7/22/2015 1 2015 PHC Energy Construction: Risks and Capabilities Gary Ladman Vice President – Property Underwriting AEGIS Insurance Services, Inc. 2015 PHC Energy Construction: Risks and Capabilities Stuart Adam Senior Vice President McGriff, Seibels &Williams
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7/22/2015
1
2015 PHC
Energy Construction: Risks and Capabilities
Gary LadmanV i c e P r e s i d e n t – P r o p e r t y U n d e r w r i t i n g
A E G I S I n s u r a n c e S e r v i c e s , I n c .
2015 PHC
Energy Construction: Risks and Capabilities
Stuart AdamS e n i o r V i c e P r e s i d e n t
M c G r i f f , S e i b e l s & W i l l i a m s
7/22/2015
2
2015 PHC
• Significant up tick in activity over past 12-18 months across
a diverse spectrum of the energy space
– Regulated utilities (Rate Base)
– Midstream; pipelines, processing and storage companies
(tariff and / or contracted revenue base)
– Independent power producers (PPA, ISO capacity market,
creative hedges)
– Renewables-predominantly PV solar (PPA, subsidized)
Construction Activity 2014-2015
2015 PHC
• PV Solar (2 MW - 250 MW’s)
• Greenfield and expansion of gas processing facilities
• Compression / pump facilities for pipelines (heavy HDD demand
but limited demand on underground pipe)
• Oil storage (predominantly Midwest region)
• Repowering of coal plants with gas turbines
• Deep water floating spars (more limited based on size and scope)
• Greenfield natural gas power plants (mostly quick response units
but some traditional plants based on PPA/ISO)
• Coastal LNG (emerging activity)
Builder’s Risk-Sample Project Activity 2014-2015
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2015 PHC
Builder’s Risk Insurance Marketplace
Limited #
of large
projects
Ample
capacity
Low
losses
• Total worldwide power generation
capacity at all time high of $3 billion+ on
a PML basis
• Favorable five-year industry loss history
• Year-over-year rate reduction trend
for last five years
• Fierce underwriter competition for
desirable projects based on market’s
growth budgets and abundant capacity
• CAT exposure is the largest premium
driver for projects in CAT Zone 2
or greater
2015 PHC
• Significant pressure on terms and conditions from lender’s
consultants (financed projects)
• Pressure from EPC contractor to place insurance rather than owner
– Control (financing / DSU) and cost concern that is best
managed with an “open book” approach and addressing
the interests of each stakeholder. Market can accommodate
extra expense, professional fees and demolition which are
typical concerns of contractor.
Construction Trends
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2015 PHC
• Capacity is growing but lead market capacity remains fairly
consistent
• Market cautious on certain technologies (deductible and
rate impact)
– GE LMS100 / GE 7FA.05
– Siemens SGT-8000H / Siemens SGT6-5000F
• Owners evaluating CIP approach to manage casualty exposures
associated with large projects (usually a minimum of $100 million
hard costs required)
Construction Trends
2015 PHC
• A centralized insurance program under which one party procures
insurance on behalf of all parties performing work on a
construction project
• A CIP may be sponsored and paid for by either the owner or the
construction manager / general contractor:
• In some instances, the owner and construction manager /
general contractor will share in program sponsorship and potential
risk rewards
CIP Evaluation
What is a CIP?
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2015 PHC
• Coverages typically offered in a CIP can vary and may include
– Workers' Compensation and Employers Liability
– Commercial General Liability
– Umbrella / Excess Liability
– Architects and Engineers Errors & Omissions Liability
(sometimes)
– Environment Liability (sometimes)
CIP Evaluation
2015 PHC
• Broader coverage for owner and contractors – Owner is able to
arrange coverage that is often superior to that available to a
contractor purchasing coverage individually
• Uniformity of coverage – One policy form vs. varying policy
forms across all the contractors and subcontractors policies
• Dedicated limits – Specific limit for the project vs. potential for
eroded aggregate limits on contractors and subcontractors policies
• Insurer stability – The owner controls financial rating chosen for
program and has a limited number of carriers to track
Advertised Advantages of CIP
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2015 PHC
• Coverage disputes, litigation and subrogation – All eligible participants insured
under a single insurance program, reducing the potential for litigation and
disagreement between participants
• Enhanced risk management, safety and loss control – Provides a unified risk
control and safety program for all participants
• Open bidding to disadvantaged firms – Stringent insurance requirements that
might eliminate disadvantaged business enterprises from the bidding process are
removed
• Claims management – Individual contractors may not have return-to-work
programs, modified duty programs, effective medical bill reviews, on-site first
aid or other attributes that can greatly reduce claims costs. A CIP provides
enhanced claims management techniques to all participants
• Cost Savings – Loss sensitive program of CIP is more economic if loss activity
is favorable
Advertised Advantages of CIP
2015 PHC
• Know what you are getting into!
Advertised Advantages of CIP
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2015 PHC
Energy Construction: Risks and Capabilities
Deborah Gaffney, CPCU, ARMD i r e c t o r , R i s k M a n a g e m e n t
S o u t h e r n C o m p a n y
2015 PHC
• Mutual difference
• Large block of capacity
• Ability to tailor policy language
• Loss control services
• Claims handling
Builder’s Risk / AEGIS and Southern Company
Partnership
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2015 PHC
Southern / AEGIS Builders Risk Placements
Size of Project Description
$1,200,000,000New construction: gas generation –
AEGIS quota-share (QS) participant 18.5% p/o 100%
$ 250,000,000
New construction: gas generation
AEGIS Lead 80% QS placement $200 million p/o
$250 million
$ 96,500,000 New construction: gas pipeline – 100% AEGIS