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Topics
Risk Solutions
Insurance solutions for industry
Issue 3/2013
Protecting renewable
energies risks
Solar, wind and biomass power plants are
becoming ever more valuable as sources of
energy. However, even state-of-the-art
power plants require comprehensive risk
management. Page 4
Delay in start-up cover
Setting the stage for the
America’s Cup regatta
Offshore energy
Seamless service for
oil and gas producers
Column
Renminbi on its way to
become a lead currency
editorial
Dear Reader,
The world is rapidly running out of fossil fuels.
The future belongs to regenerative energies, also
in the interest of climate protection.
Nevertheless, worldwide demand for oil and gas
continues to rise even as exploratory drilling and
production are becoming more and more costintensive and hazardous. For decades, we have
been insuring such energy risks – a field in which
Watkins Syndicate, part of our Risk Solutions
operating field, numbers among the global
market leaders. Its energy underwriting team
keeps pace with technological development and
tailors its range of insurance offerings to fulfil
our clients’ increasingly demanding expectations.
We have also partnered the growing renewable
energies industries right from the start and
pioneered ground-breaking insurance solutions.
At this point, one of the important objectives is
to refine risk management for these installations
so that sustainable energy production will also
pay off over the long term for all the stakeholders.
Munich, July 2013
Yours sincerely,
Dr. Torsten Jeworrek
Member of the Munich Re Board of Management and
Chairman of the Reinsurance Committee
NOT IF, BUT HOW
Contents
Sunny and windy
The percentage of power generated
from renewable energy sources is
increasing all the time – both in
established industrial countries and
in the emerging markets. Regardless
of where renewable energies are
being used, comprehensive risk
management is indispensable.
Page 4
News2
San Francisco insures pier to be used for
regatta against delays in construction 3
Renewable energies
Insuring green energy properly
Growth market needs adequate
risk management
Oil and gas
Entrepreneurial style of underwriting
Based on long tradition and technical expertise,
Watkins offers clients seamless, efficient service
Column
When will we start paying in renminbi?
The emergence of China’s renminbi as a lead
currency is merely a matter of time
Imprint and preview
4
12
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Munich Re Topics Risk Solutions 3/2013
1
News
GROWTH MARKET ASIA
Renewable energies
NORTH AMERICA
Minimising risk
Energetic app from
Munich Re
Perilous thunderstorms
Premium income for primary property/casualty insurance is a clear
indicator that the economy of the
Asia-Pacific region is growing – currently by an average of 11% per year.
Long-term statistics from Munich
Re’s GeoRisksResearch show how
vulnerable the region is to natural
catastrophes: since 1980, the AsiaPacific region has experienced 40%
of all natural catastrophes worldwide
and suffered 45% of the losses.
Global demand for energy is rising,
and fossil resources are becoming
increasingly scarce. This causes the
prices of raw materials to increase
and places a huge burden on the
global economy. The resultant pressure is definitely affecting our energy
awareness. Efficient use of resources
and sustainable climate protection
will inevitably have to involve renewable energy sources.
Exciting texts, pictures, videos and
interactive charts – Munich Re’s app
presents the opportunities and
challenges involved in different
renewable energies such as wind, sun
and water and shows how innovative
insurance solutions can support the
energy revolution. The app will be
available free of charge for Apple iOS
and Android as of mid-June.
Changing climatic conditions are
having a considerable influence on
the increase in severe thunderstorm
losses in the USA. This correlation is
documented by a scientific study
covering the period from 1970 to
2009, which was carried out in connection with a cooperation project
between Munich Re and the German
Aerospace Center (DLR). In 2011, the
current record year, severe thunderstorms in the USA caused US$ 47bn
in economic losses, i.e. approximately
as much as a medium-strength
hurricane. Also seen from the longterm perspective, the average losses
resulting from severe US thunderstorms have risen significantly, particularly since the end of the 1980s,
and the fluctuations between individual years have become more
extreme.
>> For further information, visit
www.munichre.com/en/app/
topicsrenewables
>> For further information, see:
www.munichre.com/en/touch/
naturalhazards
Munich Re’s RiskMapper is a tool
that helps clients track and analyse
these hazards. Also important for
achieving stable economic growth in
the region, however, are long-term
risk mitigation strategies such as
more suitable procedures for zoning
building land, improving building
codes and enhancing infrastructure
such as dams.
>> More information at:
www.munichre.com/en/touch/
naturalhazards
Investments in power generation and distribution
according to the New Policies scenario1
Total investment:
US$ 16,900 bn
Cumulative investments by the
power sector in the New Policies
scenario in the period from 2012
to 2035, by type.
Source: IEA (2012: 195), World
Energy Outlook; GD Economic
Research
1
2
2
xisting energy measures will be
E
continued and improvements in
energy-efficiency implemented.
ther includes geothermal,
O
concentrating solar power and
marine.
Oil Nuclear Renewables Other2, 3%
Bioenergy, 4%
Solar PV, 7%
Hydro, 9%
Wind, 13%
Transmission & distribution Coal Gas 0.4%
6%
36%
43%
10%
6%
The cup defenders, Oracle Team USA, prepare
their AC 72 racing yacht.
Delay in start-up cover
San Francisco on course
Thrilling races with spectacular manoeuvres are in
the offing in early June once the starting gun for the
34th America’s Cup sounds in San Francisco Bay.
For the first time, sailing enthusiasts will be able to
follow the spectacle from very close up as the race
will take place within sight of the harbour pier in the
north of the city. San Francisco expects five million
visitors and hopes that the event will give a major
boost to the local economy.
Even in the run-up to the prestigious competition,
San Francisco found itself in a race with time, as it
had to ready part of the pier for the racing teams and
the crowds of onlookers. There was a substantial risk
that the city would face additional costs for contingency measures and compensation if the works were
not finished by the 1 March 2013 deadline. The city
wanted insurance to cover this financial risk in order
to avoid any possibility that it would have to burden
the taxpayers with it. The insurance contract obligated Munich Re in the event of a delay to pay for contingency measures such as moving the racing teams
to a pier further away. If construction work had not
been completed on time, Munich Re would also have
had to pay for part of the compensations due to the
America’s Cup organisers.
Corporate Insurance Partner (CIP) insured the timely
completion of the construction work with a novel
cover tailored specifically to the needs of the City of
San Francisco. As a pilot, this cover can be adapted as
required and transferred to other venues. When it
comes to organising large-scale athletic and cultural
events, cities, towns and other communities are often
confronted with the challenge of creating the infrastructural conditions required. The timely completion
of buildings and sports facilities involves many risks
and, in the event of delays in construction, may entail
paying high liquidated damages to the organisers as
well as other compensatory damages. With this cover,
cities and communities can now acquire financial
protection, protect their budgets against unforeseen
losses and avoid burdening their taxpayers.
3
Renewable Energies
Making renewable
energies sustainable
The growing focus on renewable sources
of energy has seen increased investment
in onshore renewable technologies across
the globe. Whether wind, solar or biomass,
these technologies often introduce
complex risk exposures.
Stephen Morris
In recent years the use of renewable energy technologies to generate power has increased at an exponential rate. According to BP’s Statistical Review of
World Energy (2012), for the past nine years, renew
able power generation has shown double-digit growth
and now represents more than 3.9 percent of global
power generation.
One of the factors driving this growth are the
financial returns available partly funded by government support.
For example, since 2002, the UK government has
introduced incentives to encourage large energy
providers to produce more power from renewable
sources. These incentives include renewable obligation certificates, feed in tariffs (FITs), and a renewable
heat incentive. The success of these measures can
be seen in statistics published by the UK Department
of Energy and Climate Change, which show that
renewable energy electricity production reached
11.3% of total production in 2012.
With the largest potential wind resource in the European Union, there remains plenty of opportunity in
the UK to harness onshore wind energy. It is therefore
no surprise that UK onshore wind capacity is predicted to rise from 4GW in 2011 to a level of 13 GW by
2020.
Member nations of the Organisation of Economic
Cooperation and Development (OECD) are the primary sources of renewable power generation
(76% of world total in 2011), but non-OECD growth
has accelerated sharply and exceeded OECD growth
in percentage terms in each of the past six years.
During the period 2007–2011, global market demand
grew by double-digit figures. However, in 2011 slower
growth in OECD regions together with a fall in prices
aided growth in emerging markets. The introduction
of incentives such as FITs and certificate-based obligations in non-OECD countries has also started to
encourage demand and investment.
A technician preparing a wind turbine for
operation pauses to admire the view from his
perch 100 metres above the ground.
5
renewable energies
Transporting rotor blades often involves
using special lorries and widening roads
Furthermore recent reporting by a solar market
research and analysis company, indicated that the
Middle East and Africa, emerging Asia-Pacific and
central Asia regions are set for considerable photo
voltaic (PV) growth in 2013, with annual demand
projected to hit 1 GigaWatt (GW) in each region.
Increasingly, insurers are seeing investment growth in
renewable technologies in South America, Turkey,
eastern Europe, southeast Asia and southern Africa.
Managing renewable energy exposures
The rapid growth in renewable energy usage has
resulted in a number of new risk exposures which
specialist insurers such as HSB can help investors,
owners and operators to manage.
By their very nature, the types of risks and exposures
presented by renewable energy technologies and
installations differ from project to project. For
instance, wind farms tend to be built on windier and
more exposed sites than photovoltaic installations,
which are normally built on flat sites.
Insurers are most effective when they work side by
side with clients throughout the process – from planning and construction right through to the operational
phase of a renewable energy installation. Each phase
involves different considerations and requires suitable
insurance coverage.
6
Site planning for a renewable energy project
Investors may sometimes be tempted to build an
installation on undeveloped land without bothering to
consider why the land is available. Involving a specialist insurer right from the outset means that clients
benefit from expert advice on natural catastrophe and
flood exposures. For example, a client was considering an investment opportunity and asked us for some
advice. Following a survey, our risk engineer pointed
out that the land had previously been used as a flood
plain and would need considerable rectification work
to protect it against flooding and make it usable.
By collaborating with clients and using specialist
knowledge and experience in managing natural
exposures, insurers can help to reduce risk and inform
investments decisions.
Finding the right contractor
The growth in renewable energy has prompted contractors with little experience in this sector to enter
the market. Engaging the services of an experienced
contractor with strong project management skills and
previous experience in similar renewable energy projects is therefore crucial.
renewable energies
Foundation design and geotechnical conditions
Given the size and weight of modern wind turbines,
they can be erected only in cases where the geotechnical conditions are appropriate and the foundation
design is reliable. There are numerous examples of
inadequate foundations leading to collapse or of wind
turbines being erected over mining shafts or on
unstable soil. As an insurer, we look for evidence that
a full assessment has been made of the geotechnical
conditions and that the foundations have been properly engineered, also taking into account the prevailing exposures.
The pie charts below show the percentage of
losses attributable to the various risks.
Photovoltaic losses by type
Mechanical & electrical breakdown 22%
Other28%
Theft & malicious damage
28%
Weather 22%
Natural perils and climate conditions
In any renewable energy project, consideration needs
to be given to the natural environment and weather
conditions, the suitability of the technology to withstand those conditions, and the risk-reducing factors
which can be engineered into the design.
Work on site can be restricted by climate conditions
and exposure to the elements. In some regions,
winters are too harsh for work to continue and these
need to be taken into account in planning. During site
lay-off periods, measures should be taken to preserve
partially built equipment and material on site.
Wind farm losses by type
Mechanical & electrical breakdown 69%
Other11%
Theft & malicious damage
5%
Weather 15%
Our philosophy is to work together with clients to
identify and check the potential risks, tailor our
insurance solution accordingly and collaborate with
our client to manage and reduce exposure.
Site access and construction equipment
Access to the site should be considered in planning.
As wind farms, in particular, are often erected in
remote locations, manoeuvring trucks along narrow
roads is a common issue. Planning permission may be
required to extend and widen roads for the duration of
the project, and it may be necessary to remove overhead cables, traffic lights and other street furniture on
the route. Once the project has been completed, it is
then necessary to restore this infrastructure to its previous state.
Source: HSB Engineeriing insurance
claims statistics
It is also essential to ensure that the right construction equipment is on hand for the project. For
instance, at least one crane is needed to erect a wind
farm, and the taller the towers are, the bigger the
crane must be. It is necessary to plan the availability
of appropriate cranes, as well as to arrange for
replacements in the event of any problems. In addition, the operation of cranes and the provision of hard
standing are all features which need to be taken into
account.
To mitigate these risks during the construction phase,
we look for evidence of robust and proper planning.
7
renewable energies
Security
Proper site security is an important issue for all
renewable energy installations, both during the construction phase and after the installation has started
operation.
Theft, particularly of copper cables and other metal
components, is a concern, and some sites may be vulnerable to vandalism and arson. Good site security,
monitoring systems and careful planning of materials
deliveries to the site all help to reduce these security
exposures.
Testing and commissioning
Once the installation is complete, the machinery is
tested and commissioned. At this stage of the project,
it is important that appropriate insurance protection
is in place.
The risks and exposures during this stage are limited
through the use of proven machinery and techniques
and by selecting a competent contractor. Risk engin
eers with knowledge and experience of the technology can advise on the insurability of the equipment
being considered.
Once an installation begins to operate and produce
power, construction-phase exposures such as foundation design and site access are superseded by new
exposures such as breakdown, fire and business interruption risks. Natural perils such as lightning and
windstorm and site security continue to be potential
risks that need to be addressed.
Breakdown
According to our statistics, the most frequent losses
involving wind turbines relate to breakdown, with the
most common failures occurring in transformers and
gearboxes.
Transformer breakdowns may result from overloading
individual export transformers. From a business interruption point of view, housing multiple export transformers is by far preferable in terms of reducing this
risk.
Warranties have an important role to play here. If a
warranty is still in place, it can help protect against
the material cost of equipment failure, but it does not
usually afford protection against business interruption.
When a breakdown occurs, sourcing the correct parts
can also prove to be a problem. A robust parts inventory needs to be designed around a good risk assessment to ensure that the correct replacement parts are
available quickly in areas where breakdowns are common. For example, access to spare parts for high-risk
items such as transformers minimises downtime.
Micro-renewables:
Are they the future of
renewable energy?
Micro-renewables is a rapidly growing area in the UK and Ireland. The
demand for small-scale renewable
installations is being driven partly by
private individuals’ desire to install
small renewable energy installations
such as photovoltaic panels on their
homes. However, interest is also
increasing in the agricultural sector
as farmers look to maximise land use.
Since their income from agriculture
may vary unpredictably, renewable
energies can be an opportunity for
farmers to stabilise their incomes
as well as offering a use for waste
materials.
8
Farmers are increasingly installing
renewable energy
Although the risks associated with
micro-renewable projects tend to be
less complex than those involved in
large installations, the operational
risks are similar, albeit on a smaller
scale. Maintenance standards are
often lower than in the traditional
renewable energies sector, which
may become an issue when warranties start to expire.
For insurers, one noteworthy consideration is that investors in microrenewables tend to have less understanding of the associated risks.
renewable energies
Incentives – a UK example
In April 2010, feed-in tariff (FIT)
schemes were introduced in the UK,
aimed at small-scale producers who
generate less than 5 mW. These
apply to wind, hydro, solar (also
known as photovoltaics or PV), small
CHP plants and anaerobic digestion
(biomass/biogas). There are curently
over 350,000 registered installations
producing a total of 1,600 MW of
power1 under this scheme.
There are three financial benefits for
suppliers under FIT schemes:
−−Payment for electricity produced
−−Bonus payments for exports to grid
−−Reduced electricity bills
The FIT scheme is fixed for 20–25
years and has led to a considerably
reduced payback time on invest‑
ments.
1
Department
of Energy and Climate
Change – monthly central feed-in tariff
register statistics 23/04/13
An experienced insurer can sometimes help source
the correct parts. One client had a wind turbine model
that was no longer in production, replacements were
unavailable, and even the manufacturer did not have a
mould for the blade. Thanks to his knowledge of the
local market, our loss control engineer was able to
source the correct replacement at a fraction of the
cost of remodelling.
All machinery and equipment requires maintenance.
Having a preventative maintenance programme in
place is therefore an important requirement. Monitor‑
ing equipment with defect notification systems also
has a key role to play in detecting potential problems
and rectifying them before a stoppage occurs.
Fire risks
Fire, although infrequent, usually causes extensive
damage and becomes a much greater hazard for
all renewable energy installations once the installa‑
tion is operational.
Biomass installations, in particular, face even greater
risk from fires and explosions. Fires in these tech‑
nologies generally start in hydraulics, flumes, filters,
conveyors or gearboxes, but can also start in fuel
sources as a result of spontaneous combustion.
The UK also has a Renewable Heat
Incentive that applies to all renew
able heat technologies including bio‑
mass boilers, ground/air source heat
pumps and solar thermal tubes. In
the first stage of the incentive, pay‑
ments were made on an ongoing
basis for the generation of renewable
heat in commercial settings. In the
second phase of the incentive,
Renewable Heat Premium Payment
Vouchers were introduced to provide
one-off payments for domestic users.
Fire detection and suppression systems are important
tools for combatting this risk, but are often underinstalled. Insurers usually have a minimum recom‑
mended level, and risk engineers can discuss these
aspects with clients during their site visits.
Service interruption cover
Many technologies require incoming power, so having
back-up systems or remotely activated back-up
generators on site is a positive feature that can keep
fire suppression and detection systems running cor‑
rectly.
Insurance cover is often sought for short transmission
lines and sometimes for substations. Risks are
assessed by looking at natural perils and alternative
power routes and usually have a sublimit to control
accumulations.
What is the future for renewable energy?
Within OECD countries, new renewable energy
capacity is coming on line every day, future invest‑
ments are planned, and growth will continue as
governments strive to meet their renewable energy
commitments and diversify from more established
technologies.
As the sector matures and more capacity is added,
the industry will need to use some of its resources to
maintain existing facilities. In addition, technological
advances will make it advisable to update established
plants to improve productivity. The future of the
9
renewable energies
renewable energies sector will therefore involve not
only the development of new installations, but also
the replacement of existing ones with more efficient
technologies.
As new renewable energy production targets are
likely in some regions such as Europe, it would appear
that the industries will continue to grow in areas
where they are already established.
Non-OECD countries are also beginning to adopt
renewable energy as viable energy sources that
provide clean and reliable power. The financial returns
available make many of these regions attractive for
investors, and growth is expected to exceed that of
European and North American countries for many
years. New technologies such as wave and tidal
energy converters are undergoing research and development, and keeping abreast of these as well as
responding to investors’ calls for cover for non-traditional areas of exposure all form part of our portfolio
of expertise.
Key points to take away
With growth in the sector set to continue, insurers
can add value by helping clients to understand the
risks and by informing their investments decisions.
The complex nature of the risks and technologies
involved requires support from a specialist insurer.
With vast experience in the renewable energy sector,
HSB have underwriters and risk engineers with
knowledge and experience in a diverse range of technologies.
Using their specialist knowledge and experience in
the sector’s exposures, HSB can assist clients from
the construction phase right through to operation.
Collaboration with clients is the key to a successful
partnership. HSB work together with clients to
identify the potential risks and provide insurance
solutions to manage and reduce the risk exposures.
Renewable energy continues to be seen as an attractive and ethically sound investment. Finance is being
provided by banks and other financial institutions,
and in some instances, capital is being ring-fenced to
invest in the industry.
Against such a sustainable future for the industry, we
are responding to the challenge of offering insurance
covers for renewable energy technologies and believe
that insurers are an essential part of the picture.
Our experienced renewable energy underwriters and
risk control engineers are working and collaborating
with clients to manage and advise on exposures to
provide stable risk solutions and dependable service.
Our Expert
Stephen Morris,
Power and Energy Underwriting
Manager, HSB Engineering Insurance
[email protected]
10
You want to minimise risks and
safeguard your innovation capacity ?
Risks are becoming more complex, and new risks are constantly
emerging.
Companies increasingly need a strong partner to help minimise their
risks and safeguard their financial and innovation capacity.
Our operating field Risk Solutions will develop an individual and
customised insurance solution for you. Our clients benefit from our
experience, commitment, and innovative drive.
You can find the right contact partner quickly and simply with our
Risk Solutions Quickfinder at www.munichre.com/rs.
not if, but how
11
OIL and GAS
Energy “from the box”
Worldwide demand for fossil fuels continues to rise, while the
available resources are dwindling. Drilling for and producing oil and
gas are becoming ever more involved, more expensive and more risky.
Never has the insurance of energy risks been as important as it is
today.
Scattered about the Gulf of Mexico are
50,000 oil wells, 4,000 fixed installations
and 72,000 km of pipelines.
12
OIL and GAS
As one of the largest marine insurers at Lloyd’s of
London, the Watkins Syndicate specialises in energy
business in the offshore oil and gas sector. In addition
to fixed platforms and mobile units, the Watkins
team also insure construction, drilling, exploration
and production risks as well as pipelines.
The industry is volatile and high risk, yet oil and gas
together represent 50% of global fuel consumption.
The ability to insure such risks is therefore as vital to
the market as it is to individual clients in providing
financial protection. It is therefore important that the
insurance products in this complex business are carefully tailored to meet the client’s needs.
Storm risks
Storms and hurricanes, especially in the resource-rich
Gulf of Mexico, represent a great threat to the offshore energy sector. In 2008, Hurricane Ike made it
necessary to close Texan refineries, causing gasoline
shortages and enormous price hikes throughout the
US. In the aftermath of Hurricane Ike and its unexpectedly high losses, insurers had to fundamentally
rethink their business model.
Blowout risks
Approximately 46% of all losses around the globe are
actually the result of blowouts, i.e. the uncontrolled
release of oil and gas from a bore hole. Generally,
blowouts occur following the failure of pressure control systems, but other possible causes include nat
ural disasters, equipment breakdown, and human
error. The most notorious example is the Piper Alpha
incident in 1988, in which a missing safety valve
resulted in an explosion on a North Sea platform,
causing immense destruction and loss of life.
Blowouts can have devastating, enduring effects.
The blowout of the Indonesian natural gas well
Lapindo in 2006 resulted in the eruption of a mud
volcano which has continued to spout non-toxic mud
ever since and shows no sign of abating.
The mud covers an area of approximately 2,000 acres,
and, at its peak, the eruption spewed out over
100,000 cubic metres each day. Thus far, all efforts to
plug the volcano have proved ineffective.
Although blowouts are not a new phenomenon – the
first one was recorded in 1862 – the way the industry
approaches them is continually evolving. For example,
plugging the Deepwater Horizon blowout in 2010
involved technologies that had never been tried
before, including static kill, in which mud and concrete are pumped into the bore hole in order to force
the oil and gas back into the reservoir, in combination
with bottom kill, in which two relief wells are drilled
from the side.
Innovation with a long tradition
The Watkins Syndicate operates on a global scale, but
most of their underwriting business goes through the
Lloyd’s trading floor – known as the underwriting
room – in London, where brokers meet face-to-face
with underwriters in much the same way as they
would have done three hundred years ago. The history
of the London insurance market has shaped the way
underwriters trade today, giving rise to a unique
underwriting process characterised by innovation,
service and rapid decision-making. Furthermore, the
nature of the subscription market, in which risks
are shared between underwriters both in syndicates
and the company market, creates a competitive and
entrepreneurial style of underwriting.
Entrepreneurial style of underwriting
The Watkins energy team spend a large portion of
their day on their syndicate desk, or “box”. As the
market leader, the team are often the first to be
approached by brokers with an offshore energy slip.
Dominick Hoare, the team’s award-winning lead
underwriter, sums up his experience of the market:
“We’ve been here through good times and bad
times, and in times of crisis we’ve been one of the
syndicates that have stepped up and carried on
delivering a product, thanks to our solid financial
foundation. This reliability, however, should not be
confused with stagnation.” Mr. Hoare emphasises
that the team’s success is based on its members’
capacity for innovation and consistent service. “The
big storms of 2005 and 2008 were absolutely devastating for the energy market. Even right after Hurricane Katrina and after Ike, we were nonetheless out
there trading again the next day. The energy insurance in the USA needed to be completely reengin
eered, and we were the syndicate that led the
market.”
13
OIL and GAS
Seamless underwriting service ...
Faster-than-average claims handling
At the core of this approach lies the knowledge that
good relationships with clients and brokers are key
to providing an excellent underwriting product.
“A service-driven focus has stood us in good stead,”
says James Grainger, who has been an energy underwriter with the company for 12 years. “We provide
what you might call ‘good, old-fashioned service’ and
work hard to ensure there’s always someone on the
box.” This is confirmed by Michaela Ryan, the youngest member of the underwriting team: “Our continual
availability and good relationships with brokers help
us when markets are tough.” Michaela started her
career at Watkins in 2006 and is a core component in
delivering the level of service which the brokers have
come to expect. Underwriters also meet clients and
go offshore on a regular basis to become familiar with
the assets and attend courses such as rig training to
ensure their knowledge is up to date.
With a claims-turnaround time much faster than the
Lloyd’s average, it is no surprise that the claims team
is so highly regarded. Consequently, the Watkins
energy team enjoy a high percentage of repeat business, approximately 90% of their book, which Alison
believes “is indicative of the value of good service,
both underwriting and claims handling. We provide a
seamless service.”
... and claims management
The high level of service also applies to Watkins’
claims team. The team is led by Alison Maxwell, who
has been at Watkins for more than 25 years and is a
director of Munich Re Underwriting. Highly respected
in the industry, she sits on the Lillehammer Energy
Claims Committee and is a member of the Lloyd’s
Market Association (LMA) Marine Claims Group.
Watkins’ leading role in the energy sector naturally
also has an effect on the settlement of claims in
oil and gas business. The team consequently has
extensive ways and means of managing the claims
handling process. Early in the claim life cycle, where
appropriate, the team sends out a loss adjuster to
assess their client’s financial situation and what it
needs from its insurer, which then allows the claims
team to set up a reserve. As it often takes some time
for a client to get a well under control or decide
whether to continue with the operation, interim
payments are considered on occasion, which assist
and support the assured to make sure their cash
flow is protected.
Paul Stratton, senior claims adjuster for offshore
energy and liability claims, also considers outstanding, client-driven service to be indispensable. “We are
very aware of the importance of all of our clients,
and we try to turn things around as fast, consistently
and accurately as possible,” he says. “A good claims
service is absolutely vital to sustaining a good
commercial relationship.”
14
Rather than dictating to clients what measures to
take, for example in respect of repairs, the Watkins
claims department look to work closely and in a
flexible manner with the assured to ensure the best
resolution is achieved for all parties. Clients may thus
make modifications to the property for which the
claim is being forwarded, rather than having to carry
out a like-for-like repair. In order to assess these
issues appropriately, the energy team uses only the
best independent experts. Insight is achieved through
active engagement, via the Syndicate’s in-house risk
manager, with the project management teams for
large offshore construction projects. So sharing
knowledge and listening to the client constitute a
large part of what makes the energy team a success.
Analysis and pricing
While the Watkins box at Lloyd’s is the centre of much
of the team’s business, there is a significant amount
of work involved behind the scenes. Laura Evans
analyses exposures both at a risk and catastrophe
level for the energy team, and her responsibility is to
monitor their aggregation of different risks, ensuring
that the capital base of the syndicate is not overexposed.
Ms. Evans works closely with the underwriters and
utilises historical data and external models to maintain an all-around overview of key assets and the
market. The actuarial team work to ensure that prices
are assessed on a consistent basis in this volatile
environment and that the premiums reflect the risks
presented. Senior pricing actuary Antony Dodson
outlines the process: “We use the same parameters to
look at each and every client and get everyone on an
equal footing, making sure we also take into account
all the possible eventualities; the twenty- or hundredyear storm, for example.”
OIL and GAS
Modelling
The pricing process relies heavily on modelling.
Jordan Tovey, an underwriting technician, explains
that pricing is based on the underwriter’s experience
and knowledge. As the business grows, the process is
being further optimised, and the underwriter’s knowhow is being supplemented with a stochastic model.
As always, however, there is a human element in these
decisions. “There are certain things you can never
quantify using historical data,” Antony Dodson
explains. “New technology or difficult drilling areas,
for example, can’t really be statistically validated by
an actuary, which is why it’s important to work with
the underwriters. They tend to have a very good handle on the specifics of any given risk, so our close
cooperation with them helps us consistently achieve
that little bit extra for our clients.”
New technology remains challenging
The industry will continue to change in the coming
years, and Watkins, too, must adapt to shifting
demands to remain at the head of the market. Construction projects are a prime example. They often
involve new technologies, and the scope of insurance
and the values at risk are consequently rising all the
time. Floating liquefied natural gas (FLNG) operations
are currently in development and, floating above an
offshore natural gas reservoir, they would combine
production, liquefaction, storage and transfer of LNG
at sea. Such a project is a significant technological
advancement on an enormous scale, and consequently the values and the risks attached to those
values would be substantial, presenting a consider
able challenge to the insurance market.
“It is the continual evolution of technology within the
industry which makes the construction sector such a
dynamic area to underwrite”, explains James Flude,
class energy underwriter and account manager.
“Whether it is floating offshore gas plants, or subsea
compression installations thousands of metres below
sea level, the demands of the industry to explore new
frontiers represent an opportunity for underwriters,
but one which has to be approached with the appropriate balance of risk and reward.”
The Ichthys construction project in Australia, combining offshore gas extraction, a subsea pipeline nearly
900 kilometres long and an onshore LNG processing
facility, is on a similarly extensive scale. Such projects
puts the market’s capacity to the test.
Inspecting oil production equipment
Dominick Hoare
Dominick Hoare has worked for the Watkins Syndicate as an energy underwriter since 1994. In addition
to being a Joint Active Underwriter of the energy
team, he is also a member of the board of Munich Re
Underwriting, the Lloyd’s Market Association (LMA)
board, the LMA Marine Committee and the Joint
Rig Committee. In 2012, he was voted Top Energy
Underwriter by over 1,500 of his industry peers. By his
own account, he is simply “lucky enough to be the
senior guy, and the award was earned by the entire
team”.
A winning team
The people involved represent a huge diversity of
knowledge and experience. In addition to the
members already named, the team includes James
Flude, class energy underwriter and account manager, who has worked for Watkins for 14 years, five of
them in Singapore. Matthew Allan, deputy underwriter, also began his career at Watkins in Singapore,
while Laura Evans and Laura Jeakins have worked at
the London head office for more than 11 years.
15
OIL and gas
Storm cells moving across the Caribbean
Apart from its main branch office in Singapore,
Watkins also has branches in Dubai, Hong Kong and
Labuan. In Singapore, Jenny Davies from Lloyd’s
Asian platform handles the underwriting of energy
business. She emphasises, “We are working intensively to ensure that Watkins energy provides the
same quality of service and underwriting competence
to brokers and clients all over the world”. What is
most striking, however, is the length of their service –
rather unusual in this mobile market, where high staff
turnaround is the norm. Adding all the team members’ years of professional experience together yields
an astonishing 75 years of experience in energy.
“We don’t consciously have to try and work as a team
– it just happens. There’s a lot of ad hoc communication, and we try to get together at least once a day
to see what’s going on. We don’t divide the business,
and nobody has dominion over one particular area;
we deal with things together”, Dominick Hoare summarises.
16
“Our feeling of belonging to a team is the source of
our “power” for the success of Watkins. This “power”
will in future play an even more important role in
enabling us to fulfil the needs of our clients and the
rising values in energy business with our innovative
cover concepts and existing capital strength.”
>> F
or further information, visit
www.watkins-syndicate.co.uk
watkins
Watkins Syndicate
An experienced, expert team has
been underwriting the energy
account at Watkins for over 15 years
and is now recognised as one of
the market leaders in this class of
business throughout the London
and international energy insurance
markets.
The team delivers strong technical
underwriting for this demanding sector throughout the cycle. The product
lines written include physical damage,
operators’ extra expense, loss of
production income and coverage for
construction projects. Watkins also
has an in-house resource for risk
management which can be utilised
for site surveys, asset reviews and as
a client technical liaison. As a result
of our diverse and unique skill set
offering, our client base encompasses
a broad range of operators and contractors.
Whilst our primary focus is on insurance for exploration and production
as well as construction activities of
the oil and gas industries, we are also
able to offer integrated products.
Contacts:
Lloyd’s Box 79
Watkins Syndicate
Tel.: +44 20 7886 3900
Fax: +44 20 7886 3901
Michaela Ryan
Assistant Energy Underwriter
Tel.: +44 20 7886 3984
[email protected]
Dominick Hoare
Joint Active Underwriter &
Group Energy Underwriter
Tel.: +44 20 7886 3972
[email protected]
Laura Jeakins
Underwriting Assistant
Tel.: +44 20 7886 3949
[email protected]
James Flude
Energy Underwriter & Account Manager
Tel.: +44 20 7886 3845
[email protected]
James Grainger
Energy Underwriter
Tel.: +44 20 7886 3933
[email protected]
Laura Evans
Energy Technician
Tel.: +44 20 7886 3963
[email protected]
Jordan Tovey
Energy Technician
Tel.: +44 20 7886 3996
[email protected]
Matthew Allan
Deputy Energy Underwriter
Tel.: +44 20 7886 3954
[email protected]
From left to right: Michaela Ryan,
Laura Evans, Dominick Hoare, Paul
Stratton, Jordan Tovey, Matthew Allan,
Laura Jeakins, Antony Dodson, James
Grainger and James Flude.
17
COLUMN
Economics from a risk perspective
Will we soon pay in renminbi?
Dr. Michael Menhart, Chief Economist
[email protected]
China is the world’s second largest
economy and biggest trading nation.
Historically, whenever a country has
achieved economic dominance, its currency has come to play a global role.
That is what happened with the US
dollar after the Second World War and
with the DM and yen in the seventies.
So why has China’s renminbi (RMB)
not taken on a comparable role as an
international currency? This depends
not only on the strength of China’s
economy, but especially on the level of
trust placed in the currency’s stability
and the efficiency and openness of the
domestic financial markets.
Still far to go toward opening
financial markets
China’s economic power speaks very
clearly in favour of it. The People’s
Republic has been the world’s leading export nation since 2009 and
the leading trade nation since 2012.
China’s share of world trade is currently about 13%. This represents a
solid foundation for RMB transactions and thus also for great international demand.
Trust in a currency’s stability is influenced not least by the underlying
economy’s price stability and the
degree of national debt.
China’s rate of inflation over the last
15 years has averaged less than 2%.
China’s public debt is significantly
less than 50% of its gross domestic
product, a ratio that is quite moderate compared to that of many other
industrial states. China also has currency reserves amounting to more
than US$ 3,000bn and is thus by far
the world’s largest creditor. This prerequisite is therefore fulfilled. But
when we come to the criterion of
open and efficient financial markets,
18
the situation looks different. Particularly in comparison to the USA or
Europe, China’s financial markets are
underdeveloped and strongly regulated. The exchange rate of the RMB
is fixed in relation to the US dollar.
Access to the bond markets is
strongly restricted, and the variety of
financial instruments is limited. Even
though China’s leadership has taken
a wide variety of measures in recent
years, the country still has a long way
to go toward fully opening and liberalising its financial markets. China
has vast dollar reserves and is crucially dependent on the stability of the
US dollar – a risk that cannot be
ignored in view of the USA’s immense
debt, despite its current status as a
“safe haven”. With the RMB as a lead
currency, China could significantly
reduce its dollar reserves.
Transaction costs and the
exchange-rate risk would be
reduced
China would also enjoy the same advantages as other economies that
have lead currencies. Cross-border
transactions could be carried out in
the country’s own currency, reducing
transaction costs and the exchangerate risk. As a lead currency nation,
China would probably also have an
interest rate advantage whenever it
takes on debt in its own currency. This
would enhance its political prestige,
certainly an important goal for China.
For the rest of the world,
mostly advantages would
result.
The biggest potential disadvantage
would be that Chinese manufacturers’
ability to export would be endangered
by the probable appreciation in the
value of the RMB, assuming that flexible exchange rates are introduced in
the course of its becoming a lead currency. For the rest of the world, the
RMB’s emergence as a lead currency
would probably result mostly in
advantages. An additional, free-floating currency could make the currency system more stable. Exchangerate adjustments would help to
reduce global imbalances. Alternative reserve currencies would probably instil greater economic discipline
in the reserve currency countries. But
particularly for the USA, the rise of
the RMB could also mean the diminution of some advantages which
the country has hitherto enjoyed, for
example, in financing its immensely
deficitary balance of payments. The
rise in the significance of one currency takes place at the expense of
other currencies. This must be one
more reason for the countries of
the eurozone, despite their current
problems, to place their common
currency on a basis that will remain
stable over the long term.
A question of time
The creation of efficient and open
financial markets as the final prerequisite will be accompanied by adjustment costs and could temporarily
heighten the Chinese economy’s susceptibility to crises. As China will
nonetheless take this path over the
long term, it is (merely) a question of
time before the RMB emerges as a
lead currency.
Preview of issue 4/2013
Securing cargo
In Germany, more than three billion tonnes of
goods are transported on lorries each year.
Properly securing cargo should be a routine
procedure, but numerous accidents and high
loss figures for damaged and destroyed
goods tell a different story. That is why investing in solid know-how in securing loads and
using packing tools pays off several times
over – in terms of image, client satisfaction
and long-term optimisation of the insurance
premium.
>> Y
ou can also order Topics Risk Solutions as an
e-mail newsletter at
www.munichre.com/trs/en/newsletter
© 2013
Münchener RückversicherungsGesellschaft
Königinstrasse 107
80802 München
Germany
Tel.: +49 89 38 91-0
Fax: +49 89 39 90 56
www.munichre.com
Münchener RückversicherungsGesellschaft (Munich Reinsurance
Company) is a reinsurance company
organised under the laws of Germany.
In some countries, including in the
United States, Munich Reinsurance
Company holds the status of an
unauthorised reinsurer. Policies are
underwritten by Munich Reinsurance
Company or its affiliated insurance
and reinsurance subsidiaries. Certain
coverages are not available in all
jurisdictions.
Any description in this document is
for general information purposes only
and does not constitute an offer to sell
or a solicitation of an offer to buy any
product.
Responsible for content
Group Communications
Editor
Regine Kaiser
Group Communications
(address as above)
Tel.: +49 89 38 91-27 70
Fax: +49 89 38 91-7 27 70
[email protected]
Picture credits
Cover: ddp images
Inside front cover: Andreas Pohlmann
p. 1: Getty Images/Pedro Castellano
p. 2 (1): Getty Images/Shirlyn Loo
p. 2 (2): shutterstock
p. 2 (3): shutterstock/Dudarev Mikhail
p. 3: picture-alliance/John G. Mabanglo
p. 4: plainpicture/Aurora Photos
p. 6: plainpicture/STOCK4B
p. 8: ddp images
p. 10: HSB U.K. Engineering
p. 11: plainpicture
p. 12: shutterstock
p. 15: Corbis/Keith Wood
p. 16: Corbis/Stocktrek
p. 17: Charles Sturge
p. 18: Illustration: Kevin Sprouls
Inside back cover: Corbis/Ocean
Editorial deadline
6 June 2013
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Corporate Insurance Partner
CIP offers holistic insurance protection
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throughout the world. The portfolio
includes coverage concepts for property,
energy, engineering, casualty and
special enterprise risks.
www.munichre.com
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Hartford Steam Boiler
Leading monoliner and inspection
company for engineering risks. Apart
from engineering covers, its range
also includes specialty and engineering
solutions, claims management and
risk management services.
www.hsb.com
Tel.: +1 800 4 72-18 66
[email protected]
KA Köln.Assekuranz Agentur GmbH
Internationally operating underwriting agency for
industrial risks, specialising in marine and group
accident insurance.
www.koeln-assekuranz.com
Tel.: +49 221 3 97 61–2 00
[email protected]
Temple Insurance Company
Temple Insurance Company underwrites large
industrial and risk management acounts. Our
Technical and Special Risk Department provides
property-casualty products directly through the
Canadian broker network.
www.templeinsurance.ca
Toll free (North America): +1 877 3 64-28 51
Tel.: +1 416 3 64-28 51
Fax: +1 416 3 61-11 63
Watkins Syndicate 457
Lloyd’s biggest marine insurer with an extensive
portfolio of solutions for accident and health,
liability, cargo, marine and logistics, offshore
energy, space flight, and yachts. The Watkins
Syndicate operates its own department for
terrorism risks.
www.watkins-syndicate.co.uk
Tel.: +44 20 78 86 39 00
[email protected]
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