-
ALESCO NEWSISSUE 6 – JUNE 2016
NO CHALLENGE TOO GREATUSING ALTERNATIVE RISK TRANSFER FOR
EXPOSURES THE TRADITIONAL MARKETS CANNOT ADDRESS
THIS ISSUERENEWABLE ENERGYMarket overview and developments
LOSS UPDATELatest losses in the energy market
LLOYD’S STATSOverview of the Lloyd’s annual review
KNOWING WHAT MATTERSA global insurance programme case study
FOCUS ON AFRICA Latest developments in the region
-
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
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
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.
WELCOME TO
ALESCO NEWS
AN INTERVIEW WITH…
2
ALESCO NEWS
-
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
ISSUE 6 JUNE 2016
“
”
-
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.
EXPANDING OUR RENEWABLES OFFERING
4
ALESCO NEWS
RENEWABLE ENERGY MARKET OVERVIEWAuthor: Murray Haynes and John
Abraham
Market Characteristics (Onshore)
• Majority of commercial assets valued in $ 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
Market Characteristics (Offshore)
• Majority of commercial assets valued in $ hundreds million /
max. $ 2.5 billion
• 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
Market Developments
• Warren Diogo (Senior Underwriter) leaving Ascot Renewco –
destination not disclosed
• 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)
-
Upstream $196 million Loss activity for the first five months of
the year has been relatively low with only six reported claims over
the $10m mark.
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.
Downstream$211 millionAs 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.
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.
Power$644 millionTotal 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.
5
ISSUE 6 JUNE 2016
Downstream172,350,000
Grand Total
$311,689,760
Power96,900,000
Upstream42,439,760
55% 31% 14%
30%
Downstream31,300,000
Grand Total
$573,394,000
Power536,144,000
Upstream5,950,000
94% 1%
55%
Downstream
Grand Total
$58,000,000
Power3,000,000
Upstream55,000,000
0% 5% 95%
5%
Downstream
Grand Total
$82,000,000
Power
Upstream82,000,000
0% 0% 100%
8%
Downstream7,300,000
Grand Total
$25,140,000
Power7,540,000
Upstream10,300,000
29% 30% 41%
2%
5%
NORTH AMERICA
EUROPE
MIDDLE EAST
ASIA PACIFICSOUTH & CENTRAL AMERICA
LOSS UPDATE Author: Ronan Barrett
-
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
1998-2001.
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’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)
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.
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.
OIL UPDATE Author: Derek Thrumble
6
ALESCO NEWS
STATISTICS AT LLOYD’S Author: Derek Thrumble
-
• 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 conclusionThis 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 1816E: [email protected]
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.
KNOWING WHAT MATTERS Author: Neil Stewart
7
ISSUE 6 JUNE 2016
mailto:neil_stewart%40alescorms.com?subject=
-
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-management- services
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 FORUMOnce 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.
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.
FOCUS ON AFRICA Author: Bob Lock and Henry Croft-Baker
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.
SIMON MATSON T: +44 (0)20 7204 1814 E:
[email protected]
MARTIN EMKES T: +44 (0)20 7204 1815 E:
[email protected]
RONAN BARRETT T: +44 (0)20 7560 3084 E:
[email protected]
MURRAY HAYNES T: +44 (0) 20 7234 4221 E:
[email protected]
JOHN ABRAHAM T: +44 (0)20 7204 1843 E:
[email protected]
NEIL STEWART T: +44 (0)20 7204 1816 E:
[email protected]
DEREK THRUMBLE T: +44 (0)20 7204 8575 E:
[email protected]
BOB LOCK T: +44 (0)20 7204 1824 E: [email protected]
HENRY CROFT-BAKER T: +44 (0)20 7204 6191 E:
[email protected]
CONTACTS
http://www.alescorms.comhttp://twitter.com/AlescoRMShttps://www.linkedin.com/company/2208442?trk=tyah&trkInfo=clickedVertical%3Acompany%2Cidx%3A1-1-1%2CtarId%3A1430305063336%2Ctas%3Aalesco-risk-management-servicehttps://www.linkedin.com/company/2208442?trk=tyah&trkInfo=clickedVertical%3Acompany%2Cidx%3A1-1-1%2CtarId%3A1430305063336%2Ctas%3Aalesco-risk-management-servicehttps://www.linkedin.com/company/2208442?trk=tyah&trkInfo=clickedVertical%3Acompany%2Cidx%3A1-1-1%2CtarId%3A1430305063336%2Ctas%3Aalesco-risk-management-servicemailto:simon_matson%40alescorms.com?subject=mailto:ronan_barrett%40alescorms.com?subject=mailto:neil_stewart%40alescorms.com?subject=mailto:neil_stewart%40alescorms.com?subject=
