infrassure quarterly issue 21 - infrassure: for essential

Infrassure Quarterly Issue 21

IQ - Infrassure Quarterly, Issue 21, August 2013

CONFERENCES RIMS 2013 Infrassure attended the RIMS (Risk & Insurance Management Society) 2013 Annual Conference & Exhibition in April. This year, the four day conference visited Los Angeles, California, and was attended by almost 9,000 brokers, risk managers, and other industry professionals, providing Infrassure with the opportunity to enhance global professional relationships on a face to face level. Preparations are already underway for next year’s event in Denver, Colorado.

FERMA 2013Infrassure will also once again host a stand at the FERMA (Federation of European Risk Management Associations) Forum. This year’s event takes place in Maastricht, 29 September – 2 October, and is expected to attract over 1500 risk professionals from around the world.

SITE SURVEYInfrassure recently conducted a site survey at the Incheon-Gimpo Highway in South Korea. Infrassure’s technical expertise will help to ensure a proactive loss control approach is applied to this USD 1billion construction project. For more information on the project please visit www.infrassure.com/reference_project

Infrassure News in Brief

Construction on the world’s first project to turn coal seam gas into liquefied natural gas commenced in 2010 and first LNG is scheduled for 2014. Construction includes: 540km buried pipeline network, to transport natural gas from the Surat Basin gas fields in Queensland, to a new LNG plant on Curtis Island near Gladstone. The LNG plant will be comprised of two processing units, with a design life of at least 20 years, capable of producing a total of 8.5 million tonnes of LNG a year. Additionally the site can accommodate an expansion to 12 million tonnes of LNG a year, subject to demand.

Queensland Curtis LNG project, Australia

LNG PlantImage sourced from www.lngworldnews.com

August 2013

Net premium earned 66,100 163’295

Net claims incurred -76’738 -173’983

Net underwriting result -10,639 -10,688

Operating expenses -13,162 -29,390

Financial and other income 13,069 41,746

Income (loss) before taxes -10,731 1,669

Net income (loss) after taxes -10,749 172

Net combined ratio 136% 125% (claims + expenses) / net earned premium

Number of employees 104 110

Income Statement01/2013 - 06/2013 01/2012 - 12/2012


into the cable which are outside specified limits. For insurers, the role of the Marine Warranty Surveyors is critical. They are the body responsible for approving procedures which must be strictly adhered to during the cable lay. Marine Warranty Surveyors also ensure that the cable lay is not performed during periods of poor weather which could endanger the cable. In extreme conditions this can result in the cable having to be cut and abandoned.

Cable claims can be costly when the time re-quired to perform a repair is extended due to the weather or lack of availability of vessels. The industry has a limited number of repair vessels and they may need to be fitted with special equipment, increasing the time re-quired for mobilization/demobilization. With repair vessels costing tens of thousands of Euros per day, the repair costs can amount to several million. Costs can spiral if the weath-er is unpredictable as limited windows of good weather, allowing enough time to per-form a repair, can be difficult to find.

A successful cable laying operation is a com-bination of a good survey of the seabed con-ditions (rocky, soft clay etc), selection of the appropriate vessel and cable trenching/bur-ial tools and, most importantly, an experi-enced team working in close cooperation with the Marine Warranty Surveyor.

Insurance policy wordings are evolving with-in the industry. Underwriters need to pay special attention to standby charges for ves-sels waiting on weather and mobilisation/de-mobilisation charges. Cutting clauses are common in cable laying policies, allowing the client to cut and abandon the cable in the case of bad weather. Sub-limits for bad weather standby charges, mobilization and demobilization charges and an understand-ing of potential repair vessel daily rates are key to be able to assess the possible costs of cable claims.

by Neil Andrews

Although the first subsea power ca-bles were installed over a hundred years ago, it is only recently that the demand for such cables has been so high, mainly as a result of the growth in offshore wind farms. In ad-dition, the plans for a European super grid in-clude laying subsea power cables between several European Countries such as UK/Ireland via Eirgrid and UK/Netherlands via Britned; the purpose being to open up mar-kets and improve the reliability of supply.

Even though the industry has an element of maturity, it still lacks the agreed stand-ard practice that exists in many other sec-tors. There is, however, a desire to pro-duce standards and best practices for laying, burying and maintaining subsea cables. The risk management group Det Norske Veritas (DNV) are working with the industry on a joint project aimed at addressing these issues.

Cable laying is a high risk environment; ca-bles are fragile, of high value and easily dam-aged. It is well known in the renewable pow-er insurance industry, particularly in offshore wind farm projects, that subsea cables are the cause of most claims in the sector.

Cables must be handled with care during the laying process and incorrect tensioning, po-sitioning or poor handling can lead to cables being damaged, often by introducing loops

Technology

Neil Andrews

Underwriting & Claims ManagerInfrassure

Insuring Subsea Cables


Submarine cablesImage sourced from www.subseaworld.com

August 2013


Risk & Insurance

In order to minimize the risk of breach of utmost good faith, some jurisdictions (Colombia, Costa Rica, Dominican Republic, Ecuador and Mexico) insist that reinsurers submit a questionnaire or proposal form to the reinsured, in order to fully assess the ex-tent of cover required. The reinsured should in turn disclose material information requested in the questionnaire, to ensure that a clear un-derstanding of the contract requirement can be agreed, and appropriate cover provided by the reinsurer, reducing the likelihood of a dis-puted claim.

Relevant contractual duties are common-ly worded as condition precedents to liabili-ty which, if breached, result in a rejection of liability for the particular claim. Unlike other jurisdictions, condition precedents to liability are unregulated in Latin America and there-fore meaningless in a contract subject to lo-cal legislation. Nevertheless, there have been instances in Brazil whereby local Courts have recognized clauses setting out the particular duties of the reinsured and the effects in case of breach; however claims can only be reject-ed if insurers can demonstrate that the loss occurred as a result of the breach.

by Claudia Challand

The process of underwriting risks in Latin America using standard wordings can lead to adverse consequences, particularly in countries where it is mandatory for reinsur-ance contracts to be subject to local legisla-tion. Legal provisions and decisions issued by the regulators impose certain duties upon the parties and can determine specific legal effects in case of breach, which differ from those found in English or North American ju-risdictions. Additionally, there are few reinsur-ance legal provisions in the region, with the consequence that laws governing insurance contracts are normally extended to apply to reinsurance contracts.

The comments below, although not exhaus-tive, seek to illustrate the importance of re-viewing and adapting standardized reinsur-ance wordings to local legislations.

The duty of utmost good faith is well estab-lished within Latin America, but breach of this duty does not necessarily result in poli-cy avoidance, as it would in English or North American law. In some jurisdictions, non dis-closure or misrepresentation leads to rejec-tion of the claim. In others, rejection is not en-forceable in cases of innocent non disclosure or misrepresentation, only in the event of de-monstrable fraudulent breach.

It Takes Two to Tango: Reinsurance in Latin America


Claudia Challand

Legal CounselInfrassure

Image sourced from www.antiqueprints.com

(continued on page 4)

August 2013


Incorporation of clauses allowing the reinsur-er to pay within “a reasonable period of time”, often found in reinsurance wordings, should also be clarified. A number of Latin American countries have fixed specific periods for pay-ment of claims, with penalty interests accru-ing upon expiry and the possibility of enforc-ing the claim through summary judgment or fast track proceedings.

In summary, local legislation does not always adhere to the intentions of standard wordings from other jurisdictions. A thorough local un-derstanding combined with honest and open communication between parties is vital to en-sure robust and fair coverage for risks.

In other countries such as Mexico, Peru, Colombia, Argentina, liability can be de-nied if a breach has prejudiced the reinsur-ers’ position.

In any of these jurisdictions it is more impor-tant to agree detailed clauses setting out the scope of the particular duties and the effects in case of breach, than to incorporate them as condition precedents. Some countries, in-cluding Panama, Peru and Colombia, recog-nize the term “warranty”, known as “garantía”, which if breached, would lead to policy ter-mination. It is therefore advisable in these countries to label relevant contractual duties as warranties rather than as condition prece-dents. Doing so will provide a clear legal ef-fect in case of breach of a relevant contrac-tual duty, avoiding any misunderstanding between parties.

Of particular note is the regional position concerning cut through clauses. Cut through clauses can be rendered unenforceable by legal principles that impose a clear separa-tion between insurance and reinsurance con-tracts. These principles apply in Argentina, Colombia, Costa Rica, Dominican Republic, Ecuador, Mexico, and Peru, where insured’s are not entitled to take direct action against reinsurers.

It Takes Two to Tango: Reinsurance in Latin America (continued)


Risk & Insurance

Impressum

Infrassure Ltd., Uetlibergstrasse 134A,CH-8045 Zurich / Switzerland Tel: + 41 43 500 12 00 Fax: + 41 43 500 13 00

www.infrassure.com

August 2013

infrassure quarterly issue 21 - infrassure: for essential

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