Global Marine and Energy Willis North American Energy Conference 2011 1 1 1 - 1 - Expect the...
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Global Marine and Energy Willis North American Energy Conference 2011 1 1 1 - 1 - Expect the Unexpected George Stratts, President Chartis Global Property Se p tem b e r 17 , 2 012
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Transcript of Global Marine and Energy Willis North American Energy Conference 2011 1 1 1 - 1 - Expect the...
Global Marine and EnergyWillis North American Energy Conference 2011
11
1- 1 -
Expect the UnexpectedGeorge Stratts, President Chartis Global Property
Sep
tem
ber
17, 2
012
Global Marine and EnergyWillis North American Energy Conference 2011
2
Table of Contents
I. Macroeconomic II. Energy InvestmentIII.Property Market UpdateIV.Upstream and DownstreamV. Trends and Expectation
Global Marine and EnergyWillis North American Energy Conference 2011
3
I. Macroeconomic Conditions
44
Real GDP Growth
Source: AIG Global Economics baseline forecasts
2010 2011 2012 Forecast Date G7 Canada 3.21 2.41 2.10 2012Q3 France 1.57 1.70 0.10 2012Q3 Germany 3.56 3.06 0.75 2012Q3 Italy 1.76 0.54 -2.22 2012Q3 Japan 4.48 -0.72 2.32 2012Q3 United Kingdom 2.09 0.65 0.19 2012Q3 United States 2.39 1.81 2.20 2012Q3 Europe (non G7) Austria 2.46 3.04 0.62 2012Q3 Ireland -0.43 0.70 -0.22 2012Q3 Netherlands 1.63 1.25 -0.86 2012Q3 Norway 0.64 1.53 2.36 2012Q3 Poland 3.87 4.30 2.56 2012Q3 Portugal 1.40 -1.65 -3.42 2012Q3 Russia 4.34 4.31 4.19 2012Q3 Spain -0.07 0.71 -1.66 2012Q3 Turkey 9.25 8.49 2.07 2012Q3 Asia Australia 2.51 2.05 3.22 2012Q3 China 10.45 9.24 8.24 2012Q3 Hong Kong 7.09 5.03 2.93 2012Q3 India 8.23 7.48 5.72 2012Q3 Indonesia 6.20 6.46 6.04 2012Q3 Korea 6.32 3.63 2.97 2012Q3 Malaysia 7.15 5.08 4.41 2012Q3 Philippines 7.63 3.91 4.73 2012Q3 Singapore 14.76 4.89 3.06 2012Q3 Taiwan 10.72 4.03 2.73 2012Q3 Thailand 7.81 0.08 5.13 2012Q3 Americas Brazil 7.53 2.73 2.26 2012Q3 Mexico 5.56 3.94 3.51 2012Q3 Other South Africa 2.79 3.26 2.26 2012Q3
Source: AIG Global Economics baseline
forecasts as of 08/2012
55
Real GDP Growth in USD
2011
Difference in bil. USD
2012
Difference in bil. USD
Source: AIG Global Economics baseline forecasts as of 08/2012
JPNTHASGPESPMYSITAHKGAUSGBRTWNCANBRAMEXKORFRARUSDEUINDUSACHN
-100 -50 0 50 100 150 200 250 300 350 400
ITAESPGBRFRASGPHKGTWNMYSTHADEUBRACANAUSKORMEXRUSINDJPNUSACHN
-100 -50 0 50 100 150 200 250 300 350 400
GDP by Market 2008-2035F
6Source: International Energy Outlook 2011, Report #: DOE/EIA-0484(2011), Release Date: September 2011, Next Release Date: May 2013
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
40,0002008
2015
2020
2025
2030
2035
Bill
ion
s U
S$ 2020
Global Marine and EnergyWillis North American Energy Conference 2011
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II. Energy Investment
South America
North Africa
West Africa
Middle East
OECD Asia
Mexico
Canada
OECD Europe
Africa
Caspian Area
Brazil
Non-OECD Asia
United States
Russia
0 5 10 15 20 25 30 35 40
2035 2008
8
Conventional Liquids Production
OPEC
Liquid fuels include all petroleum products, natural gas liquids, biofuels, and liquids derived from other hydrocarbon sources (coal-to-liquids and gas-to-liquids).
Non- OPEC
Millions Barrels Per Day
Source: History: U.S. Energy Information Administration (EIA), Office of Energy Markets and End Use. Projections: EIA, Generate World Oil Balance Model
9
Conventional Liquids Consumption
Million Barrels Per Day
Source: International Energy Outlook 2011, Report #: DOE/EIA-0484(2011), September 2011
Africa
Non-OECD Europe and Eurasia
Central and South America
OECD Asia
Middle East
OECD Europe
North America
Non-OECD Asia
0.0 5.0 10.0 15.0 20.0 25.0 30.0 35.0 40.0
2008 2035
10
World Net Electricity Generation Growth Projections
U.S. Energy Information Administration, International Energy Outlook 2011 DOE/EIA-0484 (2011)
World net electricity generation increases by an average of 2.3% per year from 2008 to 2035.
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
0.00
0.50
1.00
1.50
2.00
2.50
3.00
3.50
Net Electricity Generation
Delivered Energy Consumption
1990
1993
1996
1999
2002
2005
2008
2011
2014
2017
2020
2023
2026
2029
2032
2035
0.00
5.00
10.00
15.00
20.00
25.00
Non-OECD nations share of total consumption increases 28%.
53%
47%
60%
40%
OECD
Non-OECD
Non-OECD nations total net electricity generation increases 3.3%/YR led by Asia at 4%.
OECD nations total net generation in the OECD nations grows by only 1.2% over the same period.
OECD Pacfific
China OECD North
America
OECD Europe
East Asia South Asia
Latin America
Africa Russia Middle East
0
500
1000
1500
2000
2500
3000
2,475
1,913 1,877
1,351
809 782 745608
377257
New
Refurb
T&D
Total
11
World Outlook for Electricity Investment
Source: International Atomic Energy Agency, World Outlook for Electricity Investment. Bulletin 46/1Note: Projections are based in 2000 US Dollar
2001-2030
$US
Bill
ion
s
Expected cumulative Investment in electricity
infrastructureis $9.8 trillion
between 2001 and 2030
12
World Electricity Generation by Fuel
2008-2035F
U.S. Energy Information Administration, International Energy Outlook 2011, . DOE/EIA-0484(2011), September 2011
Renewables include hydro, wind, solar, geothermal, biomass, waste, and tidal/wave/oceanic energy
Liquids Nuclear Natural gas Renewables Coal0.0
2.0
4.0
6.0
8.0
10.0
12.0
14.0
1.0
2.6
4.23.7
7.7
0.8
4.9
8.4 8.2
12.92008
2015
2020
2025
2030
2035
67%
125%101%
89%
-22%
Global Marine and EnergyWillis North American Energy Conference 2011
13
III. Property Market Update
14
50
100
150
200
250
300
350
400
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
200
400
600
800
1 000
1 200
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Natural Catastrophes Worldwide 1980 – 2011
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
Meteorological events(Storm)
Overall losses (in 2011 values)
Insured losses (in 2011 values)
Source: MunichRe
2011 Overall losses totaled $380 billion; Insured losses totaled $105 billion
There were 820 Catastrophe events in 2011
2Q2012
• -$26 B Total loss vs. 10-Yr Avg of $75.6B
• $12 B Insured loss vs. 10-Yr Avg of $19.2 B.
15
Natural Disasters in the United States, 1980 – 2011
50
100
150
200
250
300
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
Overall losses (in 2011 values)
Insured losses (in 2011 values)
Hydrological events(Flood, mass movement)
Climatological events(Extreme temperature, drought, forest fire)
Geophysical events(Earthquake, tsunami, volcanic eruption)
Meteorological events(Storm)
Source: MunichRe
There were 171 Catastrophe events in 2011
2011 Overall losses totaled nearly $80 billion; Insured
losses exceeded $35 billion
16
Natural Catastrophes 2011
Source: MR NatCatSERVICE2011
Number of Events: 820
17
Capital Infusion into the Insurance Market
US, Bermuda, Europe: $3.0bn
A significant portion came from strategic
sponsors
Majority of capital raised in 14-month
period post Andrew
8 companies formed/recapitalized post
Hurricane Andrew
$4.0bn of capital
Established for a narrowly defined
purpose, to write property
catastrophe reinsurance
Post Hurricane Andrew
ExistingEntities
NewEntities
Total Common Raised: $7.0bnPercentage of loss Raised: 44%
US: $1.7bn
Bermuda: $2.6bn
Europe: $5.0bn
Majority of capital raised in late October and
November 2001
15 companies formed/recapitalized post 9/11
$10.6bn of capital
Majority incorporated and funded in Nov. 2001
(AWAC, Arch, Axis, Endurance and
Montpelier)
Post 9/11
ExistingEntities
NewEntities
Total Common Raised: $19.8bnPercentage of loss Raised: 50%
US, Bermuda, Europe: $10.2bn
Capital raises began as early as two
weeks after Hurricane Katrina
Companies have accessed the preferred
market for the first time after major
catastrophe
10 new Bermuda-based companies
$7.4bn of capital
Post HurricaneKatrina/Rita/Wilma
Total Estimated Losses: $65 bnb
Equity Immediately Raised
Total Common Raised: $17.6bnPercentage of loss Raised: 27%
Source: Wall Street Research. Note: Numbers are estimates of total capital through public and private transactions.
Total Estimated Losses: $40bna
Equity Immediately Raised
Total Estimated Losses: $16 bna
Equity Immediately Raised
(a) Loss given in 1993, 2001 dollars.(b) Includes $43bn for Katrina (including non-PCS and offshore), $10bn for Rita (including offshore), and an initial estimate of $12bn for Wilma (including Mexico).
ExistingEntities
NewEntities
18
Combined Ratios Calendar Year vs. Accident Year
105.
6
107.
8
110.
1
115.
9
107.
3
100.
1
98.3 10
0.9
92.4
95.5
105.
1
101.
9 105.
9
114.
7
107.
8 111.
8
107.
4
108.
3
105.
3 109.
2
109.
2
110.
0
112.
3
100.
8
96.6
96.0
100.
6
93.9
97.4
105.
5
105.
7 109.
4
115.
7
106.
9
108.
4
106.
4
105.
8
101.
6
80
85
90
95
100
105
110
115
120
92 94 96 98 00 02 04 06 08 10ECalendar Year Accident Year
Accident year results show a more significant deteriorationin underwriting performance. Calendar year results are
helped by reserve releases
Note: 2005 reserve development excludes a $6 billion loss portfolio transfer between American Re and Munich Re. Including this transaction, total prior year adverse development in 2005 was $7 billion. The data from 2000 and subsequent years excludes development from financial guaranty and mortgage insurance. Sources: Barclay’s Capital; A.M. Best.
1992–2010E1
Geographic Diversity No Longer Provides Natural Hedge Against Catastrophe Loss
Asia PAC Australian Tropical Cyclone
U.S. Hurricane
United Kingdom Flood
Europe-Germany Flood
Far East-Japan Earthquake
California Earthquake Europe – Windstorm
DIVERSIFICATION
Total Risk Sum of Individual Risks
Writing Globally Has Its Benefits
Correlated Business Interruption (e.g. Japan Earthquake)
Limited Historical Experience
model miss (e.g. Katrina)
no model available (e.g. Thailand Floods)
Poor data quality
Mispriced Risks Can Offset These Benefits
Modeled vs Non – Modeled/Under Modeled Perils in 2011
23
US Winter Storm CAT 35
US Spring Storms CAT 42&43
US Winter Storm (Oct 30) Tropical Storm Lee CAT 61
US Winter Freeze CAT 36
Brazil LandslideBrazil Floods (Jan)
Australia Brisbane Floods incl Cyclone Yasi
NZ Christchurch EQ CAT 04
Thailand Floods
Typhoon Roke
Typhoon Talas
Kitami Hail Storm
Modeled Perils Non – Modeled/Under Modeled PerilsNote: US – Region specific CAT have been highlighted in next
slide
Hurricane Irene CAT 59
Japan Earthquake
US catastrophe in 2011 ($35.9 Billion in Losses)
24
Midwest Tornadoes incl Joplin CAT 48
Midwest & Southeast Tornadoes CAT 46
Southwest Windstorms CAT 63
Northeast Tornadoes CAT 49
Midwest Storm CAT 53
Mississippi River Floods CAT 06
Washington Harbor Flood
Virginia Earthquake CAT 08
Midwest Hail Storm CAT 55
Southeast Tornadoes CAT 44
Modeled Perils Non – Modeled/Under Modeled Perils
Globalization Driving Paradigm Shift in Risk Analysis
• Urbanization
• Emerging Economies
• Population Growth
• Value Aggregation
• Supplier Interdependency
Global Marine and EnergyWillis North American Energy Conference 2011
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IV. Upstream and Downstream
27
Capacity is approaching the USD 2 billion mark. Attractive business program limits of $B for operating business and $3.6B for offshore construction business is achievable …Source: Willis Energy Market Review 2012
Source: Willis Energy Market Review 2012 28
On a gross basis, 2010 is going to be the worst non-windstorm affected underwriting year of the last two decades – 2011 may be worse
Source: Willis Energy Market Review 2012 29
While overall capacity has continued to increase, it is neither deployed often nor provided from a wider range of leading insurers. As a result
rates continue to creep upward. Source: Willis
Source: Willis Energy Market Review, 201230
While North American Downstream market capacity has begun to decline, its International Counterpart continues to grow
Source: Willis Energy Market Review, 2012 31
Excluding the Gulf of Mexico windstorm losses in 2005 and 2008, 2011 is the largest loss year recorded in 20 years
Source: Willis Energy Market Review, 2012 32
Correlation between Capacity and Rate has weakened over the last couple of years.
Capacity and Complexity
33
$8 Billion investment that floats
34
LNG liquefaction plant production capacity,
Increase is due to advancement in
production technology and equipment as well as the economies of
scale to meet increasing demand.
LNG Plants Under Construction
Capacity (mtpa)
Values
Gorgon 3x 5 $43 B (inc o/s)
PNG LNG 2x 3.3 $15.7 B
Curtis Island Queensland LNG 2x 4.25 $31 B
Gladstone GLNG 2x 3.5 $18.5 B
Ichthys 2x 4.2 $34 B (inc o/s)
Wheatstone LNG 2x 4.3 $29 B
LNG construction costs started to skyrocket from about $400/mtpa in 2004 to over $1000/mtpa in 2008
35
Refinery Construction Costs
IHS CERA DCCI - The IHS CERA DCCI is a proprietary measure of project cost inflation similar in concept to the Consumer Price Index (CPI). It provides a benchmark for comparing costs around the world and draws upon proprietary IHS and IHS CERA databases and analytical tools
IHS CERA
The IHS CERA Downstream Capital Costs Index (DCCI) rose 1.5% in first quarter 2012 to a new high of 198. The IHS outlook is for the DCCI to increase 5.8% for the year
Source: http://www.ihs.com/products/cera/energy-report.aspx?id=1065968509
Global Marine and EnergyWillis North American Energy Conference 2011
36
V. Expectations
"It's tough to make predictions, especially about the future". Yogi Berra
37
Balance of 2012 and Beyond
Capacity in the Market at Present CAT Risk
Potential for Volatility is Ever Present CAT Losses
Modeled Un-modeled
Low Returns on Capital/Inability to Cover Cost of Capital Solvency II Supply Chain
Complexity and Size of RisksScale is RequiredExpect the Unexpected
3838
Chartis is a world leading property-casualty and general insurance organization serving more than 40 million clients in over 160 countries and jurisdictions. With a 90-year history, one of the industry’s most extensive ranges of products and services, deep claims expertise and financial strength, Chartis enables its commercial and personal insurance clients alike to manage virtually any risk with confidence.
Chartis is the marketing name for the worldwide property-casualty and general insurance operations of Chartis Inc. For additional information, please visit our website at www.chartisinsurance.com. All products are written by insurance company subsidiaries or affiliates of Chartis Inc. Coverage may not be available in all jurisdictions and is subject to actual policy language. Non-insurance products and services may be provided by independent third parties. Certain coverage may be provided by a surplus lines insurer. Surplus lines insurers do not generally participate in state guaranty funds and insureds are therefore not protected by such funds.
The data contained in this presentation is for general informational purposes only. The advice of a professional insurance broker and counsel should always be obtained before purchasing any insurance product or service. The information contained herein has been compiled from sources believed to be reliable. No warranty, guarantee, or representation, either expressed or implied, is made as to the correctness or sufficiency of any representation contained herein.
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