Global Construction & Infrastructure Market Update 2015 (Q4)

Risk. Reinsurance. Human Resources.

Construction & Infrastructure Market UpdateAon Construction and Infrastructure Group

Aon Risk Solutions

4th Quarter 2015

Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1

Asia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3

Australia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

Canada . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

EMEA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12

Latin America . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14

United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16

Contacts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21

Table of Contents

Aon Risk Solutions 1

Executive summary

Many economists believe the construction sector will be the core driver of global economic growth for the next several decades. In recognition of this view, insurance and reinsurance carriers have remained steadfast in their commitment to supporting contractors and construction projects around the world. One of the most significant recent trends in the global construction market has been the continued investment in civil and energy infrastructure assets. However, we are now seeing a noticeable pullback in development activity due to the prolonged depressed prices of oil and minerals. As a result, competition amongst insurers has intensified in Asia and Latin America as they compete for market share while pursuing a fewer number of construction projects. Canada’s resource heavy economy has also impacted its energy related projects due to lower energy prices. Despite these temporary headwinds, the United States has begun to gain momentum in addressing its expansive and aging infrastructure, representing one of the largest construction market opportunities yet to be fully realized and tapped. Increasingly, governments in the US are turning to public-private partnerships to finance and deliver large-scale infrastructure projects. Recognizing their heightened risk profile, Aon’s multi-disciplinary Infrastructure Solutions unit helps contractors and infrastructure developers understand all of the risk in a project and use that risk to their competitive advantage.

Similar to the trends we have been seeing with the

increased globalization of contractors, we have also

been seeing the globalization of risk capital at an

accelerated rate. This trend has taken the form of

increased direct participation of foreign insurance

carriers, the emergence of significant Asian risk capital

entities, and alternative capital sources in the form of

pre-negotiated line slips (see Aon Client Treaty). Given

these shifts in the deployment of risk capital, it is more

important than ever to ensure that the optimal risk capital

is secured that will provide the most leading-edge

coverage, terms, conditions, and risk technologies

available in the global market place.

Aon is uniquely positioned to deliver unmatched insight

into the risk mitigation and management strategies

being used to optimize a contractor’s insurance

program. Furthermore, Aon’s unparalleled insight

into accessing risk capital allows us to implement truly

innovative solutions. We pride ourselves in helping

our clients make risk management a competitive

advantage, no matter what markets they operate in.

We are happy to share Aon’s 4th Quarter 2015 Global

Market Update as a high-level view of these trends in

the global market.

2 Aon Construction Market Report | Q4 2015

Dedicated Construction and Infrastructure Specialists

Global capabilities

Aon Risk Solutions has the largest dedicated network of construction and infrastructure risk advisors and

brokers in the world. Our Construction and Infrastructure Group specializes in all facets of construction-

related risk management for construction contractors, engineers, project owners, developers, financiers,

and consultants.

Asia70

550in U.S.

Americas700 APAC

100EMEA220

70in U.K.

130in Canada

20 in Latin America

150in Europe

30in Australia


Asia

Property | CAR, EAR

Investment in basic infrastructure in Asia continues to be focused on the civil engineering and power sectors, both conventional and renewables. In addition, cross-border and in-country real estate also represents a new area of substantial investment, presenting greater opportunities for the insurer and reinsurer markets. Asian insurer and reinsurer appetite in the construction and infrastructure sectors remains strong with carriers pursuing fewer available projects, underpinned by macroeconomic uncertainty in the major economies of the region.

While concern with extreme weather events in the region persists,

no exclusionary wording or significant capacity reductions are

evident at this time. In response, a greater use of natural

catastrophe analytics and innovative insurance solutions are

being employed for both the project lenders and owners.

In addition, with the sizable growth in renewable energy

investment, including solar, wind, and bio-energy, we are seeing

a significant increase of client interest in niche products, such as

wind or solar warranty and weather hedging solutions.

CategoryQ4 2015 Direction Commentary

2016 Outlook Commentary

Pricing/Rates � Rate Change: -1% to -5%We continued to see downward pressure on rates as a result of strong insurer competition, particularly for high interest segments like Power.

� Expected Rate Change: -5% to -10%Increased competition for high profile projects continues to drive downward pressure on rates as carriers seek to capture market share.

Limits �� No material change. �� No material change is expected, however, some increases in sub-limits are expected; for example, increased Third Party Liability limits integrated into the CAR policy.

Deductibles/Retentions �� Some downward pressure on deductibles,

particularly on power technologies. �� No material change is expected.

Coverage �� No material change. �� No material change is expected, however, LEG3 cover has gained more interest in the market.

Capacity/Appetite � There continues to be an abundance of

available capacity from legacy carriers and new market entrants. Insurance and reinsurance markets are committed to participating in the significant infrastructure investment expected to take place in the region over the next decade.

� As investment flows grow, we anticipate heightened interest from London carriers for Asian business. The change in financing sources is relevant as greater Korean, Japanese, and Chinese financing will bring increased participation from their national insurers for business transacted beyond their borders.Capacity continues to increase as more Insurers look to Asia for growth in their CAR portfolio. Some Insurers that had previously only sought a follow position on projects appear to be more inclined to offer lead terms in an effort to secure their position on the risk. Placement remains a fine balance between local and regional carriers as local markets increase their available capacity for indigenous risks.

Losses �� No recent major losses have impacted the Asia construction insurance market. To date, natural catastrophe losses have largely missed insurer balance sheets, which would have directly affected sovereign and sub-sovereign balance sheets.

�� As infrastructure investments increases, there is some concern by market participants that the supply of experienced labor and project management will tighten. This could lead to large, complex projects being undertaken by development, construction, and engineering teams with inadequate skill sets or experience. It is anticipated that Asia Workers’ Compensation insurers will be among the first to see the effects of this trend.


Australia

Property | CAR, EAR

In a continuation of the trend seen throughout 2015, the property market for construction risks remained extremely competitive. With an abundance of capacity, we continue to see the characteristics of a soft market. In response, carriers have focused on differentiating their offering by methods other than price. Coverage enhancements such as LEG3 Defects Exclusion, Increased Cost of Working (ICOW), Extra Expense, and Idle Standby Costs are becoming standard covers for all major project and annual practice policies.



Pricing/Rates �� No material change. Clients are still receiving reductions where appropriate.

�� No material change is expected.

Limits �� Insurers continue to offer higher than required limits; however, most clients chose to maintain their limits.


While we expect Insurers will continue offering increased limits, we do not foresee a catalyst for clients to materially change their program limits at this time.

Deductibles/Retentions �� Given the soft market conditions, there

are no material benefits for clients taking higher retentions.


Coverage � Insurers continue to offer coverage enhancements, including Idle/Standby Costs and ICOW.

� This trend is anticipated to continue.

Capacity/Appetite � There continues to be an abundance of

available capacity from legacy carriers and new market entrants, such as Berkshire Hathaway.

� This trend is anticipated to continue.Going forward, we expect more participation on a direct basis from Asia, Spain, France, and Italy domiciled insurers.

Losses � In 2015, we did not see a large number of major construction losses. � In the latter part of 2015 and early 2016, we have

already witnessed a number of major weather events including bushfires in South Australia and Victoria and floods throughout northern Australia. These are expected to have an impact on construction projects heading into 2016.


Liability | Primary Casualty

In a continuation of the trend seen throughout 2015, the casualty

market for construction risks remained extremely competitive.

With an abundance of capacity, we continue to see the

characteristics of a soft market. Worker-to-worker losses

continued to be a hot topic throughout 2015. Clients with a

history of worker-to-worker claims will continue to be closely

scrutinized.



Pricing/Rates �� No material change.Clients willing to market their program were able to achieve further rate reductions.


Limits � With an increase in market capacity, higher limits are easily attainable and competitively priced.


Deductibles/Retentions �� Given the soft market conditions, there

are no material benefits for clients taking higher retentions.


Coverage �� No material change. � As insurers look to differentiate themselves, we anticipate more opportunities for clients to broaden their policies with innovative covers, such as combined liability and professional indemnity policies.

Capacity/Appetite � There continued to be an oversupply of

capacity in the market. � We expected more capacity to enter the market, although the recent mergers of XL/Catlin and ACE/Chubb may have removed some capacity in specialist areas, e.g. bushfire liability.

Losses �� No material change. �� No material change is expected.

Australia


Liability | Excess Casualty

In a continuation of the trend seen throughout 2015, the excess

casualty market’s capacity remains at an all-time high, leaving

little more room for rate compression.



Pricing/Rates �� No material change; excess casualty premiums are at minimum treaty levels. �� No material change is expected.

Limits � With an increase in market capacity, higher limits are easily attainable and competitively priced.


Deductibles/Retentions �� No material change. �� No material change is expected.

Coverage �� No material change as excess capacity is pure follow-form. �� No material change is expected.

Capacity/Appetite � There continued to be an oversupply of

capacity in the market. � This trend is anticipated to continue.


Australia


Liability | Professional

The professional liability market for construction risks remains

stable and competitive. In an effort to gain a competitive

advantage, insurers have become more innovative. For example,

insurers have begun to explore offering project-specific policies

with a term longer than 10 years; we recently placed a 14-year

policy for a client. The continuing challenge is matching the

evolving contractual conditions with the available cover. New

covers have been increasingly explored by insurers such as “Fit

for Purpose” cover.



Pricing/Rates �� No material change. � Expected Rate Change: Primary: -5% to -10%, for clients with well managed risks.Excess: -10% to -20% due to new capacity entering this space.

Limits �� No material change. � Clients will likely take advantage of soft market conditions and purchase higher limits, as appropriate.


Coverage �� No material change. � In order to comply with ever-expanding contractual conditions, we expect insurers to explore new coverage options, including “Fit for Purpose” cover.

Capacity/Appetite � There continued to be an oversupply

of capacity in the market. � This trend is anticipated to continue.


Australia


Canada

Property | Builders Risk, CAR, EAR

The Canadian market remains competitive on project CAR, EAR, and Builders Risk coverage. Pricing has remained stable since Q1 2015. With depressed oil prices and Canada being a predominately resource-based economy, we may see a further softening in terms, if capital asset expansion projects are put on hold. Notwithstanding the foregoing, infrastructure projects continue to be the Government’s focus. Underwriters continue to pay close attention to projects located in natural catastrophe zones and potential water damage losses.

All major insurers for these lines of cover are working to solidify

themselves as significant players and are competing to obtain

their share of the large and mega projects. That said, Zurich is

re-underwriting their entire book of business and the full impact

of this has yet to be seen. While they are working with us to

maintain their Aon accounts, they have communicated that they

intend to address unprofitable accounts.



Pricing/Rates �� No material change. Following the seismic activity in the province of British Columbia, insurers will likely place greater scrutiny on natural catastrophe exposure and may result in rate increases for the region.

�� No material change is expected. While rates have stabilized since Q1 2015, we could see potential further softening if certain capital asset expansion projects are put on hold. To date, there has been no evidence of this.

Limits �� No material change. The majority of clients continue to purchase limits according to the project’s TIV and PML, factoring in natural catastrophe exposure.


Deductibles/Retentions �� No material change.

Specific peril deductible levels, e.g. natural catastrophe, are set by project type and location.

�� No material change is expected other than specific deductibles for water damage, excluding flood; however, insurers have not yet put them in force at this time.

Coverage �� No material change. Delay in start-up, soft-costs, and consequential covers provided by DE / LEG language continue to garner attention. On P3 projects, the Owner’s (Public Entity’s) Standing Charges, such as their Fixed Expenses, referred to as Liquidated Damages (LD) in some project agreements, are distinct from the Concessionaire’s fixed expenses and are insured under the DSU section of the CAR project policy, when required. These insurable expenses should not be confused with non-performance-based LD penalties, which are not insurable under the CAR project policy.

�� No material change is expected.Natural catastrophe exposure continues to be a focus of underwriters.

Capacity/Appetite �� No material change.

Large mega projects are attracting capacity, even in natural catastrophe zones. Terms must be adequate for the exposure.


Losses �� No material change. �� No material change is expected.Following a large frame loss of $25m CAD in Alberta, insurers could start to restrict and impose stricter terms for these types of projects.



The Canadian primary casualty market remains stable and

Lloyd’s carriers continue to be a major force. Underwriters on

certain classes of business, such as crane operations and road

maintenance, will address historical, systemic annual practice

policy wordings that have resulted in adverse loss ratios. Loss

ratios aside, roofing and snow removal operations are being

scrutinized by insurers and could result in increased rates and

deductibles. Zurich is re-underwriting their entire book of business

and the full impact of this has yet to be seen. While they are working

with us to maintain their Aon accounts, they have communicated

that they intend to address unprofitable accounts.



Pricing/Rates �� No material change. Wrap-up coverage continues to be aggressively priced, particularly out of London with domestic markets following suit.


Limits �� No material change. �� No material change is expected.


Coverage �� No material change.Coverage remained broad with no restrictions.


Capacity/Appetite �� No material change. �� No material change is expected.


Canada


Liability | Excess Casualty

There has been an increased appetite for Canadian umbrella

and excess coverages, accompanied by rate compression.

Fixed premium-per-million on excess placements can still be

negotiated. Depending on the risk, there are certain thresholds

(minimum premium-per-million) below which underwriters will

not reduce their pricing further.



Pricing/Rates �� No material change. Excess capacity is available at historically low rates. London continues to demonstrate its appetite and capacity for this business and is leading the market in terms of pricing.




Coverage �� No material change. �� No material change is expected.

Capacity/Appetite �� No material change. �� No material change is expected.

Losses �� No material change. �� No material change is expected. There are a number of losses likely to penetrate the umbrella layer, if they mature as expected. We believe these losses will largely only affect pricing and capacity for those insurers and contractors involved.

Canada



Competitive pricing and generally broad coverage continues

to be available on annual practice programs with the

exception of Zurich placements, where internal pressures

have impacted their ability to keep pace on pricing for certain

risk profiles. There also continues to be a significant need

for additional project-specific capacity that is responsive to

various project delivery models. The underwriting of these

project-specific placements, while a lengthy and involved

underwriting process, is improving as we develop Aon-

specific wordings. In addition, the increased volume of P3

and Design-Build (DB) projects and a better understanding

of underwriting requirements by clients have resulted in

improved responsiveness from carriers looking to increase

their premium volume. However, it remains a challenge

educating some clients on the significance of certain coverage

features that have been developed for the P3/DB contracts.

With respect to particular regions, clients operating in Western

Canada, particularly Alberta, continue to be impacted by the

weaker economic environment. These clients are trying to

soften the blow by exploring cost cutting options, including the

cost of their professional insurance. We have even started to see

a significant number of the smaller firms in the region ceasing

operations altogether.



Pricing/Rates � In general, clients with moderate growth and a favorable loss experience were able to achieve a rate reduction. However, insurers were reluctant to offer significant savings where premium levels have decreased.

�� No material change is expected. Economic challenges for Western-focused clients have resulted in the increased marketing of risks.

Limits �� No material change, barring a material change in a contractor’s business. �� No material change is expected, except

where compelled by contract.

Deductibles/Retentions �� No material change.

Retentions have largely remained constant as the benefit of assuming more risk is negligible for most clients. However, clients based in the Prairies are exploring alternate deductible and retention structures in an effort to reduce their premium spend in a challenging economic environment.

�� This trend is anticipated to continue.

Coverage � Coverage broadened as a result of expanding client contractual requirements, pressure from brokers, and increased carrier competition.


Capacity/Appetite � Some US-led insurer entrants into the Canadian market

continued to struggle to find their niche, suffering from high pricing models and restrictive coverage. Some of these insurers have begun to make positive strides in this regard, but results are preliminary and mixed at this point.

Conversely, the London markets continue to provide solutions and innovations for proven clients. However, we are concerned that the over-reliance on one or two key insurers for project-specific placements may result in fatigue.


Losses �� No material change as loss activity remains stable. Public-Private Partnerships continue to have a better loss experience than other delivery models although the gap appears to be narrowing.


Canada


EMEA

Property | CAR, EAR

The market trends seen at the end of 2015 were consistent with prior quarters. New players in the sector continued to materialize, pushing overall capacity levels to new highs. In addition, many of the larger insurers experienced successful treaty renewals, which should result in increased capacity levels. The competition created by this environment is expected to result in further soft market conditions with respect to rates and coverage.



Pricing/Rates � Rate Change: -5% to -15%.Due to increasing capacity levels and strengthening regional and domestic markets, rates remain under enormous pressure.

� Expected Rate Change: 0% to -10%.Moderate rate reductions are expected throughout the year.

Limits � No material change. Construction projects continued to benefit from limits that reflect the full contract value, while inner sub-limits for certain policy extensions are increasing.


Deductibles/Retentions � Deductible levels continued to decline. � This trend is anticipated to continue.

Coverage � In general, coverage continued to broaden as insurers sought to maintain share and differentiate their offering. �� No material change is expected.

Clients will be well-positioned to push for broadened coverage.

Capacity/Appetite �� Market capacity remains at record high levels and new

market entrants are constantly creating activity. �� No material change is expected.

Losses �� No material change. Attritional losses continued, but no major losses threaten to impact market conditions.




The professional market is split into three sectors in EMEA:

United Kingdom and Ireland, Continental Europe, and

Middle East and North Africa. The trends for all regions are

predominately the same, with small- and medium-sized firms

benefitting from rate compression. Rates for large firms are flat

or are increasing where significant claims have been experienced.

While insurer mergers have reduced capacity to a degree, this has

been more than offset by new insurer entrants, which is expected

to continue into 2016.



Pricing/Rates � Rate Change: -1% to -5%Generally, rates have decreased in absence of significant claims experience.

� Expected Rate Change: -1% to -5%New insurer entrants should maintain the continued downward pressure on rates.

Limits �� Owners and contractors are seeking higher Indemnity Limits on large projects. �� Compression in the “food-chain” with funders are

driving Indemnity Limit requirements and usurping Owners’/Employers’ requirements.

Deductibles/Retentions �� Retentions have largely remained constant

as the benefit of assuming more risk is negligible for most clients.

�� Insurers are analyzing the effect of claims inflation on deductible/retention levels.

Coverage �� Coverage is extremely broad. �� No material change is expected, other than Insured versus Insured clauses, which are being scrutinized by insurers.

Capacity/Appetite �� There is a surplus of capacity, particularly for

smaller firms, and an abundance of capacity from Excess of Loss insurers.

�� New insurers are expected to enter the market.

Losses �� Increased claims due the size of projects. �� No material change is expected.

EMEA


Latin America

Property | Builders Risk, CAR, EAR

Infrastructure development remains a primary focus for the majority of Latin American countries. The region’s infrastructure projects run the full spectrum, including: roads, highways, railways, bridges, tunnels, ports, airports and the power industry. Due to declining oil prices, most Latin American countries face economic challenges that will directly impact infrastructure investment. The majority of public works projects in Latin America are government-funded, and since they are long-term and greatly influenced by each specific country’s economy and political environment, it is difficult to predict project continuity. Given the challenging economic environment, many of the current projects required significant policy extensions due to restructuring, suspension, or construction delays. Reduced investments in infrastructure projects will likely lead to increased competition among insurers. Furthermore, additional capacity has emanated from international carriers establishing their presence in the region.

Brazil: Brazil’s construction market is currently experiencing

several significant challenges: the Petrobras corruption scandal

has adversely impacted the largest Brazilian contractors, the

political crisis and poor economic performance has resulted in a

material decrease of construction activity, and the recent country

credit rating downgrade is impacting foreign investments.

Colombia: The Colombian government is closing the last group of

concession projects related to transportation, referred to as the 4G

Program. Declining oil prices have had a significant adverse impact

on infrastructure investments in the country.

Mexico: Mexico has increased their focus on incorporating

private investment in infrastructure projects, using public-private

partnership structures and developing the country’s renewable

energy portfolio. New energy legislature will prove dynamic for

the construction sector, but the oil crisis is impacting a significant

number of original investment plans.

Peru: After making several significant infrastructure investments

last year, the Peruvian government has tempered their appetite

for new project investments. National elections will take place

in April 2016, which may result in a reduction of construction

activity. However, the construction market is dynamic as several

large projects are still underway. While the country is primarily

focused on transportation and pipeline projects, it has also

allocated a significant portion of their budget to healthcare and

power generation.



Pricing/Rates � Rate Change: -5% to -10%Lower anticipated investment in infrastructure projects has increased competition among insurers for a fewer number of projects.

� Expected Rate Change: -1% to -5%Moderate rate reductions are expected throughout 2016.


Deductibles/Retentions � While some insurers previously set retentions as a

percentage of loss with a minimum value, there has been a growing trend to apply a flat rate.


Coverage � Guarantee Maintenance and LEG 3 are becoming more commonplace for certain types of construction. � This trend is anticipated to continue.

Capacity/Appetite � Additional capacity has become available due to new

carrier entrants, such as AXA and HDI-Gerling. � This trend is anticipated to continue.

Losses �� No material change. While not significant enough to impact the market, there were unexpected losses in wind farms related to windstorms that had not previously experienced with this type of construction.




Latin American countries are not considered litigious. Thus,

limits for casualty insurance are moderate compared to other

geographies. The largest and most complex projects are analyzed

on a case-by-case basis. International lenders are also monitoring

the liability exposures and policies, which may translate to

higher limits of liability in the future. Given the compressed rate

environment, we believe there is room for higher casualty limits

for future projects.



Pricing/Rates � Rate Change: -5% to -10%The number of new projects is shrinking, leading to market competition and rate reduction.

� Expected Rate Change: -5% to -10%This trend is anticipated to continue.

Limits � Given the soft market conditions, clients are increasingly considering purchasing higher limits.




Capacity/Appetite � Available capacity expanded due to new

entrants at local and regional levels. � This trend is anticipated to continue.




Pricing/Rates �� No material change. � Expected Rate Change: -1% to -5%Due to the increase of capacity available in the market, rates are expected to decline.

Limits �� No material change. � Aggregate limits available from insurers may increase due to a reduction in the number of infrastructure projects in the region in Q4 2015.

Deductibles/Retentions

N/A N/A


Capacity/Appetite �� No material change. � No material change is expected, except for a slight

reduction in available capacity for Brazil. Some insurers and reinsurers may reduce their appetite for Brazil due to the recent credit rating downgrade.

Losses �� No material change. � An increase in losses is expected due to the slowdown in the Latin America economy.

Performance Security

Latin America


United States

Liability | Primary & Excess Casualty

The U.S. market for construction remains competitive, but we continue to see a number of major insurers realizing profitability challenges in segments of their portfolios. The most notable are the larger insurers with significant legacy portfolios dating back 10 to 15 years. Newer insurer entrants are driving competitive pricing for clients with strong business practices and favorable loss profiles. Sub-sectors of the market, most notably New York liability, are negative pricing outliers.



Pricing/Rates �� Rate Change: Primary: -1% to -5% due to carrier competition.Excess: -1% to -5% due to an abundance of capacity.

� Expected Rate Change: Primary: -1% to -5% due to carrier competition.Excess: -1% to -5% with greater reductions possible in upper layers. Data indicates a continued return to favorable market conditions with rate compression. The Residential Excess and Surplus Lines marketplace is softening, but admitted insurers continue to avoid this segment.

Limits �� Clients are maintaining limits purchased. �� The majority of clients are expected to maintain their excess casualty limits.

Deductibles/Retentions �� Most clients have maintained their

deductible/retention levels as carriers have remained firm on retention levels.

�� Most clients are expected to maintain their deductible levels; however, clients with poor loss experience or low deductibles relative to the exposure continue to feel pressure from carriers to increase retentions. Lead umbrella carriers are also exerting pressure on the attachment point for clients with significant fleets or with poor loss experience.

Coverage �� Coverage and program design enhancements were available. �� We expect reasonable coverage and program design

enhancements to be available as carriers put a greater emphasis on managing their risk aggregation on a potential single loss scenario.

Capacity/Appetite �� Excess casualty capacity remains

at record levels. �� This trend is anticipated to continue.Capacity for lead layer excess continues increase.

Losses �� No material change. �� No material change is expected.Many carriers are experiencing a deterioration in Auto Liability underwriting results, which may push rates higher in the future.



The professional liability market for construction risks remains

stable and competitive for both annual practice and project-

specific policies. It was originally speculated that the result of

the XL/Catlin merger would reduce the amount of competition

in the marketplace; however, this has yet to transpire. The

market continues to evolve as new entrants and existing

carriers seek ways to innovate and broaden their offerings to

gain a competitive advantage. Two examples include: carriers’

willingness to offer project-specific policies with terms exceeding

10 years; another carrier is offering up to a $2M per claim/

aggregate on a per-project basis for professional liability claims

on annual practice programs, if and when the policy limit is

exhausted (a quasi-reinstatement type of provision).

The current challenge in the marketplace is alternative project

delivery methods and the contractual requirements that arise

from these projects. The US lags behind other regions in the

adoption of these delivery methods, e.g. P3, IPD, and similar. As

a result, carriers have been reactive in the amendment of policy

terms and conditions to accommodate contractual provisions. For

example, on P3 projects, there remains concern over the “insured

vs. insured” and “related entities”’ exclusions, and how they

impact the availability of coverage to a Design-Build joint venture

team. This includes both the contractor and design professionals.

Furthermore, P3 projects can also be challenging depending on

the project’s type, scope, and term.



Pricing/Rates �� Rate Change:Primary: +1% to +5% due to increased claims activity.Excess: -1% to -5% due to an abundance of capacity.

� Expected Rate Change: -1% to -5% Pricing is expected to further soften as capacity is at an all-time high. Competition has resulted in favorable rates for many Insureds.

Limits �� Clients are maintaining limits purchased. � Many clients are considering increasing their limits due to capacity available at attractive terms.

Deductibles/Retentions �� Most clients have maintained their

deductible/retention levels �� No material change is expected.

Coverage �� No material change. �� Competition has caused carriers to explore coverage enhancements in order to differentiate their offerings and not compete exclusively on price.

Capacity/Appetite � Excess professional liability carriers offered

an abundance of capacity, often in excess of $250 million.

� Due to the entry of several new professional liability carriers in the US and London markets, capacity is expected to further increase for primary layers.

Losses �� Claims activity in the Construction sector was fairly constant, but claims severity increased.

�� This trend is anticipated to continue.

United States


Property



Pricing/Rates � Rate Change: -1% to -5% Larger and more complex client risks experienced a rate decrease for the quarter.

� Expected Rate Change: -5% to -10% We expect high single-to double-digit rate decreases driven by oversupply, significant sign-downs, and a lack of catastrophic loss activity.

Limits �� Nearly 95% of risks purchased the same or higher limits. �� The abundance of supply coupled with the

downward pressure on price could make higher limits more attainable.

Deductibles/Retentions �� Over 90% of risks purchased the same or

lower deductible/retention levels. �� No material change is expected.

Coverage �� No material changes in property coverage were seen as broad property coverage is readily available in the market.

�� No material change is expected. Flood and contingent business interruption continue to be carefully underwritten by most carriers.

Capacity/Appetite �� Most carriers offered similar line sizes. �� Capacity is expected to be more than adequate to

meet buyer demand.


United States


Property | Builders Risk



Pricing/Rates �� Rate Change: -1% to -5% Clients largely saw flat to declining rates due to high levels of capacity and competition among carriers; however, frame building contractors have continued to experience a hard market due to recent losses.

�� Expected Rate Change: -1% to -5% National contractors with non-catastrophic exposures are expected to continue to see flat and declining rates in the absence of a large catastrophic event that would decrease available capacity.


Deductibles/Retentions �� Most insurers have been able to maintain

deductibles, although we have seen increased deductibles and retentions for prototypical equipment and testing.

�� This trend is anticipated to continue with increased capacity driving insurers to maintain deductibles. In areas highly susceptible to catastrophic events, deductibles are remaining constant with percentage of value at risk at time of loss being the main driver.

Coverage �� The market remained soft with broad coverage grants achievable as carriers felt pressure to retain business.

�� Increasing competition in a soft market will maintain pressure on carriers to hold broad coverage terms while preserving flat rates.

Capacity/Appetite �� With all risk placements, we have seen

increased capacity in the market estimated at $3.5 billion USD. Catastrophic-related capacity in high aggregation zones such as Miami/Houston wind and California quake is beginning to strain due to increased volume of construction.

�� Capacity will remain flat or slightly up for non-catastrophic risks, while aggregation will continue to be an issue in high risk areas as the market has approximately $1.5 billion USD in catastrophic capacity and construction continues to grow.


United States


Performance Security | Contractor Default Insurance

The Contractor Default Insurance (CDI) marketplace is comprised

of only three insurance carriers, one of which remains dominant.

As a surplus line, the insurance carriers do not publish loss ratios.

At the end of Q1 2015, the dominant insurance carrier signaled

that due to mounting losses from the 2010-2012 period it would

reduce coverage and increase both retentions and rates. This

move is expected to materialize gradually over the coming

three years as programs renew and has already begun to affect

all project-specific coverage. Claim activity has evidenced an

increase in both frequency and severity of losses.



Pricing/Rates � Due to mounting losses, the dominant insurance carrier has signaled rates will rise. � Rate increases will come into effect over the next

three years as programs renew.

Limits �� No material change.Clients are maintaining limits purchased.


Deductibles/Retentions �� The dominant insurance carrier has signaled

an increase in retentions across their book. Clients have elected to increase retentions to ease the pressure of the rate increase.


Coverage �� Coverage has been reduced by the dominant insurance carrier to 3x contract price in excess of retention. Growing aversion to “for sale” residential portfolios and more limited coverage during the period of completed operations.


Capacity/Appetite � Capacity has equalized between the top

two insurance carriers. �� No material change is expected.

Losses � Claim activity has increased significantly as losses develop from coverage written during the 2010-2012 period.

�� More losses are expected to develop; however, severity of losses is showing signs of retraction.

United States


Contacts

Global

Nate EspeChicago, USA312.381.7131 [email protected]

Geoffrey HeekinChicago, USA312.381.4594 [email protected]

Michael HerrodHouston, USA832.476.5834 [email protected]

Henry LombardiNew York, USA212.441.2581 [email protected]

Tariq TaherbhaiChicago, USA312.381.3484 [email protected]

Kevin WhiteBoston, USA617.457.7717 [email protected]

Robert HumphreysLondon, England44.20.708.60653 [email protected]

Michiel Ebeling KoningAmsterdam, Netherlands31.20.430.5846 michiel.ebeling.koning@ aon.nl

James MacNealLondon, England44.20.708.64353 [email protected]

Olof MångsStockholm, Sweden46.86.974.054 [email protected]

Ralf MinetStuttgart, Germany49.711.96030.1113 [email protected]

Francesco PeriniMilan, Italy39.02.45434.627 [email protected]

Latin America

Clemens FreitagSao Paulo, Brazil55.11.305.84864 [email protected]

Alexander RianoMiami, USA305.961.5917 [email protected]

Mariano VialeMiami, USA305.961.5921 [email protected]

Africa

Darlington MunhuwaniJohannesburg, South Africa 27.11.944.7219 darlington.munhuwani@ aon.co.za

Robbie RykenbergJohannesburg, South Africa 27.11.944.7171 [email protected]

Asia & Pacific

Alister BurleyMelbourne, Australia61.39.211.3138 [email protected]

James MaguireHong Kong, China852.2862.4293 [email protected]

Nicki TilneySingapore, Singapore65.6239.8745 [email protected]

Europe

Steffen AabelOslo, Norway47.482.56.003 [email protected]

Jean-David BenatarParis, France331.4783.0523 [email protected]

Alfonso Garcia LarriuMadrid, Spain349.1340.5446 [email protected]

Karl HennessyLondon, England44.20.708.64013 [email protected]

Middle East

Tony MeakinManama, Bahrain97.31.721.5208 [email protected]

North America

David BowcottToronto, Canada416.868.5909 [email protected]

Galen BrislanePembroke, Bermuda441.278.1219 [email protected]

Doug CorreaVancouver, Canada604.443.2483 [email protected]

Allan HetzToronto, Canada416.868.2417 [email protected]

Scott TretheweyMiami, USA305.961.5929 [email protected]

Matt WalshChicago, USA312.622.5962 [email protected]

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© Aon plc 2016. All rights reserved.The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

Risk. Reinsurance. Human Resources.

Global Construction & Infrastructure Market Update 2015 (Q4)

Engineering

Transcript of Global Construction & Infrastructure Market Update 2015 (Q4)