IMIA Virtual Conference 2020

What happened in the Engineering Insurance Market in the last 12 Months

Guido Benz, Swiss Re Corporate Solutions, September 2020

Image: © ChakisAtelier/iStock/Getty Images Plusagnormark / Getty Images/iStockphotoImage: João Rocha on Unsplash

2020

Executive Summary

More wildfires,

hurricanes

and flooding

More (mega?)

construction

losses

COVID-19

impacting the

market

Image: Corbis

Trends

in energy &

infrastructure

post pandemic

Image: used under license from ImagePlus

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Image: UP Station Public Domain Image: CDC on Unsplash Image: used under license from ImagePlus

Agenda

Image: used under license from shutterstock.com

Engineering market 1. Infrastructure project activity2. Infrastructure spending gap3. COVID-19 impact

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Nat Cat1. Climate change & Nat Cat developments2. Hurricanes / floods3. Wildfires

2

Engineering Insurance Market 1. Current market status2. M&A’s3. Insurance 4.0

3

Loss Examples4

“The future has already started yesterday” – Trends 1. Energy2. Infrastructure/Construction3. Cyber Risk

5

Summary & Outlook6

3

Image: used under license from shutterstock.com

Fehmarn Belt Link, Denmark

1. Immersed road/rail tunnel, 17.6 km2. TCV USD 6.0 bio, 8.5 yrs, 30m3. World’s longest road/rail tunnel, >80 pre-

cast concrete modules from either side

The Red Sea Project, KSA

1. Luxury tourism development2. TCV USD 4.7 bio, 28’000 km2

3. 2 phases, 13 yrs, modern tech

Doggerbank Offshore Wind

1. World’s largest OWF, 3 phases2. TCV USD 4.5 bio, GW 2.4 + 1.23. 131 km resp. 196 km from shore

Mozambique LNG Project

1. 2 x 6 MTPA LNG trains inclassociated infrastructure

2. TCV USD 9.3 bio, 5 yrs3. export terminal facilities

Hampton Road Bridge – Tunnel

expansion, Virginia US

1.9 miles improvements & waterway crossing & tunnelling2. TCV USD 3.2 bio, 6.5 yrs

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Infrastructure project activity

Shandong Yulong Island, China

1. Refining & petrochem complex2. TCV USD 14.3 bio, 5 yrs3. 4’000 bpa refinery, 3 Mtpa ethylene

https://www.youtube.com/watch?v=3w-4HdA1YmM

Total infrastructure spending gap per country 2016 – 2040,in USD trillion

World

Current trends 78.7

Investment trends 93.7

Gap 15.0

Infrastructure spending by sector and by region, 2017 - 2035

1. Impact of COVID-19 affecting infrastructure projects all around the globe

Projects delayed or completely come to a halt

Disruption of supply chains

Commodity prices dropped off, oil price at an all time low

Investment decisions under review affecting industry sectors to varying degree

Global economic crisis => will there be light at the end of the tunnel?

2. SONAR Report 2020:Emerging risks in the post COVID-19 era

https://www.swissre.com/institute/research/sonar/sonar2020.html

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And then a virus called COVID-19 came along …

Agenda

Image: used under license from shutterstock.com

Engineering market 1. Infrastructure project activity2. Infrastructure spending gap3. COVID-19 impact

1

Nat Cat1. Hurricanes / Floods2. Wildfires3. Climate Change & Nat Cat developments

2

Engineering Insurance Market 1. Current market status2. M&A’s3. Insurance 4.0

3

Loss Examples4

“The future has already started yesterday” – Trends 1. Energy2. Infrastructure/Construction3. Cyber Risk

5

Summary & Outlook6

8

Hurricanes, Floods & Wildfires

9These Photos by Unknown Authors licensed under CC BY-SA

Floods

• Mississippi River Basin Floods, USA

• Monsoon floods, China

• Monsoon floods, India

• Floods, Iran

Wildfires / Bushfires

• California wildfires

• Australian bushfires

• Amazonas rainforest fires

Hurricanes / Typhoons /Cyclones

• Typhoon Hagibis, Japan

• Typhoon Faxai, Japan

• Hurricane Dorian, US & Carib.

• Cyclone Idai, Mozambique

• Cyclone Fani, India Bangladesh

NatCatSERVICE

Catastrophic & Nat Cat events of 2019 in a nutshell

Source: Swiss Re Institute

NatCatSERVICE

Relevant loss events worldwide January – June 2020Geographical overview

Source: Munich Re, NatCatSERVICE, 2020

Severe storm, hailstorm

19 – 20 Jan, AustraliaOverall losses: US$ 1.5bnInsured losses: US$ 1bn

Earthquake

6 – 11 Jan, Puerto RicoOverall losses: US$ 0.8bnInsured losses: US$ 0.4bnFatalities: 1

Flood, flash flood

21 May – ongoing, ChinaOverall losses: US$ 7bnFatalities: 106

Cyclone Amphan

16 – 20 May, India, Bangladesh, Sri Lanka, ThailandOverall losses: US$ 11.5bnFatalities: 135

Earthquake

22 Mar, CroatiaOverall losses: US$ 1.1bnFatalities: 1

Winter Storm Ciara

9 – 11 Feb, EuropeOverall losses: US$ 1.8bnInsured losses: US$ 1.2bnFatalities: 11

Severe storm, tornado

10 – 14 Apr, United StatesOverall losses: US$ 3.4bnInsured losses: US$ 2.6bnFatalities: 38

Hailstorm, severe storm

13 – 14 Jun, CanadaOverall losses: US$ 1.2bnInsured losses: US$ 0.9bn

Hailstorm, tornado

6 – 9 Apr, United StatesOverall losses: US$ 2.9bnInsured losses: US$ 2.2bn

Flood, flash flood,

landslide

1 – 12 May, Rwanda, Uganda,Kenya

Overall losses: US$ 0.07bnFatalities: 281

NatCatSERVICE

Insured vs uninsured catastrophe losses 1970 – 2019(USD billion, 2019 prices)

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In 2019, the

global protection

gap was around

USD 86 bio, up

from USD 83 bio

in 2018,but down

from the 10-year

average of USD

137 bio

NatCatSERVICE

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Insured catastrophe losses 1970 – 2019, USD 60 bio of insured losses in 2019(USD billion, 2019 prices)

Source: Swiss Re Institute

Global insured losses were

USD 59 bio, down from USD

93 bio in 2018 and below the

annual average (USD 75 bio)

of the previous 10 years.

Of these, natural catastrophes

resulted in USD 52 bio, down

from USD 81 bio in 2018.

Man-made disasters events

triggered additional claims for

USD 8 bio, down from USD 9

bio in 2018.

Agenda

Image: used under license from shutterstock.com

Engineering market 1. Current projects2. Energy3. Potential

1

Nat Cat1. Climate Change & Nat Cat Developments2. Hurricanes / Floods3. Wildfires

2

Engineering Insurance Market 1. Current market dynamics2. M&A’s and Market Movements3. Sustainability topic on the rise

3

Loss Examples4

“The future has already started yesterday” – Trends 1. Energy2. Infrastructure/Construction3. Cyber Risk

5

Summary & Outlook6

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Dynamics in the current Engineering Insurance Market

1. Capacity depletion & run-off portfolios

2. Severity losses of prior UYs adding volatility

3. Right-sizing of risk appetite and capacity deployment

4. Rate hardening & tightening of terms & conditions(refer to broker reports & trade media snippets)

5. Clear need for enhanced portfolio steering measures

6. Many re/insurers unable to deliver the expected RoE in the current state of the market state and

restricted prospects offered by financial markets

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M&A’s and market movements 2019 / 2020

16IMIA 2019

Sustainability topic on the rise

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1. Increasingly more re/insurers exiting coal

2. Carbon footprint of companies and their portfolios becoming a topic at C-suite

Agenda

Image: used under license from shutterstock.com

Engineering market 1. Current projects2. Energy3. Potential

1

NatCat1. Climate Change & NatCat Developments2. Hurricanes / Floods3. Wildfires

2

Engineering Insurance Market 1. Current market status2. M&A’s3. Sustainability topic on the rise

3

Loss Examples4

“The future has already started yesterday” – Trends 1. Energy2. Infrastructure/Construction3. Cyber Risk

5

Summary & Outlook6

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Notable Losses in the last 24 months

… but no ‘record-breaking’ construction losses in 2020 ytd

19Source: AON Construction and Engineering Market Review 2020

COVID-19 – Market-wide loss estimates approaching USD 25 bio range

COVID-19 in the context of engineering covers

• Triggering clause reviews & new underwriting considerations

• Definition of material damage? Cessation of works?

• Supply chain disruption? Concurrent delays? NDBI?

20Source: Reinsurance News

Agenda

Image: used under license from shutterstock.com

Engineering market 1. Current projects2. Energy3. Potential

1

Nat Cat1. Climate Change & Nat Cat Developments2. Hurricanes / Floods3. Wildfires

2

Engineering Insurance Market 1. Current market status2. M&A’s3. Insurance 4.0

3

Loss Examples4

“The future has already started yesterday” – Trends 1. Energy Transition2. Infrastructure/Construction3. Cyber Risk

5

Summary & Outlook6

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Energy Transition – Renewable Energy Outlook

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• Global renewable energy is expected to grow strongly by 2030 with projected annual investments of USD 630 bio

• 70% of new power generation capacity added between 2012 and 2030 will be from renewable technologies with solarPV and wind being the major growth drivers, whilst coal, gas and oil will be declining and hydro remaining stable

• In the post COVID-19 era with anticipated government stimulus packages and the theme ‘building back better’ thesustainability topic will likely gain further momentum

Source: Bloomberg New Energy Finance

Post Covid-19 Engineering Prospects

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Investment in constructech start-ups & their main area of focus

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Cyber Crime – not if but when… with an uptick during the pandemic

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Agenda

Image: used under license from shutterstock.com

Engineering market 1. Current projects2. Energy3. Potential

1

Nat Cat1. Climate Change & Nat Cat Developments2. Hurricanes / Floods3. Wildfires

2

Engineering Insurance Market 1. Current market status2. M&A’s3. Insurance 4.0

3

Loss Examples4

“The future has already started yesterday” – Trends 1. Energy2. Infrastructure/Construction3. Cyber Risk

5

Summary & Outlook6

26

Summary & Outlook

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• Impact of the pandemic fostering a turning point in the insurance market that is already in

motion

• Times of change => ‘back to the roots of UW’?

• Portfolio steering considerations taking centre stage

• Sustainability topic gaining further momentum

• Recovery of economy ‘building back better’ as a significant opportunity for engineering

re/insurers

• Adapting to the ‘new normal’

The End & Question Time

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