Global RiskDialogue

InfrastructureTransforming the world

SPECIAL TOPIC

Infrastructure development is critical to support social progress and economicgrowth. Gigantic building projects in energy, transport, water supply or telecommu-nications are carried out both in emerging and established markets. The insuranceindustry supports these enormous investments as risk consultant and risk carrier.

Allianz Global Corporate & SpecialtySpring 2013

10No scratches

Risk visit at a Volkswagen car storage compound

14At a turning point

Brazil massively expands its infrastructure

22 Prepare for contingenciesHow the role of corporate risk management is changing

www.agcs.allianz.com

EDITORIALContents

0302

Infrastructure projects are booming.But demand for them still remains enor-mous. In emerging markets, one billionpeople do not have access to roads, 1.2billion do not have clean drinking wa-ter, 2.3 billion do not have reliable ener-gy supplies, and four billion do not havemodern means of communication.

Expansion of infrastructure is the en-gine – and a precondition for – growth.Without streets, railways and ports, natural resources cannot be extractedand goods cannot be transported.Western nations are also investing intheir own infrastructure, but for dif-ferent reasons – their aim is moderni-zation and integration of communica-tion, transport and energy networks.

As these gigantic projects are carriedout across the world, the insurance in-dustry is being called on more thanever before to serve as a risk carrier forsuppliers, construction companies andinvestors.

Axel TheisCEO Allianz Global Corporate & Specialty AG

14 At a turning pointBrazil modernizes its infrastructurein the run-up to the sporting events

26 Digging deepCrossrail sets new risk managementstandards in tunneling

08 Targeting the deadlock Three Allianz units pool expertise and resources on infrastructure for governments and investors

SPECIAL TOPICInfrastructure

IN BRIEF

04 News07 4 Questions for ...

Michael Bruch, AGCS Head of R&DRisk Consulting, on the risks of nanotechnology

REGIONAL EYE

RISK FUTURES

30 The Tropics: home to cities of the futureGerhard Schmitt explains what Western cities can learn from fast growing megacities

31 Picture riskHigh flying risk consulting

31 Calendar

IN CONCLUSION

Ambitious plans: Brazil invests billions of euros in the construction of power stations, roads, railways and airports.

Boring under London: Crossrail is Europe’s biggest engineering project, building 26 miles of newtunnels. It will deliver new train services and reduce journey times for millions of passengers .

Reducing damages: The VW plant in Zwickau uses a newAGCS analysis tool for vehicle storage compounds.

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PUBLISHERAllianz Global Corporate &Specialty AG, Fritz-Schäffer-Str. 9, D-81737 Munich,Germany © Allianz GlobalCorporate & Specialty. Allrights reserved. Contents ofthis publication may not bereproduced whole or in partwithout written consent of thecopyright owner. Global RiskDialogue is published twiceannually. The cut-off datefor this issue’s editorial con-tent was January 30, 2013.

OVERALL RESPONSIBILITYHugo Kidston, Global Headof Communications, Allianz Global Corporate &Specialty, Fritz-Schäffer-Str. 9, 81737 Munich, Germanyhugo.kidston@allianz.com

PUBLISHING HOUSEMedienfabrik Gütersloh GmbH, Neumarkter Str. 22, 81673 Munich, Germany

EDITORIAL STAFFHeidi Polke-Markmann

ART DIRECTORNadine SchröderStephanie Ritter

PRINTERMedienfabrik Gütersloh GmbH,Gütersloh

PHOTO CREDITSAGCS, Arena da Amazônia,Areva, Bombardier, Cross-rail, Agencia Estado, corbis,fotolia, Shutterstock, Publi-city/Andrade Gutierrez.

DISTRIBUTION TERMSAllianz Global Risk Dialogueis published twice a year.Excluding VAT and ship-ping costs, the price percopy is € 20.00.

CONTACT FOR SUBSCRIPTIONagcs.dialogue@allianz.com

ISSN 2191-7566

DISC LA IMERContributors´comments do not nec -essarily reflect the views of the editoror the publisher. The editor reservesthe right to publish articles in an ed-ited and abridged form. Informationin this publication provides only a general outline of subjects and doesnot substitute for individual advice.Al-though care has been taken incompiling this information, neitherthe publisher nor the editor acceptsresponsibility for errors or omissionsor for any damage, loss or expenses incurred from the use of any infor-mation contained herein. The pub- lish er assumes no obligation to up-date any forward-looking informa-tion contained.

IMPRINT

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10 Safe storage AGCS risk engineers inspect a vehicle storage compound at the Volkswagen plant in Zwickau

22 Prepare for contingencies

One topic, two perspectives: an interview with Paul Carter and John Marren on risk management

Global risks at a glance News from AGCS and Allianz www.agcs.allianz.com

IN BRIEF

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Threatenedsupply chains

The world is at greater risk as per-sistent economic weakness sapsability to tackle environmentalchallenges, according to the WorldEconomic Forum’s Global Risks2013 report. The report highlightswealth gaps followed by unsus-tainable government debt as thetwo most prevalent risks, in a sur-vey of over 1,000 experts and in-dustry leaders. Respondents rated

Storm Sandy was the deadliest storm to hit the northeastern US in 40 years and thesecond most expensive in the nation’s history, according to a report by the NationalHurricane Center.

The hurricane center directly attributed 72 deaths to Sandy, from Maryland to NewHampshire. According to the center's records, that is more than in any hurricane tohit the northeastern US since Hurricane Agnes killed 122 people in 1972. More than650,000 homes were damaged or destroyed by the storm, and more than eight mil-lion households lost power, according to the report.

The report estimated the damage caused by Sandy at US$50 billion, greater thanfrom any US storm or hurricane except Katrina in 2005, which caused US$108 billionin damage, or US$128 billion adjusted to 2012 dollars. Storm Sandy has had an esti-mated total impact on Allianz of US$590 million.

According to a new survey of 600executives from Deloitte, global ex-ecutives are increasingly concernedabout the growing risks to their sup-ply chains and about costly impactssuch as margin erosion and inabili-ty to keep up with demand.

An alarming 45 percent of surveyedexecutives said their supply chainrisk management programs areonly somewhat effective or not ef-fective at all. The top two challengeswere “lack of acceptable cross-functional collaboration” (32 per-cent), followed by “cost of imple-menting risk management strate-gies” (26 percent). There are alsoorganizational factors making ef-fective supply chain risk manage-ment more difficult: Three-quartersof executives said their supply chainrisk management model was or-ganized around “silos”, which couldlead to a lack of supply chain visi-bility and collaboration.

Second-costliest storm

On collision courserising greenhouse gas emissionsas the third most likely global riskoverall. John Drzik, CEO of OliverWyman Group said: “Two storms– environmental and economic –are on a collision course. If wedon't allocate the resources need-ed to mitigate the rising risk fromsevere weather events, globalprosperity for future genera-tions could be threatened.” Rising greenhouse gas emissions are a major global risk.

Devastatingeffects ofstorm Sandy.

Already a trusted partner and insurer of sports, culture and youth, Allianz is now en-tering the world of music: Allianz and the pianist Lang Lang have started a globalpartnership. Lang Lang will become a global Allianz brand ambassador. At the sametime, Allianz will sponsor a dedicated youth program initiated by Lang Lang Inter-national Music Foundation.

Chinese born pianist Lang Lang is an international superstar, who tours the worldwith more than 120 performances every year. “We are proud to partner with LangLang. As a global company, we believe in the power of music as a global language”,says Oliver Bäte, member of the Board of Management of Allianz SE.

In the same rhythm

The business publica-tions Global Finance,European CEO and In-telligent Insurer recog-nized Allianz GlobalCorporate & Specialty(AGCS) with numerousawards, including bestglobal general liabilityinsurer and best Di-rectors & Officers insur-er in Europe. AGCS CEOAxel Theis was also honored at the BadenBaden ReinsuranceConference by Intelli-gent Insurer, who named him InsuranceLeader of the Year amongEuropean insurers.

Numerousawards

A new face, a new region – fromthe Netherlands to the Maghrebstates, and covering France,Spain, Italy, Belgium and Luxembourg. Patrick Thiels hasjoined Allianz Global Corporate& Specialty (AGCS) to lead the new “Mediterranean” re-gion. Meanwhile ChristopherLohmann, as new CEO Germany& Central Europe, overseesAGCS’s activities in Germany,Austria and Switzerland and isresponsible for 500 employeesin six offices.

New faces in regions

Allianz Group reported strong results acrossall business segments for the financial year2012, doubling its profit. Revenues reached€106.4 billion for the year, an increase of 2.7percent compared with €103.6 billion in theprevious year. Operating profit rose 20.8 per-cent in 2012 to €9.5 billion from €7.9 billion in2011. “Our results show how well our busi-ness model can handle the various turbu-lences from the financial crisis,” said MichaelDiekmann, CEO of Allianz SE.

Strong figures for Allianz,historic milestone for AGCS

2012 also marked a significant milestone forAGCS’s development since its creation in2006: gross premiums written exceeded €5billion for the first time, totaling €5.3 billion.AGCS attracted new business of almost €1 bil-lion which supported this growth. However,natural disasters like storm Sandy as well as abroad range of mid-sized to large losses lefttheir marks, and the combined ratio rose to 96 percent. Nevertheless, AGCS managed toproduce an operating profit of €420 million.

A new global partnership: Lang Lang and Oliver Bäte.

Patrick Thiels heads the new "Mediterranean" region of AGCS.

4 Questions for ...

One particular concern unites companies around theworld: their operations come to a standstill due to forcemajeure. Business and supply chain interruption, naturaldisasters as well as fire and explosion are the key risks faced by companies this year, according to the “AllianzRisk Barometer 2013”.

This survey was conducted at the end of 2012 by AGCS andgathered opinions from 529 corporate and industrial in-surance experts from across the Allianz Group on the mostimportant risks that companies in particular regions andsectors face in 2013.

The Allianz experts rate business and supply chain inter-ruptions as the biggest business risk (46 percent of re-sponses). Choosing to run lean global supply chains to re-duce costs, many companies lack alternative suppliers.The flooding disaster in Thailand showed that business in-terruption at a key supplier can cause a ripple effect feltacross an entire industry.

Natural disasters cause rising lossesIn many cases, business interruption is caused by naturaldisasters, the second-largest business risk (44 percent ofresponses). Although 2012 was a relative moderate catas-

trophe year, insuranceclaims caused by naturaldisasters have risen 15-fold over the past 30 years.And they will continue togrow because of the in-crease in insured assets inAsia, in particular, and theongoing shift towards de-velopment in high-risk coastal regions.

One “age-old risk” fea-tures surprisingly promi-nently on corporate agen-das: fire and explosionwas named as the third-most important globalbusiness risk. Fires are rel-

atively rare, but can cause high property and business in-terruption claims especially in manufacturing industries.Companies shouldn’t compromise on high fire protectionstandards due to economic pressure.

Digital dependenceBusinesses take some risks very seriously but widely under-estimate others. For example, IT failures can entail high eco-nomic losses in an increasingly digital economy. Nonethe-less, just 6 percent of Allianz experts think that their clientsare really aware of this risk.

Similarly, the risk of supra-regional power blackouts fea-tures registers only on the risk radar of few companies. Re-liability of power supply in industrial countries will decreasein the future due to aging infrastructure and the lack of sub-stantial investments. If a blackout occurs, the impacts aremuch higher today than 10 to 15 years ago due to the highdependence on information and communication technolo-gies and the lack of preparedness on the part of businesses.

What are nanoparticles and how are they used?Michael Bruch: Nanoparticles are tiny particles thatare only a fraction of a millimeter in size. They arefound in nature, but are now produced synthetically.As a result of the miniaturization process, these par-ticles can, at times, take on completely new physical,chemical or biological characteristics that differ fromsimilar “larger” particles. In today’s consumer world,nanoparticles are everywhere: they are found insunscreens, athletic apparel, food and packaging.They are used to treat cancer, to make car paintscratch resistant and to increase the lifespan of con-struction materials. Nanobatteries may facilitate abreakthrough in electro-mobility. And there arecountless other examples as well.

The commercial potential of these tiny partsdoes seem highly promising … Bruch: True, but there are risks as well. We can’t pre-dict their possible long-term consequences. Onlysome of the risks posed by nanotechnology over theentire product life cycle – from production to use todisposal – are known at this point in time. Could workers involved in producing consumer goods thatcontain nanoparticles develop chronic illnesses? Orcould consumers who later use these products windup with serious health problems? Could environ-mental damage occur if nanosilver were to accumu-late in lakes and streams? We do know that certainnanotubes resemble asbestos fibers, and nanoparti-cles can penetrate deep into lung tissue. But barely

any research has been done into the related envi-ronmental and health risks.

How do insurers view the new technology? Bruch: We have been providing coverage for yearsnow on a large number of nanotechnology productsthrough our liability and product tampering or recallinsurance. We evaluate these new risks on the basisof damage scenarios because there is no claims his-tory that our actuaries can draw on. As an insurer, itis important to us that companies using nanotech-nology adhere strictly to risk-prevention principles,including in such areas as worker safety. It is also im-portant to objectively evaluate the benefits and risksof nanotechnology over the entire product life cycle,as well as to openly discuss them. Here we can makea contribution as well.

As a consumer, how do you deal with nano-products yourself?Bruch: It’s not about promoting horror stories orstigmatizing individual products. Ultimately, con-sumers should be able to decide for themselves ifthey want to buy products that contain nanomateri-als. For this reason, I think it is a good thing thatEurope will require labeling of nanoingredients incosmetics this year and in food starting in 2014. International regulations are also going in this direc-tion. As an insurer, we believe these are positivesteps toward more transparency and consumer protection.

IN BRIEF

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They are tiny, but their commercial potential is huge:nanoparticles can be found in many industrial prod-ucts today. But possible long-term consequences ofnanotechnology have still not been fully researched.Michael Bruch explains the approach insurers take inassessing the risks posed by this new technology.

MICHAEL BRUCH

Michael Bruch is an en-vironmental engineerand economist whoheads the research anddevelopment depart-ment within Risk Con-sulting at AGCS. He isresponsible for identify-ing, monitoring andevaluating new tech-nologies and emergingrisks in such areas asnanotechnology, powersupply or cyber risks.His analyses form thebasis for developingloss-prevention pro-grams as well as newinsurance solutions. Be-fore starting in RiskConsulting at AGCS in2008, Bruch was a con-sultant and divisionhead in the Allianz Cen-ter for Technology.

Businesses fear standstill Michael BruchHead of R&D Risk Consulting at Allianz Global Corporate & Specialty (AGCS)

Allianz Global Corporate & Specialty (AGCS) conducted a global survey on themost important risks faced by companies in 2013.

WWW.AGCS.ALLIANZ.COM/ABOUT-US/NEWS/RISK-BAROMETER-2013

Allianz has embarked on a holistic partnership program to leverage its expertiseand resources on infrastructure with governments and institutional investors.

JONATHAN TILBURN

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REGIONALEYE

Together for a better infra-structure: experts of AllianzGlobal Corporate & Special-ty, Allianz Global Investorsand Euler Hermes cooper-ate to pool their expertiseon mega-scale projects.

WWW.AGCS.ALLIANZ.COM/GLOBAL-OFFICES

Targeting the deadlockby co-investing

Construction and infrastructure projects are a recog-nized fiscal stimulus strategy and one which govern-ments across the globe are employing in earnest to gen-erate growth in both developed and emerging econo-mies. Upgrading existing assets is also a key contributorto sustainable economic growth and there is an equallystrong appetite among governments for this to help kick-start growth in a stalling global economy.

Despite international governments’ intentions to com-mission infrastructure projects to stimulate growth, thecurrent reality is that traditional sources of funding forconstruction on this scale have dried up. Governments indeveloped economies are operating under the self-imposed constraints of austerity measures, which spellshrinking budgets and subsidies. Banks, under pressuresof their own, have also retreated from lending.

Because insurance must be in place to secure funding forthese projects to go ahead, Allianz Global Corporate &Specialty (AGCS) is witnessing firsthand how, despite in-surance programs being set in place for many projects,the funding is subsequently faltering. Allianz Global In-vestors (AllianzGI), which has extensive experience inoriginating and managing investment-grade infra-structure debt, also has a vantage point on the unhealthystatus quo and the pressing need for action to bring these pivotal projects to life.

Historically bank lending – rather than the debt capitalmarkets – has been the most common source of privatesector debt, owing to the time and complexities involvedin structuring the debt. The finance vacuum that their re-treat has left means the projects designed to bring fiscalstimulus are now themselves in need of fiscal stimulus.The banking downturn has created a stalemate scenario,which urgently requires a fresh approach to fund localprojects and to breathe life into wider economies. Theensuing financing gap between lenders and borrowerswill create substantial new opportunities for those insti-tutional investors who are nimble enough to manage thecomplexities of investing into infrastructure debt.

Bridge the funding gapWith all this in mind, Allianz has embarked on a holisticpartnership program to leverage the expertise and resources of AGCS, AllianzGI and Euler Hermes inter-nally and, externally, is now offering to co-invest with governments and institutional investors. This initiative,called One Allianz, aims to draw together various com-plex elements required to bridge the funding gap for se-lect infrastructure projects.

While the concept may be simple, managing and balancing these portfolios and the different interests ofall stakeholders requires the close collaboration of a

broad range of world-class expertise, a very strong bal-ance sheet and the ability to commit to projects thatshould last for decades. Allianz is almost uniquely pla-ced to capitalize on this opportunity given our existingrelationships with construction companies, infra-structure providers and long-term investors who arealways looking for ways to provide stable, high qualityreturns to their clients.

While the universe of infrastructure investment oppor-tunities is large and growing, selecting the right oppor-tunities for investment is critical. Every infrastructureinvestment presents unique characteristics: how essen-tial the asset is (such as transport networks or utilities),any regulatory factors, the operating environment (in-cluding future capital expenditures, tariffs/user fees)and many other factors that need to be analyzed and as-sessed. Demonstrating robust management of all this iscrucial in providing potential investors with the confi-dence and assurance to co-invest with us.

Infrastructure debt is gaining attentionThe partnership approach is timely for many institu-tional investors, as infrastructure debt is an area of growing interest. Investable long-dated infrastructuredebt is gaining attention particularly among pensionfunds and life insurance companies with long-dated lia-bilities. This is because it provides an attractive source ofstable but uncorrelated cash flows to enhance asset andliability management strategies. Infrastructure debtalso provides a promising fixed-income alternative tosovereign and covered bond portfolios, offering attrac-tive yields via an illiquidity premium and credit spread,paired with the safety of an underlying real asset withpredictable cash flows. And being at the top of the capi-tal structure renders achieving investment grade ratingsmore likely.

There are many elements and interests that converge inAllianz’s proposed solution to the problems associatedwith the collapse of the traditional markets that pro-vided infrastructure debt funding. Using the right vehi-cles and combined market-leading expertise, the ven-ture will marry the need that societies have for infra-structure projects with the long-term assets of insti-tutional investors. The co-investing partnership modelwill prove to be significant in overcoming the financingbottlenecks that are currently causing infrastructureprojects to stall and are hampering the economic re-covery and future growth.

LEWIS EDWARDSBroker Development Manager, AGCS UKlewis.edwards@allianz.com

Allianz Global Corporate & Specialty (AGCS) insures the vehicle storage compounds ofmany car manufacturers and has developed a model to evaluate and compare trans-port risks. An inspection of the storage compound at a Volkswagen plant in the easternGerman city of Zwickau shows how the tool is applied in practice.

HEIDI POLKE-MARKMANN

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RISKFUTURES

A sea of “anthracite”-shades, broken up by a brightsplash of color here and there. Gleaming new cars fromthe Volkswagen Group (VW) spread out as far as theeye can see. They are parked in neat rows, creating theimpression that a ruler was used to produce such pa-rade-ground order. These fledgling vehicles recentlyrolled off the assembly line and began their initiationinto the world of small and large dangers lurking onthe plant’s vehicle storage compound. Free-spiritedpebbles, carelessly opened doors and hard-hitting hailcan do more than just put a small dent in these cars.

Realizing this, manufacturers obtain transport insur-ance policies to cover the trip that takes the vehiclefrom the factory to the storage site and, ultimately, tothe dealer or customer, no matter whether the jour-ney is done by commercial vehicle, train or car-carry-ing ship. When damage does occur, the insurancecompany covers the cost of the vehicle or the repairsneeded to restore it to its original condition. VW’s ma-rine risks are covered by AGCS as lead insurer.

Florian Karsch, Team Director of Transport Insuranceand Risk Management at Volkswagen Versicherungs-vermittlung (VWV), handles several thousand claimseach year – from damage caused by pebbles to

capsized car-carrying ships. Overall, the number oftransport-related claims is falling. “We have maderisk management of our storage compounds a toppriority,” Karsch says. VWV has also hired a risk engi-neer, Torben Stadtaus, who serves as a technical pointof contact both inside and outside the company.

Detailed storage guidelines Stadtaus coordinates a range of risk-managementmeasures. VW’s guidelines fill more than 80 pages,spelling out in precise terms how vehicles are to bestored, handled and transported – beginning withbelt buckles that have to be covered up and ex-tending to the exact number of centimeters sepa-rating the parked vehicles from one another. “Wetest new prevention measures at one site and thensystematically introduce them at all plants,” Karschsays.

Joint inspections conducted by VW and AGCS areconducted to determine just how the comprehen-sive guidelines are being applied. “You really have togo to the site in order to get a feel for its special char-acteristics,” says Piotr Szymczak, Marine Risk Con-sultant at AGCS. Claims also require that specialprecautionary steps be taken from time to time.

Safely parked

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have been installed. And the plant’s own fire departmentwith 10 well-equipped vehicles and a trained crew canrespond within minutes.

As in all other temperate climates, the vexing issue of hailremains the biggest cause of damage to vehicles storedin open areas. “The relevant hazard maps show that theregion’s hail risk is in the mid-range. But we rate it somewhat higher owing to our own claims experience,”Szymczak says. Stadtaus agrees: “We expect to see thethreat of hail rise in northern Europe as a result of cli-mate change and are therefore expanding our protectionmeasures.” Overall, though, the hail threat at the storagearea is considered to be minor, because many of the ve-hicles are kept in a recently built parking garage or areprotected by a roof.

Security measures are also checked during the inspec-tion. Szymczak has no new recommendations for theZwickau team. But he knows from inspections of other storage compounds that one area is frequently inneed of improvement: “Organized gangs are becoming

The VW Group uses well over 200 vehicle storage com-pounds globally. Up to 30,000 vehicles can be parked onthe largest ones. On this particular day, Szymczak andSusanne Weber, Senior Underwriter Marine at AGCS,have traveled to eastern Germany, to the VW plant in theSaxon city of Zwickau. Every day, 6,850 workers producearound 1,200 Golf compacts and Passat sedans. Theplant site has about 3,000 parking places used to tempo-rarily store the brand-new vehicles.

In his first task of the day, Szymczak focuses on gettingan overview of the facility on paper: he runs down a listof questions with René Stenzel, who oversees vehicleshipping at Zwickau, and Daniel Schlefcke, who coordi-nates fire-prevention: What does the underlying sur-face consist of? What sort of fire prevention steps havebeen taken? This “storage scoring model” was devel-oped by AGCS in conjunction with VW and other manu-facturers to make it possible to evaluate storage com-pounds according to similar criteria (see infobox).Once the 45 questions have been answered, the nextstep is to head out to the vehicle storage compound it-self on this sunny, but chilly November day.

Low exposure to natural hazardsBefore setting off to Zwickau, Szymczak and Stadtausanalyzed the natural threats faced by the storage com-pound. The location appears to be exposed to few realdangers from bad weather and the forces of nature. Onceat the site, the experts again examine whether the area issubject to any flooding threat. But the Zwickauer Mulde,the local river, cannot flood the higher-lying factory site.

Szymczak has a very favorable impression of the overallcondition of parking areas at the plant, which was built in1990 and is operated by Volkswagen Sachsen GmbH. Allthe compounds are paved. Even when the AGCS risk engi-neer stoops very low, he does not see any loose objects orother problems on the surface. The parking areas are clearly marked and readily accessible, and the distancebetween the vehicles is generous.

The fire-prevention program fulfills high industry stan-dards: The ban on smoking is systematically enforced. Anadequate number of fire extinguishers and hydrants

PIOTR SZYMCZAK AGCS Marine Risk Consultantpiotr.szymczak@allianz.com

SUSANNE WEBERAGCS Senior Underwriter Marinesusanne.weber@allianz.com

FLORIAN KARSCH Team Director Transport Insurance and Risk Management atVolkswagen Versicherungsvermittlung florian.karsch@vwfs.com

TORBEN STADTAUSMarine Loss Control Engineer at Volkswagen Versicherungsvermittlung torben.stadtaus@vwfs.com

WWW.AGCS.ALLIANZ.COM/RISK-CONSULTING/MARINE

PREVENT HAIL DAMAGE

Often hail nets areused to protect carcompounds. Alterna-tively, manufacturersstore some of theirvehicles in halls orparking garages oflightweight materials.Hail mats have pro-ved to be of little useas they provide in-adequate much pro-tection from extremehail or lateral impacts.

“Smart electronic systems should be installed to protect the grounds and peripheral areas.” Piotr Szymczak,

AGCS Marine Risk Consultant

AGCS BENCHMARKING TOOLFOR STORAGE LOTSThe benchmarking tool for vehicle storage compounds wasdeveloped by AGCS transport insurance experts from riskmanagement and underwriting, in cooperation with manu-facturers. It is designed to evaluate and compare vehiclestorage compounds according to uniform standards. How-ever, it is also possible to consider special features of a par-ticular company.

Key element is a questionnaire that is used during an on-siterisk visit. Points are awarded in individual categories. Themaximum number of points is 150, with the average justunder 100 so far. The review includes these categories:

• Technical storage data: Is it a factory or port storage site?What’s the capacity? Which car brands are stored there? • Elemental dangers: How threatened is the site by hail,floods, storms, tornadoes and earthquakes?• Site-related risks: Are there any dangers in the immedi-ate vicinity or at the plant site (e.g. emissions)? Do rodentsor other pests pose a threat?• Condition of the storage compound: Is the compoundpaved or does it have cobble stones or loose gravel? Howare the parking places arranged and designated? • Handling of vehicles: How much space does the manu-facturer require between the parked vehicles? Are speed limits followed?• Fire prevention: Does the plant have its own fire depart-ment, and a sufficient number of fire extinguishers and hy-drants? • Control of access: Has an effective program to prevent in-truders from entering the site been put in place?• Site management: Is training provided in vehicle handling?How high is employee turnover in the affected areas?

The customer receives the scores and detailed feedback,both as an electronic report and as printed photo book. Onrequest, AGCS marine risk consultants will help introducethe recommended improvements.

Excellent prevention: Piotr Szymczak, AGCS Marine Risk Consultant (left), and DanielSchlefcke, who oversees fire-prevention at the Volkswagen plant in Zwickau, inspectfire extinguishers in the recently built parking garage.

MAJOR TRANSPORT LOSSESSinking of the “Tricolor”: In December 2002, the vehi-cle carrier “Tricolor” sank off the coast of France. Theship was carrying 2,871 new premium cars.

Hail damage in Emden: In June 2008, hail damaged30,000 new cars at the port of Emden. The damage raninto the tens of millions of euros.

Storm Sandy: The New York and New Jersey coastlineswere flooded in November 2012 – along with 16,000new cars, many of which were stored in the port of Ne-wark. The only option for them: the scrap heap.

Sinking of the “Baltic Ace”: In December 2012, the carcarrier “Baltic Ace” and the container ship “Corvus J”collided not far from Rotterdam. The collision killed 11people and sent 1,400 new cars, made in Asia, to thebottom of the ocean.

ever more brazen,” Szymczak says. “For this reason,smart electronic systems like video cameras, motion de-tectors or sensors on the fences should be installed as arule, to protect the grounds and peripheral areas.” Break-in protection also should not be ignored: A combinationof mechanical and electronic systems to secure the pe-riphery, plus security guards, promises to provide thebest security management.

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SPECIAL TOPIC

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Hypermodern: TheMonorail, which is cur-rently being built byBombardier in SãoPaulo, will carry morethan 48,000 passen-gers per hour from thetwo settlements VilaPrudente and CidadeTiradentes to the city.

ALEXANDER BUSCH

Brazil’s infrastructure is threatening to slow its growth. In the run-up to the sporting mega-events, billions are being invested in the construction of power stations, roads, airportsand railways. As an insurer, Allianz Global Corporate & Specialty (AGCS) is contributingto a new risk culture in mammoth building projects.

Brazil at a turning point

Power drives business, and business drives growth. Thephenomenal rise of the Brazilian economy in recent years is threatened by a risk which, in the worst case,could significantly impact the country’s future growthplans. This scenario could include blackouts lasting sev-eral hours across whole regions, fuel station shut-downs in the north and south of the country and a lackof cooking gas in São Paolo.

In early 2013, such a worst-case scenario threatenedparts of the vast country. As a result of a drought that had lasted for months, some regions of Brazil were at risk ofenergy blackouts due to a potential shortage of electric-ity, compounded by dwindling supplies of fuel and gas.This time, the scenario was not realized, but the riskhighlighted the challenges that Brazil’s economicgrowth poses to the country’s infrastructure.

The reason for such shortages is years of underinvest-ment in energy production. In times of drought, thisleads to supply shortfalls in energy production, as mostof the storage dams for the hydroelectric power plantsare nearly empty. These produce some 80 percent of Bra-zil’s electricity. The 37 oil- and gas-driven power plantsthat are on standby for emergencies and times of peakdemand have already been operating at full capacity formonths now.

Lack of distribution networkThe operators lament that they simply cannot getenough fuel, the market has been swept clean. Of the to-tal 73 gigawatt hours (GWh) of electricity, the thermalpower plants produced one-sixth with their 12 GWh atthe beginning of 2013. This, however, requires privateand public sector operators to import fuel at high prices,exacerbating the already strained conditions in the fuelsupply market. For, even if they do import, they are im-mediately faced with the next problem: Brazil doesn’tyet have the infrastructure it needs to import and dis-tribute around the country what will soon be one-fifth of its total fuel. The ports, fuel depots and thedistribution network are not geared to handle suchquantities.

The strained situation in the power industry and theripple effect it is having on other infrastructural weak

“Supporting engineeri ng projects with technical expertise and insurance cover is a key part of our busi ness.” Angelo Colombo,

CEO of AGCS Brazil

spots show that Brazil’s infrastructure is inadequate.This is the result of past failure to invest in it: since the oilcrises in the 1970s and the turn of the century, outlays ininfrastructure investment have largely stagnated. At itslowest in 2003, investment was just 0.1 percent of grossdomestic product.

At the same time, Brazil’s growth has picked up: to aboutfour percent on average per annum between 2003 and2010. And with every uptick in growth, the lack of goodquality roads, overstrained ports and energy shortagesturn into brakes on growth in the world’s sixth-largesteconomy. Last year, Brazil’s economy barely grew, fol-low-ing growth of just three percent in 2011.

Knock-on effects on agricultureThe Brazilian agricultural industry – one of the country'smost competitive sectors – was painfully aware of the ef-fect of Brazil's infrastructure on the economy. The farm-ers achieved record yields with their corn and soy cropsin the last harvest season. While the drought in the UScaused prices to soar, mountains of corn and soy piledup in the fields in western Brazil because they could notbe transported elsewhere. The farmers were unable toship their corn because of the overburdened highwaysand ports.

Outside each of the three largest ports in southern Bra-zil there are now several dozen container ships waitingto unload, with waiting times of up to two weeks. Thirtykilometer queues of trucks at the ports are an everydayoccurrence. The mayor of Rio de Janeiro has now woncourt backing to ensure that the tankers and containerships waiting outside Copacabana and Ipanema nolonger spoil the views from its beautiful beaches. A sec-ond shipping route to the port under Sugarloaf Moun-tain is now hastily being created to reduce the unload-ing times.

Brazil’s governments recognized that infrastructurewould become the bottleneck to the country’s econom-ic growth. In 2007, then president, Luiz Inácio Lula daSilva, presented a program to speed up growth (Progra-ma de Aceleração do Crescimento, PAC for short). Thetotal amount of PAC funding, which was earmarked largely for infrastructure projects, was €380 billion for

Brazil is expanding its transport systems. President Dilma Rousseff announced tenders to build over 50,000 kilometers of roads as well as 12,000 kilometers of trailroad tracks. Already operating in São Paulo: the Rodanel Mário Corvas (photo above) and the Metro, which is being continuously extended (photo below) .

To tackle bottlenecks in energy supply, new power plants and refineries are beingbuilt in the vast country. The Abreu e Lima Refinery in Pernambuco state is currentlyunder construction with operations planned to start at the end of 2014 (photo abo-ve). One of the largest hydro power plants in the world, the almost 30 years old Itai-pú dam, was expanded in 2007 with two new turbines (photo below).

For the Soccer World Cup 2014 and the Olympic Games 2016 many stadiums arebuilt or renovated. The photo above shows the constuction site of the spectacularArena da Amazônia in Manaus. To ensure smooth transport for millions of visitors,Brazil is not only investing in roads and railways, but also in airports. Every city withmore than 100,000 inhabitants should get its own regional airport to disburdenthe large hubs such as the international airport in Rio de Janeiro (photo below).

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ANGELO COLOMBO CEO AGCS Brazil angelo.colombo@allianz.com

DRAULT ERNANNYHead of Market Management, AGCS Brazildrault.ernanny@allianz.com

ANDREAS HOELSCHERHead of Engineering, AGCS Brazilandreas.hoelscher@allianz.com

JONAS RASTELLIRisk Consulting Engineering, AGCS Braziljonas.rastelli@allianz.com

WWW.AGCS.ALLIANZ.COM/GLOBAL-OFFICES

the period to 2010. In 2010, the PAC was extended to2014 and given a further sizable injection of funds.

The implementation of the PAC had strong political sup-port in order to remove initial bureaucratic and legal ob-structions. Although challenges remain, there have beensignificant improvements in planning and execution, butalso in environmental licensing and in the private finan-cing of long-term projects.

Active response Overall, companies are expected to play a greater role inthe future by contributing more to Brazil's infrastructureexpansion. Therefore, President Dilma Rousseff has launched a concession program for the private sector. Af-ter all, the 2014 World Cup soccer tournament and the

2016 Olympic Games are just around the cor-ner. Brazil definitely doesn’t want to see visi-tors in overcrowded airports or in permanenttraffic jams on the roads, or see games beinginterrupted by blackouts.

In a first move Rousseff announced tenders tobuild over 50,000 kilometers of roads as well as12,000 kilometers of railroad track at the endof last year. In addition, the details of conces-sions for five airports and five ports are ex-pected to be released this year. The moderni-zation of more than 100 small provincial air-ports may also make its way onto the agenda.Oil and gas fields are to be put up for tenderagain after a five-year break. Potentially, theplan for constructing the high-speed rail link

between Rio de Janeiro and São Paulo will also be presen-ted in 2013. Here, the Brazilian government is planningto divide the construction into sections and auctionthem off to ten different consortiums in order to speedup the construction of the line.

Competitive marketThe planned infrastructure projects provide a promisingoutlook for insurers, including Allianz Global Corporate& Specialty (AGCS), which received a license in Decem-ber 2012 to set up a local reinsurer named Allianz GlobalCorporate & Specialty Resseguros Brasil S.A. (AGCS Brazil,for more information see infobox). “Providing insurancefor engineering and infrastructure projects accounts fora large part of our business. Our clients appreciate ourtechnical expertise and financial strength,” says AngeloColombo, who heads the new reinsurer AGCS Brazil.

With its construction all-risks insurance, AGCS Brazil isinvolved in the construction of dockyards, power plants,roads and railways. Policy holders are leading Brazilianconstruction and energy companies, as well as foreignsuppliers of turbines or transport systems. Once the in-dustrial plants start operations, AGCS Brazil offers pro-perty cover for plant and equipment as well as machin-

1918

On-site inspectionsof the insurer havebecome a commonrisk managementstandard in Brazil.AGCS risk engineerJonas Rastelli, here at the constructionsite of a power plant,pays particular atten-tion to the lowest layer of earth and thefoundations consid-ering the special soilconditions in Brazil.

is establishing itself in the Brazilian construction busi-ness. “Just a few years ago, questions about soil samplesor technical construction data would have been unusu-al.” Nowadays, however, Brazilian construction compa-nies are more prepared to share information with bro-kers and insurers.

On-site inspections by Allianz’s risk engineers are alsofully established now. AGCS civil engineer Jonas Rastellidoesn’t balk at tough travel schedules and has just re-turned from the building site of a power plant in the northeast of Brazil. The only way of getting there was afour-hour journey along gravel tracks from the nearestregional airport in São Luís (Maranhão).

Challenging soil conditionsRastelli inspected the soil compaction, the concrete mixand the standard of the quality control for incoming ma-terials and construction progress. However, he is also in-terested in the training and working conditions of thebuilders. “Every building site is dependent on its em-ployees,” Rastelli stresses, “and that applies even more tothe major projects that are so common here.” The build-ing sites, which are often located in remote corners of thecountry, far from civilization, sometimes employ up to15,000 builders and technicians. So minimizing work-force-related challenges on a construction site can be animportant part of a risk management program to ensuremaximum productivity and effective maintenance ofplant and machinery.

Rastelli pays particular attention to the excavations andfoundation construction. Brazil faces almost no severethreat from natural disasters – there are no volcaniceruptions, typhoons or earthquakes – but torrential tropical rains can disrupt and delay building projects.Furthermore, sudden floods can cause Brazil’s highly ab-sorbent sandy soil to swell, or lead to landslides – bothwith lethal consequences for foundations.

AGCS EXPANDING IN BRAZILAllianz Global Corporate& Specialty (AGCS) hascontinued to expand itsglobal reach with theopening of its new localreinsurer in Brazil in Ja-nuary 2013. Allianz Glo-bal Corporate & SpecialtyResseguros Brasil S.A.(AGCS Brazil) is head-quartered in Rio deJaneiro with anotheroffice in São Paulo, and is the 13th local rein-surer to join the Brazilian market. Standard& Poor’s consider the new branch “strategi-cally important” for the AGCS Group andhave assigned AGCS Brazil the global ratingof “A -” and local rating of “AAA.”

Country manager is Angelo Colombo, whohas led AGCS business in the region since2009, two years after the Brazilian state-controlled monopoly came to an end andlegislation opened the market to foreignreinsurers. AGCS operated then only on anadmitted reinsurer’s license while develop-ing its strategy for South America within itsplans to grow in emerging markets. “Re-ceiving our local reinsurer’s license in De-cember last year was a critical step for us,”says Colombo, “and allows us now to bemuch more active in the market. As a localreinsurer, we can offer more of our valuedservice to clients and further grow ourbusiness.”

Brazil already represents about 50 percentof AGCS’s market potential in South Americaand, under current plans, will be the futurehub of operations in this region. Gross writ-ten premiums from South American busi-ness are expected to reach more than €350million in total by 2015. AGCS aims tostrengthen its client services in growth mar-kets; Drault Ernanny leads this front in Brazilas Head of Market Management. “The Brazi-lian reinsurance market is very dynamic,” hesays. “As we strive to expand and continu-ously improve our Brazilian business model,it is essential that we have local experts onthe ground to better serve our clients, brokers and carriers.”

EXOTIC VENUES

In 2014, Brazil willhost the World Cupand is spending morethan 12 billion eurosin preparation. 12stadiums are beingbuilt or renovated.Certainly the mostexotic of the sportingvenues is Arena daAmazônia for 42,500spectators, which isbuilt from scratch inManaus, in the middleof the tropical rainforest.

ery breakdown insurance, for instance as lead reinsurerfor one of the world’s largest energy generation plants.

New risk management cultureThose wanting to play a part in major projects need to re-act fast to requests for proposals despite the limitedavailability of information, says Andreas Hoelscher, incharge of underwriting AGCS Brazil’s engineering busi-ness. Local insurers as well as London-based reinsurerscompete for the attractive projects. Nevertheless, Hoel-scher notes that a new culture of risk management andtechnical underwriting based on technology know-how

Angelo Colombo, CEO AGCS Brazil.

Investing in infrastructure is critical to address development challenges in energy, water supply, transport and technology.

MARILEE WILLIAMS

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SPECIALTOPIC

Heavy spending

AUSTRALIASTATUS QUO AND STRATEGY: TheAustralian government has been working since 2008 to shore up itsexisting infrastructure, most of whichwas built after World War II, while setting national priorities for futureinvestment.

INVESTMENT: US$39 billion, includingUS$23 billion for regional transportinfrastructure

FOCUS: Airports, railways, roads andhighways, ports, urban mass transit

MAJOR PROJECTS: Port of Hastings ,Melbourne Metro Stage 1, NorthernConnector

EUROPESTATUS QUO AND STRATEGY: Euro-pean countries must focus on main-taining their existing infrastructure. Inaddition, the EU is promoting a seriesof infrastructure projects designed tofoster cohesion and growth, and con-nect facilities.

INVESTMENT: up to €50 billion bet-ween 2014 and 2020 (EU Commis-sion)

FOCUS: Transportation, energy, tele-communications and digital services

MAJOR PROJECTS: The Fehmarnbelt,European Grid Infrastructure, ØresundRegional Development, Crossrail

AFRICASTATUS QUO AND STRATEGY: Invest-ments into infrastructure have beensteady over the last years. However, seeking to overcome infrastructure defi-cits and set the stage for future growth,African nations are beginning to aggres-sively invest. In addition, a trans-conti-nental initiative “Programme for Infra-structure Development in Africa” (PIDA)is currently designing a strategic frame-work for the development of regionaland continental infrastructures anchor-ed in African ownership and domesticresource mobilization.

INVESTMENT: approximately US$360billion between 2012 and 2040

FOCUS: Transportation, energy, commu-nication technology, transboundarywater networks

MAJOR PROJECTS: BRICS Cable Plan,O3b Networks, Durban Waste to EnergyProject

NORTH AMERICA STATUS QUO AND STRATEGY: The USinfrastructure is sorely outdated andthe outlook is not good. Though fundsfrom the 2009 stimulus bill enacted tomitigate the effects of the financialcrisis were expected to go towardsshovel-ready projects, these werenever realized. The 2013 US budgetproposed an 80 percent increase ininvestments into infrastructure;however, with strong partisanship inCongress and given that the US Sen-ate hasn’t passed a budget since 2009,actual future investments into infra-structure remain unclear.

INVESTMENT: US$ 476 billion

FOCUS: Transportation and the crea-tion of a National Infrastructure Bank

MAJOR PROJECTS: The Alameda Cor-ridor, Eastside Access, World TradeCenter Redevelopment

LATIN / SOUTH AMERICA STATUS QUO AND STRATEGY: Theregion has large infrastructure gaps,which are contributing to a significantbottleneck to its sustainable growthand competitiveness. With no trans-continental infrastructure in place,most of the new infrastructure pro-jects are concentrated in Mexico, Peru,Chile and, in particular, Brazil which isset to host the 2014 World Cup and2016 Olympics.

INVESTMENT: US$450 billion (2011 to2015)

FOCUS: Energy, transport, airports,communication technology

MAJOR PROJECTS: Transolímpica,Cidade Inteligente Búzios (Latin Ame-rica's first smart city), South AmericanFiber Optic Ring

CHINASTATUS QUO AND STRATEGY: China’sinfrastructure expansion over the last20 years has been extraordinary. Thecountry has long been the world’slargest investor in infrastructure,building roads sometimes even beforethe towns that they ought to servewould exist.

INVESTMENT: US$1 trillion (12th Five-Year Plan beginning in 2011)

FOCUS: Roads, railways, utilities

MAJOR PROJECTS: Tianjin Eco City,subways systems in Guangzhou, Shenyang and Harbin

MIDDLE EASTSTATUS QUO AND STRATEGY: Notonly has the quality and quantity ofinfrastructure provision in the regionbeen lagging behind for years, theMiddle East also has the lowest privateparticipation by financing volume. Inthe wake of the Arab spring, govern-ments in GCC countries announcedplans to spend US$ 968 billion onambitious infrastructure projectsencompassing everything from energyto transport, healthcare to education.

INVESTMENT: US$97 billion for trans-portation in GCC countries from 2011to 2020; US$80 billion in Saudi Arabia

FOCUS: Transportation, utilities andsocial infrastructure facilities

MAJOR PROJECTS: Trans GCC Rail-road, Abu Dhabi Vision 2030, QatarWorld Cup 2022, Saudi Arabia’s railnetworks

Power Road and rail Air/seaport Water

Projected infrastructure spending in trillion US$ (2005 to 2030).

3.26

1.530.94

0.43

in trillion US$

0.23

0.54

0.31

0.02

in trillion US$4.97

1.461.01

0.08

in trillion US$

4.82

1.08

3.12

0.43

in trillion US$

9.04

4.23

2.110.51

in trillion US$

0.230.18

0.31

0.14

in trillion US$

Editor’s note: One of the key constraints to research on infrastructure is thelack of available, consistent data including volumes, asset values or publicspending. This infographic is based on various sources. All forecasts are sub-ject to change at any time and may not come to pass due to changes in mar-ket or economic conditions.

Sources: Morgan Stanley, Booz Allen Hamilton, Global Infrastructure Part-ners, World Energy Outlook, Organisation for Economic Co-Operation andDevelopment (OECD), Boeing, Drewry Shipping Consultants, U.S. Depart-ment of Transportation, U.S. Treasury Department, European Commission,PIDA, Nuqudy, The World Bank Group.

Both are engineers dealing with corporate risks, but their perspectives are very differ-ent. John Marren is responsible for risk and insurance management at the biopharma-ceutical company, CSL Limited. Paul Carter is the new Global Head of Allianz Risk Con-sulting at Allianz Global Corporate & Specialty (AGCS). We asked them about thechanging role of risk management and the risks that keep them awake at night.

HEIDI POLKE-MARKMANN

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SPECIALTOPIC

What does a typical day in your office look like?

John J. Marren: It involves a lot of meetings and phonecalls with colleagues and internal clients, addressingrisk management issues or claims. In projects, we arecurrently developing a new emergency response sys-tem and are upgrading the business continuity man-agement program for the corporate office. I am also re-viewing loss prevention for new facilities in Texas andGermany, and preparing for strategy meetings and riskreviews for an upcoming trip to our corporate head-quarters in Melbourne, Australia. Annually, we have tolook into our insurance portfolio and pick it apart toidentify any key areas to be adjusted. My key challengesare staying current on developments in a rapidly grow-ing company and managing many projects at once.

Paul Carter: In my new role, I ensure that the strategicpriorities of AGCS are translated into a tangible delivery

“Better preparefor contingencies”

from Allianz Risk Consulting for both our internal andcorporate clients. I am heavily involved in the decision-making on key projects such as new analysis tools oran upgrade of our web-based client interface and,being responsible for more than 250 engineers, alsohave to deal with many HR issues. I spend quite a lot oftime traveling, so days in the office are pretty muchblocked for meetings and conference calls. Still, I try tofoster an open door policy in the department and startby setting an example myself.

Do you remember one incident that has made a last-ing impression on your career?

John: I guess it’s always about losses. There is alwayssomething to learn about each individual loss – fromwhat caused it to how to get a company back on track.So, rather than remembering one single incident, Iwould say having been involved with various types of

“My biggest concern is aboutnatural catastro-phes as thesehave the possibil-ity to create hugelosses.”Paul Carter, Global Head of Risk Consulting at AGCS

PAUL CARTER: A DEDICATED PROPERTY ENGINEER From January 1, 2013, Paul Carter succeeded Gerhard Courage asGlobal Head of Risk Consulting at AGCS. He has been with Allianzfor almost 20 years. He joined what was then Allianz Cornhill In-ternational in 1994 as a Risk Engineer, initially dealing with a varied portfolio of large manufacturing accounts in both the UKand mainland Europe. In 1999, Paul became Manager of the UKProperty Risk Engineering team, where he was responsible for thedelivery of Property and Business Interruption loss control ser-vices for the UK Region.

In 2002, Paul was promoted to Head of the UK Risk Consultingteam and assumed responsibility for all lines of business withinthe risk engineering operation. In 2007, Paul relocated to the Mu-nich head-office of AGCS, where he was given the role of GlobalTechnical Manager for AGCS with responsibility for setting thetechnical direction for the newly formed global risk engineeringoperation. Later, he was appointed Global Head of Property RiskConsulting at AGCS.

Paul has a graduate degree in History and Architecture and apost-graduate degree in Fire Engineering. He then undertook re-search into the use of chemical extinguishing agents with parti-cular reference to halocarbons and thermal decomposition prod-ucts. Paul is one of a handful of engineers working within the in-surance industry to have been elected as a Fellow of theInstitution of Fire Engineers.

events from a fire at a plant to a liability claim has pro-vided with me crucial experience that has assisted ineach subsequent crisis event being handled a little bitbetter.

Paul: As a field engineer, I’ve experienced the best andoccasionally the worst from various industries. I will never forget being told one day that one of the best risksI had ever inspected had suffered a severe fire loss. It turned out that multiple seats of fire had been mali-ciously set in the facility and the installed sprinkler sys-tem simply could not cope with such a scenario. Theloss was devastating, despite the client having done allthat was asked and even more.

John: That’s true, and it also goes to show that whenyou think you’ve taken every measure and thought ofeverything, losses can still happen. That’s why we haveinsurance.

2524

A risk that keeps you awake at night?

Paul: My biggest concern is related to natural catastro-phes, as these incidents have the possibility of creatinghuge losses. It is not just about a possibly de-vastating, but somehow limited, property loss at one site;it’s about entire regions and industries being affected inour strongly globalized, interconnected economy.

John: Again, for me it’s no risk in particular, but any-thing which would have a major impact on our ability tocontinue business operations is always a concern. Westrive to be well-prepared for contingencies in all facetsof our business. As a biopharmaceutical company, wealways have to keep in mind that any mishap at one ofour facilities will not only affect our own business suc-cess but also potentially the well-being of thousands ofpatients.

What has been the biggest risk you have ever taken?

John: Driving on the left side of the road in Australia!

Paul: Riding down a mountain side at over 80km anhour on a full suspension mountain bike. I only realizedhow risky it was when I had a really bad crash.

Which emerging risks should companies be betterprepared for?

Paul: As my home computer was recently hacked, Iwould say that cyber crime will become far moreprom-inent in the future. Business interruption nottriggered by physical damages such as power black-outs is already a major issue and will continue to in-crease in scale.

John: Anything which can have a material impact onyour supply chain. Whether it be sourcing, transpor-tation and logistics, or in manufacturing, the loss of akey element of your supply chain with limited contin-gency capability is something to always consider. And Ialso agree with Paul, the reliance on IT systems is without comparison in our history. Therefore, ensuringthat critical systems are resilient and safeguardedagainst attack is a rapidly growing priority.

What’s the best piece of risk management advice youhave been given?

Paul: One of my former bosses said to me: “Nothing willever be attempted if all possible objections must beovercome”. It’s better to start improving your prepared-ness step by step rather than aiming for the one bigthing from the very beginning and end up with no im-provements at all.

John: I was taught many years ago when first starting inrisk management: Operate as though you don’t have in-surance as a financial backstop! This will compel criti-cal thinking about the risks inherent in whatever busi-ness you are in.

How has the role of corporate risk managers or insu-rance risk engineers changed over the last years?

John: The role has become broader. We’re not just in-surance managers anymore. Holistic Enterprise RiskManagement concepts have become the mantra of

BOOK ON RISKJohn Marren’s favo-rite book is SinglePoint of Failure byGary Lynch, whogives “some great in-sights on supplychain risk man-age-ment”. Paul Carter re-commends TheScience of Fear byDan Gardner because“it covers a diverserange of risks fromterrorist attacks andfinancial crises to climate change andcomputer hackers”.

today’s risk managers. You must understand your busi-ness well in order to be a suitable advocate for wiselyconsidering and accepting or transferring risk for thebusiness. Decisions might be made that don’t alwaystrack perfectly with your advice, but our job is to enablethe business leaders to make informed choices andavoid surprises.

Paul: The top business risks now look very differentfrom what they did just ten years ago and so we have toalign our risk consulting activities to these changingtrends. For instance, property risk engineers within large corporate insurers used to focus much of theirtime on physical asset protection. Nowadays, assessingand mitigating risks of business and supply chain in-terruption is a major part of property risk consulting.Our analysis of exposures to natural catastrophes hasalso become more detailed.

Which skills does a good risk manager or risk engi-neer require?

Paul: Within insurance-related risk engineering, obvi-ously a related technical background with extensive in-dustrial experience, but don’t forget that our businessis also about people. We are expected to discuss com-plex issues face to face with our clients, so risk engi-neers have to be good communicators who can talk thesame technical language and build relationships.

John: A good risk manager must be able to work with alllevels of people from the entire organization, starting atthe top with the CEO down to management and furtherto the shop floor. He must be willing to dive deeply intothe business in order to support the business ade-quately. Managerial and financial acumen are also es-sential. However, the risk manager’s role continues to evolve. In leaner and leaner organizations, it becomesmore critical to ensure preparedness for contingencies.

JOHN J. MARREN Director of Global Risk and Insurance Management for CSL Limited John.Marren@cslbehring.com

PAUL CARTERGlobal Head of Risk Consulting at AGCSPaul.Carter@allianz.com

“Operate as thoughyou don’t have insur-ance as a financialbackstop. This willcompel critical think-ing about risks.”

John J. Marren, Director of Global Risk and Insurance Management at the biopharmaceutical company CSL Limited

JOHN J. MARREN: RISK MANAGER OF THE YEAR 2012

John Marren is the Director of Global Risk and Insur-ance Management for CSL Limited, Melbourne, Aus-tralia, and its subsidiaries, CSL Behring and bioCSL.

John’s responsibilities include coordination and over-sight of all aspects of CSL’s Risk Management Process.He is also responsible for all corporate Property and Ca-sualty insurances of the biopharmaceutical company.CSL is a global leader in human plasma-derived pro-tein therapies and vaccines, that are used to treat rarediseases. CSL Behring employs over 9,000 people in19 countries.

Prior to CSL, John was Director of Risk Management forHenkel of America after having been Global Risk Man-ager for Firmenich International. He began his careeras a Property Loss Control Consultant for Factory Mu-tual. He then joined Johnson & Higgins (later Marsh) inroles in both engineering and broking.

John is a Chemical Engineering graduate of LehighUniversity. He holds his Professional Engineer licensein Fire Protection Engineering, and has achieved theChartered Property Casualty Underwriter designation.John was selected Risk Manager of the Year by BusinessInsurance in 2012.

27

SPECIAL TOPIC

NEIL HODGE

Crossrail’s plan to make London’s rail network fitfor the 21st century is Europe’s largest infra-structure project, and it highlights several riskmanagement challenges.

26

Diggingdeep

At an estimated cost of £14.8 billion, connecting 37 sta-tions and measuring 118 kilometers (73 miles) inlength, Crossrail is Europe’s biggest civil engineeringproject. The massive rail infrastructure program willlink stations such as Heathrow airport and Maidenheadin the west with Canary Wharf and Abbey Wood in theeast, and with Shenfield to the north east of the capital.

The route will provide a 10 percent increase to rail ca-pacity in the capital, as well as bringing an additional

1.5 million people within 45 minutes’ commuting dis-tance of London’s key business districts.

Scheduled to be completed and operational in 2018 –nine years after its May 2009 start date – five twin-boretunnels with a combined length of 21 kilometers willbe constructed under downtown London, while newCrossrail stations will be built at Paddington, BondStreet, Tottenham Court Road, Farringdon, LiverpoolStreet, Whitechapel, Canary Wharf and Custom House.

TONS OF EARTH

The tunnel boringmachines operate 24hours a day, grindingthrough London with100 meters per week.The six million tons ofearth they will re-move will be used tocreate a new naturereserve in WallaseaIsland in Essex.

Heavyweight helpers: Huge tunnel boring machines are used to construct the new Crossrailtunnels under London. Each of them weighs 1,000 tons and is up to 140 meters in length.

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These tunnels will weave their way between existingUnderground lines, sewers, utility tunnels and buildingfoundations from station to station at depths of up to40 meters.

The concept of large-diameter railway tunnels crossingcentral London to connect Paddington and LiverpoolStreet mainline stations was first discussed during the1940s. The term “Crossrail” emerged in the 1974 Lon-don Rail Study Report by a steering group set up by theDepartment of the Environment and Greater LondonCouncil to look at future transport needs and strategicplans for London and the South East. Although currentplans do not mirror the proposals, the recognition thatthere would be a need for more effective cross-Londonrail services has been around for 70 years.

Logistics at the forefrontThe project creates major challenges – logistical problems are at the forefront. As one of the world’s busiest capitals, London already suffers from trafficcongestion, so Crossrail’s management team has aplanned the project to ensure minimum disruption toroads and to rail and Underground services.

The city is also noted for its historic buildings. Of morethan 350 listed buildings that lie along the route of therailway, Crossrail needs to demolish only one of them.Allianz Global Corporate & Specialty (AGCS) is part of

SAFER CYCLING

Crossrail has trainedover 4,000 truckdrivers to date to incycle awareness andhas made additionalsafety equipmentmandatory on alltrucks and vans wor-king on the con-struction sites.

the group of insurers providing cover for the construc-tion project, insuring physical damage due to the con-struction works and the equipment used in the tunnel-ing process – including the eight tunnel boring ma-chines (TBMs) – and is also involved in the public liabili-ty insurance.

“The TBMs are powered by huge electrical motors, weighclose to 1,000 tons, and are up to 148 meters in length,and they need to have their power supply move forwardwith them as they bore through the tunnels at the target-ed rate of 100 meters per week,” says Paul Smith, UK En-gineering Underwriting Manager at AGCS.

Changing ground conditionsAccording to Clive Trencher, Senior Risk Consultant forConstruction and Engineering at AGCS, the project hasseveral major risks that need to be mitigated. “Firstly,the predicted ground conditions are likely to changefrom one location to the next. For example, in westLondon close to Paddington station the engineers willneed to dig through London clay, which requires aspecific set of tunneling equipment. In east London,however, engineers will need to use a slurry tunnelingmachine,” says Trencher.

“These present different construction and logisticalchallenges, such as the impact each kind of boring willhave on buildings above ground and how quickly the

material can be excavated, and these have to be fac-tored into the project,” he adds.

Over the past 10 years, better risk identification andmanagement has greatly reduced the likelihood of hazards. This is in no small part owing to better healthand safety guidance, significant advances in newtunneling and construction techniques, and to a jointeffort by London underwriters and representatives ofthe tunneling industry in 2003 to develop the JointCode of Practice for Risk Management of Tunnel Worksfollow-ing a series of tunnel construction disastersthat cost insurers more than US$600 million between1994 and 2003.

Supporting new safety standardsThe code stipulates that any project must have a for-malized risk management procedure to identify, eval-uate and allocate risk, and that risk assessments arerequired at each stage and summarized in appropri-ate risk registers that are constantly updated.

Crossrail’s legacy will ensure that key skills, sustain-able working practices and risk management – as wellas industry best practice – are promoted for the long-term through its Tunnelling and Underground Con-struction Academy (TUCA). This training facility sup-ports the key skills required to work in tunnel excava-tion, underground construction and infrastructure.

By establishing TUCA, which is the only soft-groundtunneling training facility in Europe (there is a hard-rock training center in Switzerland), Crossrail is con-tributing to the development of new qualifications andhealth and safety standards across the industry. Overthe lifetime of the project, TUCA will offer training to atleast 3,500 people in underground construction alone.

CROSSRAIL IN FIGURES• Crossrail is Europe’s biggest civil engineer-ing project with an estimated cost of £14.8billion. The project will connect 37 stationsand measure 118 kilometers (73 miles) inlength across London.

• The route will provide a 10 percent increaseto rail capacity in the capital, as well as bring-ing an additional 1.5 million people within 45minutes’ commuting distance of London’skey business districts.

• The project will deliver new train servicesand reduce journey times, with up to 24 trainsper hour across London between Paddingtonand Whitechapel during peak times.

• Each Crossrail train will be around 200 me-ters long and be able to accommodate up to1,500 passengers. Up to 200 million peopleare expected to travel on the network eachyear.

• Since the start of construction in 2009, over20 million hours have been worked. Over7,000 people are currently working on theproject at more than 40 construction sitesacross London.

PAUL SMITHEngineering Underwriting Manager, AGCS UKpaul.smith@allianz.com

CLIVE TRENCHER Senior Risk Consultant Engineering, AGCS UK clive.trencher@allianz.com

WWW.AGCS.ALLIANZ.COM/SECTORS

“Many construction and logistical challengeshave to be factored into the project.” Clive Trencher,

Senior Risk Consultant, AGCS UK

Without doubt, London’s Crossrail project will pre-sent management with many challenges over itsnine-year life cycle. But given the developments inrisk management in construction and tunneling inrecent years, these challenges will provide an oppor-tunity for managers to learn from the experience andconstantly improve practice for future large-scale in-frastructure projects.

Several new Crossrail stations will be built across London.

Date/Location Event Information

June 10–12 Airmic Conference 2013 www.airmic.comBrighton, UK Association of Insurance and Risk Managers

June 17–23 PARIS Air show www.paris-air-show.comParis Le Bourget, France

Sept 3–5 DVS Versicherungssymposium 2013 www.dvs-schutzverband.deMunich, Germany

Sept 29–Oct 2 Ferma Risk Management Forum 2013 www.ferma.euMaastricht, The Netherlands

Oc t 5–9 Insurance and Leadership Forum www.ciab.comColorado Springs, US The Council of Insurance Agents & Brokers

Oc t 24–26 Brazil Risk Management Forum 2013 www.abgr.com.brSão Paolo, Brazil Associação Brasileira de Gerência de Riscos

No v 4–7 Singapore International Reinsurance Conference www.sirc.com.sgSingapore

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Maximilian Mock, a risk consultant at Allianz Global Corporate & Specialty(AGCS), is dangling by a cable. Above him, a helicopter hovers in the sky. Belowhim, the nacelle of a wind turbine 90 meters above the surface of the open sea.Mock is lowered until he is brought safely to rest in the red protective cage.Now, he can get down to the business of taking a close look at the technology ofan offshore wind farm. He has already completed the necessary training – fromthe helicopter hoist course to survival training. The courses are part of the man-datory program for engineers and technicians involved in the construction,maintenance and repair of offshore wind farms. “It is unusual for insurers like us

to acquire these skills. But it is necessary if we intend to work successfully andprofitably,” says Robert Maurer, who oversees AGCS’s worldwide business withoffshore wind farms. Before AGCS decides to provide insurance coverage to themanufacturers and operators of wind farms, a team that now consists of sixAGCS engineering specialists closely examines the technology being employed.“We do not just want to evaluate the risks from the confines of our own offices,”Mock says. “We prefer to take a look at the nacelle or the transformer platformfor ourselves. The practical side always looks different from the theoreticalside.” Photo: Areva/Jan Oelker

High flying risk consulting

2013 Calendar

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tant stocks and flows in urban systems, as well as crea-ting models of them. In their work, the researchers ana-lyze such stocks and flows as material, water, energy, ca-pital, spatial density, landscape and information, whileplacing people at the center of their inquiry.

What can we learn from developments in new mega-cities? Sustainability is understood differently than inEurope, where we primarily think of urban sustain-ability in terms of energy consumption and CO2-emis-sions. After all, the majority of material hurdles to urba-nization have already been overcome. At the same time, European cities can learn from cities in Asia and the tro-pics that it is possible for people to live together peace-fully in densely populated areas.

In Singapore (which technically does not qualify as atrue megacity), more than 7,000 people of diverse back-grounds live together per square kilometer and still en-joy a high standard of living. Yet the city-state has asmaller ecological footprint than many major Europe-an cities – despite being home to the world’s second-largest harbor, and to refineries that generate an enor-mous amount of carbon emissions. How do residentsproduce so few emissions? Owing to the tropical cli-mate, heating is not necessary. And with less living space per capital, fewer construction materials and lessenergy for cooling are required. The high populationdensity also results in shorter commutes and distancesto travel; on top of this, high tax burdens limit the num-ber of privately registered cars.

Singapore is certainly an exception in Asia: for yearsnow, it has pursued strong environmental protectionpolicies while fostering economic growth, and it doesnot have to struggle with uncontrolled urban sprawl. Atthe same time, Singapore serves in some respects as anexample. By following this path, future cities can be sus-tainably developed and can avoid placing a huge bur-den on the environment, which cities in temperate cli-mate zones have done and are now working to reverse.

The tropics: home to cities of the futureWestern metropolises and new megacities can learn from each other in terms of urban development,claims Gerhard Schmitt, Director at the ETH-Singapore Center for Global Environmental Sustainability.

IN CONCLUSION

PROF. DR. GERHARDSCHMITT

Prof. Dr. GerhardSchmitt is a professor ofinformation architectureat ETH Zurich and director of the Singa-pore-ETH Center for Global EnvironmentalSustainability. At this collaborative institute,150 researchers fromaround the world look athow tomorrow’s mega-cities can succeed inemploying sustainableurban development.From 1998 through2008, Schmitt served asvice president of plan-ning and logistics at ETHZurich. He played a sig-nificant role in develo-ping Science City, ETH’snew campus, which is amodel university for the 21st century.

Metropolis or monstrosity? Megacities like Tokyo, Los Angeles and Sao Paulo all have a unique and unde-niable allure. In today’s world, dozens of cities have po-pulations that surpass the 10-million mark. And moreand more of them are springing up in a broad geo-graphic band stretching north and south of the equator.Their development largely follows the same growth pat-terns seen in Europe and North America during the In-dustrial Revolution.

Those of us in Europe, in particular, are often unaware ofthe pace of growth in the new metropolises in the tro-pics. The development processes taking place in thesemegacities have valuable lessons for Europe and NorthAmerica. While temperate climate zones are largely see-

ing living space per capita increase, emerging cities inthe tropics are experiencing accelerated growth in theiroverall populations. In Africa, this is due to a combina-tion of higher birthrates and internal migration, where-as in Asia and South America this is primarily a result of rural-to-urban migration.

To get the full picture, though, it is far more telling to lookat residents’ needs in specific cities instead of just com-paring population sizes. After all, a major city in Ethiopia is going to be worlds apart from a city of the fu-ture in southern China, and a new urban developmentin Myanmar or Vietnam – which now has a populationthat exceeds Germany’s – will look different from one innorthern Brazil.

To understand the diverse development trajectories andpropose comprehensive solutions for sustainable urbandevelopment in various regions across the globe, ETHZurich and Singapore’s National Research Foundationco-founded the Singapore-ETH Center, with the FutureCities Laboratory, in late 2010. The center serves as a re-search institute, think tank and urban laboratory where,currently, 150 researchers study urban metabolism byholistically examining various topics relating to impor-

“In the new megacities, sustainability is understood differently than in Europe.“