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7/22/2015
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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
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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
$4,200,000,000New construction: IGCC generation excess placement
AEGIS lead 40% p/o 100%
2015 PHC
Kemper County Construction
AEGIS participates on builders risk program
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2015 PHC
Kemper County Construction
AEGIS participates on builders risk program
2015 PHC
• Notified officially early August that our builders risk carrier
was reducing limits October 1 due to increased values and PML /
MFL analysis
• Needed to replace or find excess capacity within a 60-day
window – mid-construction that was innovative technology
AEGIS Responded to Challenge
Aug 8
PML / MFL
provided to
AEGIS
Underwriter
Sept 9-11
Onsite
Inspection by
AEGIS Loss
Control
Sept 12
Notified of BR
Insurer’s intent
to lower limits
10/1
Oct 1
Excess program
bound
AEGIS/London
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2015 PHC
• AEGIS Loss Control Services responded – performed a
three-day inspection and review of our facility to determine PML /
MFL scenarios
– This was essential
• In determining amount of excess insurance needed
• For underwriters to become comfortable with the risk
– AEGIS Loss Control engineers
• Experienced in our industry and with gasification
technology
• Came prepared
AEGIS Loss Control Rose to the Challenge
2015 PHC
• AEGIS Underwriting responded – was able to evaluate risk, price
and underwrite the program within the short window
– Loss control report and MFL / PML assisted with underwriting
and pricing
– Came on mid construction
– Provided full $200 million capacity
• We were able to bind $500 million excess of $350 million
by October 1, 2014
AEGIS Underwriting Was Stellar in Their Response
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2015 PHC
Energy Construction: Risks and Capabilities
Brian M. MaddenS e n i o r P r o p e r t y U n d e r w r i t e r
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
• AEGIS can offer up to $200 million in capacity
– In addition, AEGIS capacity can be supplemented by
the consortium
• Consortium can provide additional $50 million in capacity
– AEGIS operates with NEIL, another Bermuda-based
industry mutual insurer, to provide this capacity
• Term length of Construction projects can vary
– AEGIS has the ability to write construction policies
with terms up to 60 months
Energy Construction: Risk and Capabilities
AEGIS Construction: capacity
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2015 PHC
• AEGIS provides All-Risk Onshore Property coverage for
construction risks
– Catastrophic (“CAT”) perils are each covered by a sublimit
to the policy aggregate
• Flood, named windstorm & earthquake perils
• Other major construction covers include: inland transit, hot
testing, offsite storage, and time element including delay in start-
up (“DSU”) and extra expense
• Additionally, terrorism coverage can be purchased with
construction policies
Energy Construction: Risk and Capabilities
AEGIS Construction: coverage provided
2015 PHC
• AEGIS writes Builder’s Risk / Construction policies for projects
that parallel the All-Risk Operational programs
– New generation projects: traditional & alternative
• Traditional: coal and gas
• Alternative: biomass, geothermal, solar and wind
– Rehabilitation: coal, gas, nuclear
– Facility upgrades: environmental (scrubbers)
– Natural gas: pipelines, compressor stations, meter stations
• Able to write projects for investor-owned, private, municipal and
cooperative energy and utility companies
Energy Construction: Risk and Capabilities
AEGIS Construction: types of projects underwritten
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2015 PHC
Energy Construction: Risk and Capabilities
Electric
(Integrated Co.)
45.6%
Gas / Electric
(Combined / Integrated Co.)
28.1%
Other
5.5%Gas Other
(Storage / Proc.)
2.7%
Unregulated
Electric Generation
14.7%
Business orientation of classified construction risks
Other
Alternative Fuel / Renewables
Electric Distribution Only
Gas Transmission
Only
3.4%
2015 PHC
• Construction risk premiums have accounted for approximately
6.0% of gross written premium in the Property department each
year since 2000
– 2006-2008 were historically the strongest, with AEGIS having
written about $15 million each year in construction premiums
– As a result of the changing utility environment and economy,
AEGIS has seen a dramatic decline in construction projects
• Overall, the loss history for the construction book of business has
been profitable over the past fifteen (15) years of coverage
Energy Construction: Risk and Capabilities
AEGIS IBM Cognos
AEGIS Construction: underwriting experience
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2015 PHC
• AEGIS Property continues to seek new construction risks in
the industry as prior results have proved favorable over the history
of the product
• AEGIS has decades of knowledge and expertize in Loss Control
and can provide highly beneficial engineering services to our
membership
• Furthermore, AEGIS employs numerous technical underwriters
to provide quotes, options and alternatives for your company
• We look forward to providing you with continued superior results
on all your current and future energy construction projects
Energy Construction: Risk and Capabilities
AEGIS Construction: looking ahead
2015 PHC
• Gary Ladman, Vice President
– [email protected], 201.508.2802
• Justen Byrne, Vice President
– [email protected], 201.508.2775
• Sheldon McCaman, Underwriting Officer
– [email protected], 201.508.2813
• Gary Hawk, Underwriting Officer
– [email protected], 201.508.2792
• Stephen Scovil, Underwriting Officer
– [email protected], 201.508.2847
• Brian Michael Madden, Senior Underwriter
– [email protected], 201.508.2869
Energy Construction: Risk and Capabilities
AEGIS Construction: Underwriter contacts
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2015 PHC
Energy Construction: Risks and Capabilities
Joshua M. FleischerV i c e P r e s i d e n t P r o p e r t y O p e r a t i o n s
A E G I S I n s u r a n c e S e r v i c e s
2015 PHC
To assist AEGIS member companies to maintain safe and effective
operating systems while reducing their overall long term cost
of risk by developing and providing products, services and training
programs specifically designed for this purpose
AEGIS Loss Control Mission Statement
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2015 PHC
Page 31
2015 PHC
• Property Loss Control staff
– Extensive experience in electric and gas utilities
– Average 30+ years experience
– Active in NFPA Committees (e.g. 850, 85,18, 18A)
– Active in industry organizations (e.g., Edison Electric
Institute Loss Control / Fire Protection Task Force, Society
of Fire Protection Engineers and American Society of
Mechanical Engineers)
– Presentations to industry organizations and conferences
• Doble, PowerGen, EPRI Steam Turbine / Generator
User Group
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Property Engineering Services
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2015 PHC
• Mr. Mark Boone
Manager, Corporate Risk Engineering
Dominion Resources Services, Inc.
• Mr. Stephen P. Ford
Manager, Corporate Security &
Risk Management
Mississippi Power Company
• Mr. Robert A. Green
Senior Consultant, Risk Management
PSEG Services Corporation
• Mr. John C. Mellette, ARM, CSP
Manager, Corporate Insurance
SCANA
• Ms. Sandy Meyers
Director, Risk Management
City Utilities of Springfield, MO
Property Engineering Services
AEGIS Loss Control Task force
• Mr. David S. Nalepka
Director - Insurance Services
Integrys Business Support, LLC
• Mr. John C. Norman
Manager, Insurance and Claims
Iberdrola USA Management Corporation
• Mr. Ronald D. Rispoli, CRM
Director Property Risk/Risk Engineering
Entergy Services
• Ms. Cindy Stevens
Insurance Risk Manager
Colorado Springs Utilities
• Mr. Karl Zimmel
Director, Risk Management
Tucson Electric Company
2015 PHC
• Risk assessments
– Conducted 582 risk assessments for electric & gas
operations in 2014
– Property, machinery, and builders risk
• Focused services
– Steam turbine water induction system evaluations
– Hydrogen system evaluations
– Transformer / electrical apparatus reviews
– Flood / storm surge evaluations
– MFL / PML evaluations study
– Boiler controls & safeguards evaluations
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Property Engineering Services
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2015 PHC
• Property risk assessments
– Risk reduction suggestions
• Prioritize suggestions based upon
severity and probability
• Develop loss expectancy prior, cost
to complete, loss expectancy after
for capital expenditure type
suggestions, if requested
– Special hazard reviews
– Review of loss control programs
– Water supply and fire protection
systems review
– Business interruption evaluations
Property Engineering Services
2015 PHC
• Machinery risk assessments
– Risk reduction suggestions
• Prioritize suggestions based upon
severity and probability
– Operational history and procedures review
– Maintenance program reviews
– Assessment of equipment condition,
operational controls and protective systems
– Machinery risk ranking
Property Engineering Services
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2015 PHC
• Builders risk assessments
– Pre-construction design consultations
– Risk reduction suggestions
• Prioritize suggestions based upon
severity and probability
– Plan reviews for water supplies and
fire protection systems
– Review of loss control programs
– Turnover and start-up procedures
Property Engineering Services
2015 PHC
• Additional focused services
– Insurance diagrams
– Hydraulic analysis sprinkler systems and water supplies
– Plan reviews for new construction or major renovation projects
– Water supply testing (e.g. fire pump testing)
– Combustion turbine technical consultation
• AEGIS liaisons with all major manufacturers
(e.g. GE, Siemens, MHI, Rolls Royce, Alstom, etc.)
– Webinars on select topics or issues
Page 38
Property Engineering Services
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2015 PHC
• Utility Machinery Seminar
– Hosted every two years
– Last seminar conducted in Pittsburgh (107 attended)
– Presentations on technical issues relating to critical equipment
– Presentations from member companies, vendors, and AEGIS
Loss Control
• Presentations available on AEGIS website
– Next Seminar will be in 2016 (location TBD)
Page 39
Property Engineering Services
2015 PHC
• Fire protection training course
– Held annually for the benefit of the
member companies
– Training at Liberty Mutual facility
• Wausau, WI in November, 2015
– Classroom and hands-on training
environment
– Topics include
• Power plant hazard identification
• Fire protection design concepts
• Fire pumps and water supplies
• Sprinkler systems
Page 40
Property Engineering Services
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2015 PHC
• ‘My Risk Assessment’ portal
– Track risk assessments schedules and report status
– View Risk Reduction Suggestions (RRS) and categorize by
• Type (i.e., machinery or property)
• Priority (priority 1 through 5)
• Asset and sub-asset
– Released in Spring 2015
• Ability for member to access their risk assessments
• Ability to upload documents, responses, and pictures
pertaining to RRS
Page 41
Property Engineering Services
2015 PHC
• Howard Somers
Vice President/Division Head
Loss Control
201.508.2734
• Scot Macomber
Vice President
Utility Operations
201.508.2739
• Tom V. Clark
National Property Supervisor
Property Operations
201.508.2755
AEGIS Loss Control
Questions?
Contacts
• Joshua Fleischer
Vice President
Property Operations
201.508.2637
• Juan Toribio
Manager
Property Operations
201.508.2722
• Jim Mintel
National Machinery Supervisor
Property Operations
201.508.2741
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2015 PHC