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University of Houston
Energy Case Study
Steven P. Weiss, CPCU, AMIM,
NAMS-CMS
Vice President, Marine Engineering,
Latin America and Project Cargo
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What are we going to do?
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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
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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.
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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
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The identification and analyses of loss
exposures
•What are the exposures?
–First Party
–Third Party
–Financial
–Employee
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The identification and analyses of loss
exposures (cont)
•First Party
–Own Property
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The identification and analyses of loss
exposures (cont)
•Third Party
–Contractual
–Personal Injury
–Property Damage (others)
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The identification and analyses of loss
exposures (cont)
•Financial
–Business Interruption
–Delay in Start Up
–Self Insured Retentions
–Deductible
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The identification and analyses of loss
exposures (cont)
• Employee
–Workers Comp
–Jones Act
–Longshore and Harbor Workers
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Examine feasibility of Alternative Risk
Management Techniques
• Contracts to transfer risk
• Training of Employees
• Engineering solutions
• Exit lines of business
• Contractors
• Insurance
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Selection of the best Risk management
techniques
• In the present situation, what works best?
– Probably some combination of the above
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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
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Risk Financing
• What is Risk Financing
• Where do you get it?
– Deductibles/Self Insured Retentions
– Mutual Agreements
– Cash flow
– Insurance
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Insurance Flow
Insured
Broker/
Agent
Wholesale
Broker
Underwriter
Reinsurance
Broker
Reinsurer
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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
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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
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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
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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
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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)
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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
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Insurance Industry
Broker/Agent
Insured
Insurance
Company
Broker/Agent
Reinsurance
Company
Insurance
Company
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TOP TEN GLOBAL PROPERTY/CASUALTY INSURANCE COMPANIES
BY REVENUES, 2010 (1) ($ millions)
Rank
Company
Revenues (2)
Country
1
Berkshire Hathaway
$136,185
U.S.
2
127,379
Germany
104,417
U.S.
4
Allianz
American International
Group
Munich Re Group
76,220
Germany
5
Zurich Financial Services
67,850
Switzerland
63,177
U.S.
39,754
Japan
38,396
Japan
33,193
U.S.
32,579
China
3
6
7
8
9
10
State Farm Insurance
Cos.
MS&AD Insurance Group
Holdings
Tokio Marine Holdings
Liberty Mutual Insurance
Group
People's Insurance Co. of
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
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TOP TEN US WRITERS OF PROPERTY/CASUALTY
INSURANCE BY DIRECT PREMIUMS WRITTEN, 2010 ($000)
Direct premiums
written (1)
Rank
Group
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
Market share (2)
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PERCENT CHANGE FROM PRIOR YEAR, NET PREMIUMS
WRITTEN, P/C INSURANCE, 1975-2010 (1)
From Insurance Information Institute
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The path of a submission
Genesis of a
Project
Choosing a
Broker
Completion
Preparation
Of a
submission
Project
Life
Market
Presentation
Binding of a
Project
Submission
of
Quotes
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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
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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
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Other Resources
• http://www.iii.org/
• http://www.aicpcu.org/
• http://www.libertymutual.com
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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 standing
1. AM Best – A (Excellent)
2. Moody’s – A2 (Good)
3. Standard & Poor’s – A- (Strong) - Positive
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Do you
• Have any questions?