projects in North Asian
waters will drive need for offshore nat
cat (not previously modelled)
•Downward rating pressure on
construction and operational risks;
deductible levels largely maintained
4
•2015 integration of Delta Lloyd offshore
wind team into Canopius syndicate
complete; sector engagement expected
to increase
•Ark syndicate-led renewable energy
consortium established early 2016
to leverage constituent syndicate
capacities; consortium capacity $ /
€ 100 million for most technologies
(onshore & offshore)
ISSUE 6 JUNE 2016
LOSS UPDATE
Author: Ronan Barrett
EUROPE
NORTH
AMERICA
MIDDLE EAST
Downstream
172,350,000
Power
96,900,000
Upstream
42,439,760
55%
31%
14%
Downstream
31,300,000
Power
536,144,000
Upstream
5,950,000
5%
94%
1%
Downstream
Power
3,000,000
Upstream
55,000,000
0%
5%
95%
Grand Total
$573,394,000
Grand Total
55%
30%
$311,689,760
Grand Total
5%
$58,000,000
SOUTH &
CENTRAL AMERICA
ASIA PACIFIC
Downstream
7,300,000
Power
7,540,000
Upstream
10,300,000
Downstream
Power
Upstream
82,000,000
29%
30%
41%
0%
0%
100%
Grand Total
$25,140,000
Grand Total
2%
$82,000,000
8%
Upstream
$196 million
Downstream
$211 million
Power
$644 million
Loss activity for the first five months of the
year has been relatively low with only six
reported claims over the $10m mark.
As with the upstream market, there has
been a low level of reported claims in the
downstream market with only three claims
reported over $10 million.
Total losses in the power market have
been dominated by one significant loss, a
fire at a Power station in Siberia. Current
estimates for the property damage and
business interruption loss are around
$530m; 82% of reported losses year to
date.
The above figures however do not include
a claim which is expected to be brought
by Stena Drilling, a UK drilling firm, which
dropped some equipment to the sea
bed off the coast of Nova Scotia during
sever weather in March. Early indications
are that the loss will be in the region of
$225m.
The market is however bracing itself for a
loss from an explosion at a Mexican Vinyl
Chloride plant which occurred in April and
resulted in 32 fatalities and significant
damages to the plant. Access to the site
has been restricted which has hampered
the ability of adjustors and insurers to set
an estimate, however the loss is believed
to be significant from both a property
damage and business perspective.
5
ALESCO NEWS
STATISTICS AT
LLOYD’S
Author: Derek Thrumble
Lloyd’s has published the latest edition of their annual review “Statistics at Lloyd’s”.
This publication contains a number of useful facts and statistics about the performance
of the Lloyd’s insurance market over the past 10-15 years.
In 2015 Lloyd’s Gross Premium (from the Aggregate Accounts) was
in the order of £27.5bn which reduced to £21.1bn after outwards
reinsurance. The profit for the year was £1.9bn (compared to £2.9bn
in 2014).The 2015 calendar year combined ratio was 9% (2014: 11%)
but this is still a significant improvement on the return that investors
could currently expect to earn placing funds into a “risk free”
interest bearing account. The market as a whole continues to benefit
from a relatively low level of losses.
As part of the Annual Review, Lloyd’s has again included estimates
of premium rate movements. Although there was an estimated 3.4%
reduction across the whole market in 2015 the risk classes that are
the larger contributors included Property Treaty (-10.1%); Energy
(-7.2%) and Casualty Treaty (-5.3%). Across the Lloyd’s market the
share of Property/Casualty premium has increased to an all-time
high of 54.6% whilst Marine/Energy/Aviation has declined to 21.6%
which, as a percentage, is the lowest in 15 years and has not been
seen since the days of the very soft energy market last seen in 19982001.
Perhaps a more interesting statistic has seen the top two energy
brokers in Lloyd’s see their market share reduced from almost 50%
in 2005 to about 35% in 2015. The next group of brokers 3-10, which
includes Alesco, in contrast have increased their market share from
45% in 2005 to 55% in 2015. Energy brokers outside the top 10 have
also increased their market share from 5% in 2005 to 10% in 2015.
OIL UPDATE
Author: Derek Thrumble
OIL’s end of year results show that 2015 was an average
underwriting year. There were upwards loss movements
in Q4 2015 that resulted in overall total incurred losses
of $787m, which were offset by $430m of prior year
movements to produce an incurred loss movement off
$357m.
Other key figures announced are:
• Earned premiums of $415m
• Total net underwriting income $57m
• Investment income and general expenses ($26m)
• Total Net income $31m (2014: $731m)
6
Total Shareholders Equity at 31/12/2015 was $4.2bn after
taking into account the $400m dividend payment in 2015.
Another dividend (of $200m) has been announced in 2016.
Overall membership remains static at 55 but will likely
reduce slightly due to M&A activity. Most OIL members have
already moved to the increased $400m limit.
ISSUE 6 JUNE 2016
KNOWING
WHAT MATTERS
Author: Neil Stewart
In the final quarter of 2013 we were approached by one of our global partner brokers that
had run in to difficulties with the assets placement on behalf of one of their major clients.
• The client still wanted them as their local broker
• The relationship was strong, but
•The client had grown into several overseas countries as their
business had expanded and,
•Our local partner did not have the necessary expertise or market
access to drive the placement of a modern global multi-national
programme.
It was at this point that we were able to bring added resources to the
table as,
• We have the programme design and technical wording skills
•We also had the market access and know how to place the
programme.
The result was a perfect team – a client with a need and a local
/ international broking team ready to take on the challenge of
supporting the client in creating a fit for purpose programme.
How was this achieved..?
Having assembled the raw data we were set a number of key
challenges by the client in terms of the cover they needed. In the
past they had suffered loss events where cover had been disputed
and claims not paid. These issues were all discussed and plans for
their cover put into place.
We then engaged with several major insurers here in London in an
effort to pull a globally fronted programme into place.
Allianz stepped up to the plate and has been a fantastic support to
our team.
From their opening comments:
“No reason why we can’t look at it
from here, so as ever the devil will be
in the detail so over to you and your
producers!”
Allianz understood that there were gaps in our overall risk
information but, having met with the client and appreciated the
clear vision of where they wanted to be from an insurance and risk
management perspective. Allianz were prepared to trust the client
and the vision they were painting and embarked on the journey with
us.
Once Allianz had agreed to follow us on the journey, we built a
bespoke reinsurance programme to sit behind them over a six week
period, ultimately building a $500m tower of capacity for an asset
base approaching $6bn across 20 countries.
Two years later we now place global programmes covering Assets,
Political Violence, General Liability, Construction and Marine Cargo.
We have worked with the client to introduce a robust survey and risk
management programme in harmony with their own Health and
Safety teams. All of these programmes are still placed in harmony
with the local broker that has always been the client’s preferred
broker of choice.
In conclusion
This example is a situation that repeats all over the world.
Companies trust their local brokers, but as their business grows
a gap can appear in the local broker’s knowledge of quite how to
support their client’s expanding business and associated exposure
to risk.
All too often, this is where global brokers step in and try to
undermine the local relationships with promises of global support.
With our team here at Alesco you have a partner that can stand
shoulder to shoulder with you, that recognises and respects the
local trust that you have built over many years with your client and
can help you to grow the insurance programmes to keep pace with
the changes in scale which your customers are going through.
The above is a brief summary of several years’ work but, we will
be happy to walk you through the programmes in more detail, the
bespoke wordings we have created and, discuss how we might be
able to help you with clients of yours that face similar challenges.
Neil Stewart, Executive Partner
T: +44 (0)20 7204 1816
E: [email protected]
7
FOCUS ON AFRICA
Author: Bob Lock and Henry Croft-Baker
The critical shortage of electric power in the vast majority of African countries is showing no
real sign of improving, despite numerous high profile initiatives and a huge investment in project
development from the private sector.
The ability of Governments to provide guarantees over payment
obligations to the power providers is fundamental, and it is just
not happening. This means that project developers wanting to use
project finance solutions to fund construction of the badly needed
plants, simply can’t progress because their lenders want cast iron
sovereign guarantees to back their investment.
In an environment of low oil prices and reducing credit ratings,
Governments are simply unable to make this commitment.
So, the stand-off continues and the number of projects trying to find
financial solutions grows. On the upside, Africa is discovering that
the potential of renewable energy is vast. Irradiation in the Magreb
countries is infinite and the latest large Feed in Tariff programme in
Egypt is attracting serious International support (but subject to the
elusive payment guarantees). South Africa’s beacon renewable energy
programme for wind and solar is held up as a globally positive case
study on how to procure environmentally friendly power.
However, it is in South Africa that the other huge problem is most
clearly illustrated. Building power plants is one thing, but you must
have the infrastructure to transmit the power to where it’s needed.
Distributed energy grids are a long term solution, but the fact is
that even in Africa’s most advanced territory in the sector, the
transmission and distribution system needs massive investment to
accommodate the equally massive demand for power.
Alesco’s Political Risk team continues to help clients find solutions
to these problems. The Multi-Lateral Investment agencies like the
World Bank / Islamic Development Bank, and the private political
risk markets can provide mitigation products which support
investment decisions in Africa.
ALESCO IS ATTENDING THE AFRICA ENERGY FORUM
Once again, a team from Alesco will be attending the Africa Energy Forum, this year to be hosted in London at the Intercontinental
O2 on 22-24 June 2016. Come and visit us on stand 51 where our power and renewables experts will be available to discuss your
insurance needs.
CONTACTS
SIMON MATSON
T: +44 (0)20 7204 1814
E: [email protected]
NEIL STEWART
T: +44 (0)20 7204 1816
E: [email protected]
MARTIN EMKES
T: +44 (0)20 7204 1815
E: [email protected]
DEREK THRUMBLE
T: +44 (0)20 7204 8575
E: [email protected]
RONAN BARRETT
T: +44 (0)20 7560 3084
E: [email protected]
BOB LOCK
T: +44 (0)20 7204 1824
E: [email protected]
MURRAY HAYNES
T: +44 (0) 20 7234 4221
E: [email protected]
HENRY CROFT-BAKER
T: +44 (0)20 7204 6191
E: [email protected]
Alesco Risk Management Services
67 Lombard Street
London
EC3V 9LJ
T: +44 (0)20 7204 8999
WWW.ALESCORMS.COM
twitter.com/AlescoRMS
linkedin.com/company/
alesco-risk-managementservices
JOHN ABRAHAM
T: +44 (0)20 7204 1843
E: [email protected]
Alesco is a trading name of Alesco Risk Management Services Limited. Alesco Risk Management Services
Limited is an appointed representative of Arthur J. Gallagher (UK) Limited which is authorised and regulated
by the Financial Conduct Authority. Registered Office: The Walbrook Building, 25 Walbrook, London EC4N
8AW. Registered in England and Wales. Company Number: 1193013. www.alescorms.com
Alesco cannot be held liable for any errors, omissions or inaccuracies contained within the document.
The opinions and views expressed in the above article are those of the author only and are for guidance
purposes only. The authors disclaim any liability for reliance upon those opinions and would encourage
readers to rely upon more than one source before making a decision based on the information.