University of Houston Energy Case Study

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University of HoustonEnergy Case Study

Steven P. Weiss, CPCU, AMIM, NAMS-CMS

Vice President, Marine Engineering, Latin America and Project Cargo


What are we going to do?• What is Risk Management • What is risk financing• What is the insurance industry and how does that

play with Risk Management• How do the insurance players all interact• Who are the major players• Take a submission from cradle to grave


What is Risk Management• The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk Assumption, risk avoidance, risk retention, risk transfer, or any other strategy or combination of strategies in proper management of future events.

• Enterprise risk management is a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.


How is this done?•There are five steps

– The identification and analyses of loss exposures– Examination of the feasibility of Alternative Risk

management Techniques– Selection of the best risk management techniques– Implementation of the techniques– Continual monitoring of the program


The identification and analyses of loss exposures•What are the exposures?–First Party–Third Party–Financial–Employee


The identification and analyses of loss exposures (cont)•First Party–Own Property


The identification and analyses of loss exposures (cont)•Third Party–Contractual–Personal Injury–Property Damage (others)


The identification and analyses of loss exposures (cont)•Financial–Business Interruption–Delay in Start Up–Self Insured Retentions–Deductible


The identification and analyses of loss exposures (cont)•Employee

–Workers Comp–Jones Act–Longshore and Harbor Workers


Examine feasibility of Alternative Risk Management Techniques• Contracts to transfer risk• Training of Employees• Engineering solutions• Exit lines of business• Contractors• Insurance


Selection of the best Risk management techniques• In the present situation, what works best?

– Probably some combination of the above


Implementation of the techniques• Get the contracts signed• Engineer and install the solutions• Exit/sell lines of Business• Find the proper contractors• Purchase the Insurance


Risk Financing• What is Risk Financing• Where do you get it?

– Deductibles/Self Insured Retentions– Mutual Agreements– Cash flow– Insurance


Insurance Flow

Insured

Broker/Agent

Wholesale Broker

Underwriter

ReinsurerReinsurance

Broker


Assured/Insured• The Assured/Insured is the purchaser of the insurance• Normally through Broker or Agent• Pays Commission or fee for services to Broker• Pays premium to Underwriter


Broker/Agent• One who for commission or fee, brings parties together and assists in negotiating contracts between them

• Representative of the Assured• Receives Fee for service from Assured or commission from Underwriter– Broker works for the Insured– Agent can be the Insurance Company agent

• Many are very well trained and knowledgeable• Also know as the Retail Broker/Agent


Wholesale Broker• Intermediary between retail Broker/Agent and Underwriters if the B/A does not have the proper market

• Normally commission paid by Underwriter• Represents the Insured sort of as well as the retail broker


Underwriter• Reviews the risk as presented by the broker• If the risk is within appetite then assumes the risk for the loss of life, property or finances of another

• Pays commission to the Broker if agreed up front• Pays Claims is covered by the Insurance Contract• Often for Commercial Insurers has staff Risk Engineering/Loss Control to increase the qquality of the risk if necessary


Reinsurance Broker• One who for commission or fee, brings parties together and assists in negotiating contracts between them

• Places insurance for insurance companies• Normally commission paid by reinsurer• Allows the Insurance Company to have a greater capacity (treaty) or for the Insurance Company to share the risk of an aspect of the risk they are not keen on or to increase their capacity for a particular risk (facultative)


Reinsurer• Insurers who insure other Insurance companies• Pay commission to Reinsurance Broker• Often pay override to the ceding insurer• Allows insurance companies to manager and spread their risk

• Many insurance companies also do Reinsurance and vice versa


Insurance Industry

Insured

Broker/Agent

Insurance Company

Reinsurance Company

Insurance Company

Broker/Agent


TOP TEN GLOBAL PROPERTY/CASUALTY INSURANCE COMPANIES BY REVENUES, 2010 (1) ($ millions)

Rank Company Revenues (2) Country1 Berkshire Hathaway $136,185 U.S.

2 Allianz 127,379 Germany

3 American International Group 104,417 U.S.

4 Munich Re Group 76,220 Germany5 Zurich Financial Services 67,850 Switzerland

6 State Farm Insurance Cos. 63,177 U.S.

7 MS&AD Insurance Group Holdings 39,754 Japan

8 Tokio Marine Holdings 38,396 Japan

9 Liberty Mutual Insurance Group 33,193 U.S.

10 People's Insurance Co. of China 32,579 China

(1) Based on an analysis of companies in the Global Fortune 500. Includes stock and mutual companies. (2) Revenues include premium and annuity income, investment income and capital gains or losses, but excludes deposits; includes consolidated subsidiaries, excludes excise taxes.

Source: Fortune./Insurance Information institute


TOP TEN US WRITERS OF PROPERTY/CASUALTY INSURANCE BY DIRECT PREMIUMS WRITTEN, 2010 ($000)

Rank Group Direct premiums written (1) Market share (2)

1 State Farm Mutual Automobile Insurance $52,378,166 10.9%

2 Zurich Financial Services Ltd. 27,442,024 5.7

3 Allstate Corp. 25,863,277 5.4

4 American International Group 25,569,346 5.3

5 Liberty Mutual Holding Co. 25,318,187 5.3

6 Travelers Cos. 21,541,289 4.5

7 Berkshire Hathaway Inc. 16,560,344 3.4

8 Nationwide Mutual Group 14,875,572 3.1

9 Progressive Corp. 14,699,901 3.1

10 USAA Insurance Group 11,235,772 2.3

(1) Before reinsurance transactions.(2) Based on U.S. total including territories.

Source: SNL Financial LC./Insurance Information Institute


PERCENT CHANGE FROM PRIOR YEAR, NET PREMIUMS WRITTEN, P/C INSURANCE, 1975-2010 (1)

From Insurance Information Institute


The path of a submission

Choosing a Broker

PreparationOf a

submission

Market Presentation

Submission of

Quotes

Binding of a Project

Project Life

Completion

Genesis of a Project


Issues for 2012• Numbers presented are all 2010 – numbers are not yet available for 2011

• 105 billion in Global Catastrophic insured losses in 2011– Japan, Thailand, New Zealand, Australia, severe weather

US and Europe• Potentially the largest insured marine loss January 2012– Costa Concordia

• 16 confirmed dead, at least 20 missing• Removing the oil


Here is what we discussed• What is Risk Management • What is risk financing• What is the insurance industry and how does that play with Risk Management

• How do the insurance players all interact• Who are the major players• Take a submission from cradle to grave


Other Resources• http://www.iii.org/• http://www.aicpcu.org/• http://www.libertymutual.com

http://www.iii.org/

http://www.aicpcu.org/

http://www.libertymutual.com/


Financial Highlights Liberty• Liberty Mutual 2010 Worldwide Revenue of $33.2 Billion up from $31.1 Billion in 2009

• Statutory Surplus - $17.B (17.0% increase)

• Total Assets – Over US$112.4 billion

• World-class Fortune 100 (# 82) financial standing1.AM Best – A (Excellent)2.Moody’s – A2 (Good)3.Standard & Poor’s – A- (Strong) - Positive


Do you• Have any questions?

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University of Houston Energy Case Study

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