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BIGINTERVIEWwww.insuranceday.com| Tuesday 27 November 2012

Akeyissueforthemarket is thedevelopmentoffoundationsystemsthatareresistantto liquefaction, theprocesswhereby,afteranearthquake, thewatertablerisesandreducesthegroundtoasoftsludge

Robert Walton has 22 years’ experience of producing and placingconstruction and engineering insurance in the UK andinternational markets. He has handled many projects in the MiddleEast and south-east Asia, ranging from civil engineering, mining,oil and gas and petrochemical to major railways, airports andhighway projects. He has also worked on some of the largest road,infrastructure and tunnel projects in the UK and US.

Walton started his career at Alexander Howden, which becameAon, where he was a director of the international and constructionteam, with a particular focus on the Middle East and south-eastAsia. After 10 years at Aon, Walton joined Arthur J Gallagher toestablish a construction and engineering team.

RobertWalton CV

Rasaad JamieGlobal markets editor

U p until 18 months ago,there was very littleneed for the Londoninsurance market to be

involved in the underwriting ofproperty and construction risks inNew Zealand. To begin with, thelocal building structures and theirassociated exposures would (withvery few exceptions) not havebeen perceived to be of a size thatwould have required the domesticinsurance market to seek addi-tional capacity outside the greaterAustralasia region, where anumber of major insurancegroups such as Insurance Aus-tralia Group, QBE and SuncorpMetway are headquartered.

But that perception is changing,according to Robert Walton, adirector in the international realestate and construction team ofLondon market broker Lockton.Walton says the earthquakes inChristchurch were of a magnitudethathad notbeenseenintheregionin nearly 2,000 years. “Christ-church was not considered to be acat zone and insurance businessvery much stayed in the local mar-ket. Other than some reinsurancetreatyarrangements, therewasnotmuch need for additional supportfrom the London market. That willobviously change becauseChristchurch is now firmly on themap as being an area that is subjectto cat events.”

Early daysIt is early days yet, but one indica-tion of this change in thinking wasthe visit last month to the Londoninsurance market from represent-atives of the Canterbury Earth-quake Recovery Authority (Cera)and the Christchurch CentralDevelopment Unit (CCDU). BothCera and the CCDU made presenta-tionsontheprogressandobjectives

of the reconstruction programmeto close to 150 insurance executivesat a symposium held at Lloyd’s. Thevisit was arranged by Lockton andThornton Tomasetti, a US-basedstructural engineering design andconsulting firm. ThorntonTomasetti is responsible for thedesign of some of the tallest build-ings in the world, including the Pet-ronas Towers in Kuala Lumpur.The firm also made a presentationtotheLondoninsurancemarket.

Cera was created by an act ofparliament (the Canterbury Earth-quake Recovery Act) to take chargeof the reconstruction of Christ-church. As a reflection of the enor-mity of this particular task, Cerahas been endowed with significantpowers, including the ability torelax, extend or suspend laws andregulations and the compulsoryacquisition of property if it isdeemed necessary to assist therebuilding process. A key object ofthe latter power is to take advan-tage of the opportunity to trans-form Christchurch into a green citywith building structures that sus-tain the environment. ThorntonTomasetti is similarly focused onsustainable design and construc-tion practices.

According to Walton, when hevisited New Zealand in January tomeet Cera, Thornton Tomasettiwas engaged in a separate conver-sation with the authority. “So, atthe same time we were meetingCera, it were also meeting withThornton Tomasetti. But we putour heads together and said if Cerawere to come to London, could wefacilitate a meeting with the Lon-don market? But the visit waslargely prompted by Cera and,equally, therewasaninterest intheLondon market to meet Cera.”

Economic regenerationThe CCDU is a unit within Cerafocused on the business and eco-nomic regeneration of Christch-urch. It has studied a number ofinternational examples of the suc-cessful redevelopment and reju-

venation of business districtsincluding the Beirut Central Dis-trict, the London Docklands andthe development of lower Manhat-tan. While it manages the tender-ing and procurement process forthe big public sector “anchor”projects, which include a conven-tion centre and a sports stadium,another important part of theCCDU’s remit is to persuade localand overseas sources of capital ofthe benefits of investing in thereconstruction of the city. Accord-ing to Walton, accessing insurancecover is one of the key elements inthis process.

“In terms of the covering mar-kets, Cera and the CCDU realiseLondon has a huge role to play and

that is the reason why they visitedthe market last month. Obviously,they are interested in whatevercapacity the New Zealand and Aus-tralian markets can provide, butmuch like when there is a cat eventanywhere around the world, thelocal market takes on the heavyburden of those losses. What thentends to happen is the London mar-ket is asked to step in and extend itscat capacity to that region. Com-monly, the local market will tend tostep back to take stock of their posi-tion. So, in that interim period, it isquite common for the London mar-ket and the European reinsurers tostep in.”

David Hayhow, also a director inLockton’s Real Estate & Construc-

WaltononThe role of London marketcatastrophe capacity“Intermsofthecoveringmarkets,CeraandtheCCDUrealiseLondonhasahugeroletoplayandthat isthereasonwhytheyvisitedthemarket lastmonth.Obviously,theyareinterestedinwhatevercapacitytheNewZealandandAustralianmarketscanprovide,butmuchlikewhenthereisacateventanywherearoundtheworld, thelocalmarkettakesontheheavyburdenofthoselosses.WhatthentendstohappenistheLondonmarket isaskedtostepinandextenditscatcapacitytothatregion.”

Theaggregationissue“Atonetime,whentheyweretalkingaboutthereconstructionofcloseto600buildings, themarketworriedaboutaggregateissuesoncethefirst fewprojectsstartedtocomethrough.Buttherealityofthathasbeenquitetheopposite.Theseprojectshavenotyetcomethroughandhenceaggregationissuesarenotreallyaconcernrightnow.Butweareexpectingthemtocomethroughandoncewestart theprocessofinsuringthoserisksintheLondonmarket,weneedtoseehowtheaggregationsevolveandwhetherweneedtolookatothersolutions.But,rightnow,it isverymuchthecalmbeforethestorm.Butthathasbeenthesituationforthepast12months.”

process in Christchurch’‘There is an insurance solution tomany of the challenges faced by the reconstruction

tion division, agrees the role of theLondon market is often to providecapacity in situations where thelocal markets have withdrawn. Heanticipates over the next five to 10years there will be more of a blendbetween London market and localor regional insurance capacity. “Itmight be a case of two differentmarkets sharing on a large risk oryou may find the London market ismore active in providing reinsur-ance to some of the local Australianand New Zealand carriers,” Hay-how says.

Walton says the local insurancemarketinNewZealandhasbrusheditself down and started to return tothe table. The key question iswhether all of the business will sub-sequently gravitateback tothe localmarket or whether a proportion ofthat business will always stay in theLondon market. “It is our beliefbased on other similar cat-exposedareas around the world that will bethe case. The situation will evolveover time but there will certainly beabigemphasisonthecatissue.”

Slow progressHowever, Walton points out whilethat is the likely trend, it very diffi-cult tocomeupwithamoredefiniteprediction. This is mainly becausea lot of the development due to takeplace has not really started yet. Asthings stand, construction activityis due to take place over the nextfive to 10 years.

Walton sees the Christchurchreconstruction as a unique oppor-tunity for both Lockton’s interna-tional property and constructionteam, as well as for the Londonmarket as a whole, even thoughNew Zealand is not a significantmarket for either at present. Interms of its presence in the region,Lockton has offices in Sydney andin Perth. It also has a broker part-ner in New Zealand with which itworks on a wholesale basis.

“We are a specialist constructiondivision and we know the needs ofthe local market. We know whatthe local property owners, devel-opers and contractors require so,for us, we see a tremendous oppor-tunity.Weareveryflexibleandcanturn things around fairly quickly.In January of this year, I was inChristchurch meeting contractorsand developers who are very com-fortable talking directly to us in theLondon market. They want to findthe most efficient route to market.”

New building codesWhile investors will have to trans-form their business models toaccommodate the increased costsimposed by the new buildingcodes, the codes themselves pro-vide a high level of comfort forinsurers and reinsurers. Waltonsays: “You have to bear in mindmany of the buildings in Christ-church have been erected over thepast 50 to 60 years. None of thosebuildings were built to withstandearthquakes. They stood on shal-low raft foundations. Very fewbuildings has foundations thatwere piled. But the situation infuture will be very differentbecause the foundations will needto be strong enough to withstandan anticipated earthquake orground tremor, so the insurancemarket will be writing buildingsthat are more adequately pro-tected. The point is they will bewriting that business using theircat capacity, which will be ratedaccordingly. But there has been acomplete revision of buildingstandards in Christchurch.”

A central issue for the market isthe development of foundationsystems that are resistant to lique-faction: the process whereby afteran earthquake the water tablerises and reduces the ground to asoft sludge. “This is not unusual. Ithappens all around the world afteran earthquake. The insurancemarket is used to insuring build-ings that have been damaged byearthquakes and then repaired toa point where they are a viable

property risk. But whether it is aremedial project or a newbuild,the construction insurance mar-ket wants to understand what isbeing done to strengthen thosebuildings or, if it is a new building,what is being built into the designto allow them to withstand anearthquake. It has to be demon-stratedtothemarket thenewfoun-dation system is suitable forliquefaction. This usually involvesstabilising the foundation with 30-metre screwed piles.”

Ironically, one of the Londonmarket’s initial reservations aboutgetting involved in the provision ofcapacity to the reconstruction wasthe difficulty of limiting the aggre-gation of exposure. “At one time,when they were talking about thereconstruction of close to 600buildings, the market worriedabout aggregate issues once thefirst few projects started to comethrough. But the reality of that hasbeen quite the opposite. Theseprojects have not yet comethrough and hence aggregationissues are not really a concernright now. But we are expectingthem to come through and once westart the process of insuring thoserisks in the London market, weneed to see how the aggregationsevolve and whether we need tolook at other solutions. But, rightnow, it is very much the calmbefore the storm.”

InterestIndeed, Lockton’s involvement infacilitating Cera and the CCDU’s

visit to London last month was inpart an attempt, according to Wal-ton, to muster some interest andenthusiasm on the part of the Lon-don market in the reconstructionof Christchurch. “The rebuild hasnot happened as quickly as every-body thought or hoped it might.The construction market is readyto receive the business but, quitefrankly, the business has not comeout fast enough and we under-stand the reasons for that.” This,Walton says, has pretty much beenthe situation for the past 12months. He cites the reasons forthe slow progress as the new build-ing codes, the global economicdownturn, which means it is notthat easy for developers to accessfinance, and the slow pace of set-tling the February 2011 earth-quake claims.

According to Walton, theinvolvement of the insuranceindustry is critical, particularlywhen it comes to generatingfinancial support for the recon-struction. Walton has had conver-sation with local banks in theregion and the indications arethey would only be prepared tolend money to developers wheninsurers deem it acceptable toinsure the risks. Investors are fur-ther deterred by the new buildingcodes. For example, the newrestrictions on the height of build-ing structures mean fewer ten-ants to provide a return on theirinvestment for developers orlandlords. “This, together, withthe much more expensive founda-

tion systems makes it less attrac-tive as a proposition.”

Walton says Cera and the CCDUsimilarly attach a great deal ofimportance to the role of the insur-ance sector in the reconstruction.“They take a view on insurancebecauseit iscrucial totherebuildofChristchurch and they areundoubtedly having the samequestions asked of them withregard to what the outside world isdoing to respond to the reconstruc-tion from an insurance standpoint.Their visit to London was verymuchafact-findingmission, tofindout what the market thinks.Equally, it gave us the opportunityto put the London insurance mar-ket infrontof themtoaskquestionsof Cera and also to ask questionsabout what is happening on theground in Christchurch.”

He says Lockton’s involvementin arranging Cera and the CCDU’svisit to London was first to raise thefirm’s profile in the New Zealandmarket. “We want to demonstratewe are able to come in and providethem with a solution, given the lackof capacity in the local market. Wedon’t expect Cera to make any rec-ommendations with regard to aninsurance broker – that is not itsremit. It is,however, interestingforus to hear about the latest develop-ments from Cera’s point of view.But we definitely want Lockton tobe seen as a creditable firm that isable to come up with an insurancesolution to many of the challengesfaced by the reconstruction proc-ess in Christchurch.”n

ShippingcontainersusedasmakeshiftbuildingsincentralChristchurch

NigelSpiers/Shutterstock.com

5www.insuranceday.com| Tuesday 27 November 2012

tion division, agrees the role of theLondon market is often to providecapacity in situations where thelocal markets have withdrawn. Heanticipates over the next five to 10years there will be more of a blendbetween London market and localor regional insurance capacity. “Itmight be a case of two differentmarkets sharing on a large risk oryou may find the London market ismore active in providing reinsur-ance to some of the local Australianand New Zealand carriers,” Hay-how says.

Walton says the local insurancemarketinNewZealandhasbrusheditself down and started to return tothe table. The key question iswhether all of the business will sub-sequently gravitateback tothe localmarket or whether a proportion ofthat business will always stay in theLondon market. “It is our beliefbased on other similar cat-exposedareas around the world that will bethe case. The situation will evolveover time but there will certainly beabigemphasisonthecatissue.”

Slow progressHowever, Walton points out whilethat is the likely trend, it very diffi-cult tocomeupwithamoredefiniteprediction. This is mainly becausea lot of the development due to takeplace has not really started yet. Asthings stand, construction activityis due to take place over the nextfive to 10 years.

Walton sees the Christchurchreconstruction as a unique oppor-tunity for both Lockton’s interna-tional property and constructionteam, as well as for the Londonmarket as a whole, even thoughNew Zealand is not a significantmarket for either at present. Interms of its presence in the region,Lockton has offices in Sydney andin Perth. It also has a broker part-ner in New Zealand with which itworks on a wholesale basis.

“We are a specialist constructiondivision and we know the needs ofthe local market. We know whatthe local property owners, devel-opers and contractors require so,for us, we see a tremendous oppor-tunity.Weareveryflexibleandcanturn things around fairly quickly.In January of this year, I was inChristchurch meeting contractorsand developers who are very com-fortable talking directly to us in theLondon market. They want to findthe most efficient route to market.”

New building codesWhile investors will have to trans-form their business models toaccommodate the increased costsimposed by the new buildingcodes, the codes themselves pro-vide a high level of comfort forinsurers and reinsurers. Waltonsays: “You have to bear in mindmany of the buildings in Christ-church have been erected over thepast 50 to 60 years. None of thosebuildings were built to withstandearthquakes. They stood on shal-low raft foundations. Very fewbuildings has foundations thatwere piled. But the situation infuture will be very differentbecause the foundations will needto be strong enough to withstandan anticipated earthquake orground tremor, so the insurancemarket will be writing buildingsthat are more adequately pro-tected. The point is they will bewriting that business using theircat capacity, which will be ratedaccordingly. But there has been acomplete revision of buildingstandards in Christchurch.”

A central issue for the market isthe development of foundationsystems that are resistant to lique-faction: the process whereby afteran earthquake the water tablerises and reduces the ground to asoft sludge. “This is not unusual. Ithappens all around the world afteran earthquake. The insurancemarket is used to insuring build-ings that have been damaged byearthquakes and then repaired toa point where they are a viable

property risk. But whether it is aremedial project or a newbuild,the construction insurance mar-ket wants to understand what isbeing done to strengthen thosebuildings or, if it is a new building,what is being built into the designto allow them to withstand anearthquake. It has to be demon-stratedtothemarket thenewfoun-dation system is suitable forliquefaction. This usually involvesstabilising the foundation with 30-metre screwed piles.”

Ironically, one of the Londonmarket’s initial reservations aboutgetting involved in the provision ofcapacity to the reconstruction wasthe difficulty of limiting the aggre-gation of exposure. “At one time,when they were talking about thereconstruction of close to 600buildings, the market worriedabout aggregate issues once thefirst few projects started to comethrough. But the reality of that hasbeen quite the opposite. Theseprojects have not yet comethrough and hence aggregationissues are not really a concernright now. But we are expectingthem to come through and once westart the process of insuring thoserisks in the London market, weneed to see how the aggregationsevolve and whether we need tolook at other solutions. But, rightnow, it is very much the calmbefore the storm.”

InterestIndeed, Lockton’s involvement infacilitating Cera and the CCDU’s

visit to London last month was inpart an attempt, according to Wal-ton, to muster some interest andenthusiasm on the part of the Lon-don market in the reconstructionof Christchurch. “The rebuild hasnot happened as quickly as every-body thought or hoped it might.The construction market is readyto receive the business but, quitefrankly, the business has not comeout fast enough and we under-stand the reasons for that.” This,Walton says, has pretty much beenthe situation for the past 12months. He cites the reasons forthe slow progress as the new build-ing codes, the global economicdownturn, which means it is notthat easy for developers to accessfinance, and the slow pace of set-tling the February 2011 earth-quake claims.

According to Walton, theinvolvement of the insuranceindustry is critical, particularlywhen it comes to generatingfinancial support for the recon-struction. Walton has had conver-sation with local banks in theregion and the indications arethey would only be prepared tolend money to developers wheninsurers deem it acceptable toinsure the risks. Investors are fur-ther deterred by the new buildingcodes. For example, the newrestrictions on the height of build-ing structures mean fewer ten-ants to provide a return on theirinvestment for developers orlandlords. “This, together, withthe much more expensive founda-

tion systems makes it less attrac-tive as a proposition.”

Walton says Cera and the CCDUsimilarly attach a great deal ofimportance to the role of the insur-ance sector in the reconstruction.“They take a view on insurancebecauseit iscrucial totherebuildofChristchurch and they areundoubtedly having the samequestions asked of them withregard to what the outside world isdoing to respond to the reconstruc-tion from an insurance standpoint.Their visit to London was verymuchafact-findingmission, tofindout what the market thinks.Equally, it gave us the opportunityto put the London insurance mar-ket infrontof themtoaskquestionsof Cera and also to ask questionsabout what is happening on theground in Christchurch.”

He says Lockton’s involvementin arranging Cera and the CCDU’svisit to London was first to raise thefirm’s profile in the New Zealandmarket. “We want to demonstratewe are able to come in and providethem with a solution, given the lackof capacity in the local market. Wedon’t expect Cera to make any rec-ommendations with regard to aninsurance broker – that is not itsremit. It is,however, interestingforus to hear about the latest develop-ments from Cera’s point of view.But we definitely want Lockton tobe seen as a creditable firm that isable to come up with an insurancesolution to many of the challengesfaced by the reconstruction proc-ess in Christchurch.”n

ShippingcontainersusedasmakeshiftbuildingsincentralChristchurch

NigelSpiers/Shutterstock.com

Akeyissueforthemarket is thedevelopmentoffoundationsystemsthatareresistantto liquefaction, theprocesswhereby,afteranearthquake, thewatertablerisesandreducesthegroundtoasoftsludge

Robert Walton has 22 years’ experience of producing and placingconstruction and engineering insurance in the UK andinternational markets. He has handled many projects in the MiddleEast and south-east Asia, ranging from civil engineering, mining,oil and gas and petrochemical to major railways, airports andhighway projects. He has also worked on some of the largest road,infrastructure and tunnel projects in the UK and US.

Walton started his career at Alexander Howden, which becameAon, where he was a director of the international and constructionteam, with a particular focus on the Middle East and south-eastAsia. After 10 years at Aon, Walton joined Arthur J Gallagher toestablish a construction and engineering team.

RobertWalton CV

Rasaad JamieGlobal markets editor

U p until 18 months ago,there was very littleneed for the Londoninsurance market to be

involved in the underwriting ofproperty and construction risks inNew Zealand. To begin with, thelocal building structures and theirassociated exposures would (withvery few exceptions) not havebeen perceived to be of a size thatwould have required the domesticinsurance market to seek addi-tional capacity outside the greaterAustralasia region, where anumber of major insurancegroups such as Insurance Aus-tralia Group, QBE and SuncorpMetway are headquartered.

But that perception is changing,according to Robert Walton, adirector in the international realestate and construction team ofLondon market broker Lockton.Walton says the earthquakes inChristchurch were of a magnitudethathad notbeenseenintheregionin nearly 2,000 years. “Christ-church was not considered to be acat zone and insurance businessvery much stayed in the local mar-ket. Other than some reinsurancetreatyarrangements, therewasnotmuch need for additional supportfrom the London market. That willobviously change becauseChristchurch is now firmly on themap as being an area that is subjectto cat events.”

Early daysIt is early days yet, but one indica-tion of this change in thinking wasthe visit last month to the Londoninsurance market from represent-atives of the Canterbury Earth-quake Recovery Authority (Cera)and the Christchurch CentralDevelopment Unit (CCDU). BothCera and the CCDU made presenta-tionsontheprogressandobjectives

of the reconstruction programmeto close to 150 insurance executivesat a symposium held at Lloyd’s. Thevisit was arranged by Lockton andThornton Tomasetti, a US-basedstructural engineering design andconsulting firm. ThorntonTomasetti is responsible for thedesign of some of the tallest build-ings in the world, including the Pet-ronas Towers in Kuala Lumpur.The firm also made a presentationtotheLondoninsurancemarket.

Cera was created by an act ofparliament (the Canterbury Earth-quake Recovery Act) to take chargeof the reconstruction of Christ-church. As a reflection of the enor-mity of this particular task, Cerahas been endowed with significantpowers, including the ability torelax, extend or suspend laws andregulations and the compulsoryacquisition of property if it isdeemed necessary to assist therebuilding process. A key object ofthe latter power is to take advan-tage of the opportunity to trans-form Christchurch into a green citywith building structures that sus-tain the environment. ThorntonTomasetti is similarly focused onsustainable design and construc-tion practices.

According to Walton, when hevisited New Zealand in January tomeet Cera, Thornton Tomasettiwas engaged in a separate conver-sation with the authority. “So, atthe same time we were meetingCera, it were also meeting withThornton Tomasetti. But we putour heads together and said if Cerawere to come to London, could wefacilitate a meeting with the Lon-don market? But the visit waslargely prompted by Cera and,equally, therewasaninterest intheLondon market to meet Cera.”

Economic regenerationThe CCDU is a unit within Cerafocused on the business and eco-nomic regeneration of Christch-urch. It has studied a number ofinternational examples of the suc-cessful redevelopment and reju-

venation of business districtsincluding the Beirut Central Dis-trict, the London Docklands andthe development of lower Manhat-tan. While it manages the tender-ing and procurement process forthe big public sector “anchor”projects, which include a conven-tion centre and a sports stadium,another important part of theCCDU’s remit is to persuade localand overseas sources of capital ofthe benefits of investing in thereconstruction of the city. Accord-ing to Walton, accessing insurancecover is one of the key elements inthis process.

“In terms of the covering mar-kets, Cera and the CCDU realiseLondon has a huge role to play and

that is the reason why they visitedthe market last month. Obviously,they are interested in whatevercapacity the New Zealand and Aus-tralian markets can provide, butmuch like when there is a cat eventanywhere around the world, thelocal market takes on the heavyburden of those losses. What thentends to happen is the London mar-ket is asked to step in and extend itscat capacity to that region. Com-monly, the local market will tend tostep back to take stock of their posi-tion. So, in that interim period, it isquite common for the London mar-ket and the European reinsurers tostep in.”

David Hayhow, also a director inLockton’s Real Estate & Construc-

WaltononThe role of London marketcatastrophe capacity“Intermsofthecoveringmarkets,CeraandtheCCDUrealiseLondonhasahugeroletoplayandthat isthereasonwhytheyvisitedthemarket lastmonth.Obviously,theyareinterestedinwhatevercapacitytheNewZealandandAustralianmarketscanprovide,butmuchlikewhenthereisacateventanywherearoundtheworld, thelocalmarkettakesontheheavyburdenofthoselosses.WhatthentendstohappenistheLondonmarket isaskedtostepinandextenditscatcapacitytothatregion.”

Theaggregationissue“Atonetime,whentheyweretalkingaboutthereconstructionofcloseto600buildings, themarketworriedaboutaggregateissuesoncethefirst fewprojectsstartedtocomethrough.Buttherealityofthathasbeenquitetheopposite.Theseprojectshavenotyetcomethroughandhenceaggregationissuesarenotreallyaconcernrightnow.Butweareexpectingthemtocomethroughandoncewestart theprocessofinsuringthoserisksintheLondonmarket,weneedtoseehowtheaggregationsevolveandwhetherweneedtolookatothersolutions.But,rightnow,it isverymuchthecalmbeforethestorm.Butthathasbeenthesituationforthepast12months.”

process in Christchurch’‘There is an insurance solution tomany of the challenges faced by the reconstruction