SOLVING THE RISK MANAGEMENT NEEDS OF THE NUCLEAR REVIVAL

Transcription

1 SOLVING THE RISK MANAGEMENT NEEDS OF THE NUCLEAR REVIVAL

2 REVIVING THE NUCLEAR POWER OPTION Satisfying our ever-growing demand for electricity and protecting air quality to minimize global warming are dual imperatives that are not always compatible. One unexpected solution to this apparent conflict is a revival of the nuclear power industry. After some two decades of decline in many places in the world, nuclear power is on the verge of a renaissance in North America while seeing continued growth internationally. With the latest nuclear technology and even more advanced products on the drawing board, a safe and climate-friendly energy source appears to be on the horizon. Risks of course remain a highly complex and specialized set of risks. To meet the risk management needs of the organizations that will lead the nuclear power revival, Willis has established a dedicated nuclear team comprised of experts from across our global company. The new team cements a long-standing position of leadership in the sector. Willis has handled the placement of nuclear construction insurance on the majority of the nuclear construction projects launched recently around the world. These include the latest unit under construction at Qin Shan, China; the next four units to be built by China Nuclear Power; and the latest Electricite de France unit under construction at Flamenville, France. Nuclear projects are challenging because of their sheer size and because they usually encompass multiple contracting parties, all with specific interests. Willis works with the project principals to ensure that a broad insurance program provides the best protection available for all parties involved. Willis is arguably the world leader in establishing owner-controlled insurance programs (OCIPs) and contract-controlled insurance programs (CCIPs) and building them to suit the contractual arrangements between the principal parties. 2

3 INSURING NUCLEAR CONSTRUCTION PROJECTS During most of the construction of a nuclear power plant, the risk is not unlike that of any other large power generation plant. It is only at the point that nuclear fuel is introduced to the site that the risk profile changes materially. Under a basic construction timeline, the nuclear fuel is not normally brought on site until the reactor and other hot zone/nuclear island equipment have completed cold testing and are ready for hot testing and commissioning. Typically this will be 48 to 60 months into the construction project. The risk presented by nuclear fuel, however, colors the development of a risk management strategy from the beginning. Most insurers have nuclear exclusions that restrict their capacity to their own net capability, without recourse to reinsurance, leaving most insurers unable to provide sufficient limits for nuclear generation facilities. This gap is filled by a specialist nuclear insurance market made up of mutual insurance companies and national nuclear insurance pools that can provide the required insurance capacity. In most cases, the construction risk is borne by the traditional construction market until fuel is introduced on site, at which point the nuclear insurance market takes over. This can happen at the time the fuel arrives on site, at the time the fuel is loaded into the reactor vessel, or when the reactor begins full operational testing. When the nuclear insurers step in, they may take over 100% of the risk or merely the nuclear risk, with the balance of the construction risk retained by the conventional construction insurers. Alternately, the nuclear insurers can provide coverage from the outset of the construction project. When nuclear construction first began in the U.S., this was the case for plants utilizing an annual policy form. This approach was appropriate, given the financing of the projects at the time: utilities issued bonds to cover the cost of construction and financed the projects on their balance sheets. Now, nuclear projects may employ more conventional financing models, where projectspecific lenders finance a great portion of the project. Multiyear policies covering the entire project are usually required by lenders. As the world s leading construction broker, Willis is uniquely positioned to provide the advice and transactional services required to answer the numerous insurance needs associated with these types of projects. This is usually accomplished through an OCIP that is tailored to meet the projects specific needs and helps keep the insurance costs to a minimum. There are an enormous number of exposures that can impact a nuclear construction project and Willis can help identify them and design the proper program structure to address them. NEW TECHNOLOGY In the nuclear revival, manufacturers of nuclear power reactors and associated nuclear plant equipment have been upgrading 1980s designs to make them safer while offering enhanced power generation capability. The Nuclear Regulatory Commission has reviewed or is reviewing these designs and providing certification, paving the way for the construction of the next generation of nuclear power plants. New designs under consideration include: GE 1300 Mwe Advanced Boiling Water Reactor GE1390 Mwe ESBWR Westinghouse 1300 Mwe System 80+ Westinghouse 600 Mwe AP 600 Westinghouse 1000 Mwe AP 1000 Areva 1600 Mwe EPR 1700 Mwe Mitsubishi US-APWR To properly handle the insurance on the new plants, your broker must understand these technologies. This allows us to talk knowledgeably with insurers and provide them with the technical information they will need to underwrite the risk. 3

4 THE WILLIS NUCLEAR TEAM The Willis nuclear construction team encompasses more than 30 professionals, ranging from those with nuclear engineering experience to brokers who have developed the insurance programs commonly used to cover the broad range of risks found on nuclear power generation construction projects and operational sites. Our team is global, gathering resources located in North America, London, Bermuda, Europe and Asia. The team offers services from initial risk identification through the construction phase, including the handover to the nuclear operators as fuel arrives on site. Each part of the process has different risk management and brokerage requirements. Offering truly comprehensive risk management services requires resources beyond the nuclear team. Supporting the team are experts from our Utility and Energy practices, as well as resources in the traditional insurance product lines one would associate with a nuclear construction project: Property, Casualty, Construction, Political Risks and Environmental. Your Willis team may further expand to include specialist structured risk and reinsurance professionals as needed. Your Willis team: Provides knowledge and expertise Understands your business and your risk profile Provides contract review services Assists in developing tailored insurance contracts, including policy contract wordings analysis and development of endorsement wording Assists in developing alternative solutions to clients problems, as needed Assembles knowledge of the insurance market participants likes and dislikes Offers knowledge of market capacity and underwriting philosophy Maintains regular interaction with underwriters to determine trends and rate movements Offers experience in large claims settlements A PLATFORM FOR SUCCESS The broad knowledge base and skill sets provided by our practice groups, combined with the Willis business model, result in a clear differentiation between our service offerings and others available in the marketplace. Willis Client Advocates offer a central point of contact for all your insurance and risk management needs. Their task is to understand your business with the goal of protecting the physical assets of your balance sheet as well as the liabilities you assume in your day-to-day operations. Whatever your question, your Client Advocate is the place to start. 4

5 Through our Glocal service, not only are we where you are, but we bring Willis resources from wherever they are located right to your doorstep. Our One Flag culture integrates Willis knowledge and personnel into a true team rather than simply a collection of resources. We have a worldwide reputation in the construction marketplace for our credibility, a reputation built on experience, knowledge, flexibility and performance. Through our strong market presence we place over $1.5 billion worth of construction premiums globally we have a competitive advantage. We forge strong relationships and are instrumental in developing new and exclusive products. We offer established expertise in all aspects of OCIP programs for construction projects. We understand current international insurance and reinsurance markets, improving our ability to negotiate with insurers and reinsurers at the highest levels from a position of strength to achieve the most competitive premiums and the broadest covers. Engaging a dedicated security rating resource to scrutinize the insurance and reinsurance markets on a consistent basis further improves our marketing efforts. We provide engineering services to help clients identify and reduce exposure to loss. We offer a committed claims handling service that helps deliver the results that you should expect from the global and reinsurance markets. WHERE IT HAS WORKED SO FAR The experience gained from each nuclear project makes us better prepared to develop solutions that are both innovative and practical for the next project. Below is a selection of the nuclear projects for which we have provided risk solutions. PROJECT LOCATION PROJECT LOCATION Qin Shan China Ikata Japan China Nuclear Power China Kashiwazaki Japan Flamenville France Monju Japan Genkai Japan OHI Japan OUR PRODUCTS Our principle products include: Construction/Engineering All Risks Advance Loss of Profits/Delay in Start-Up Nuclear Decontamination and Cleanup Nuclear Property Insurance Nuclear Liability Insurance Contractors Annual Programs Professional Indemnity Pollution & Environmental Bonds and Surety Marine Transit Marine Delay in Start-Up Political Risks TAILORED SERVICES FOR OWNERS AND CONTRACTORS A comprehensive risk management solution requires service at every step of the way, from risk identification to claims support. RISK IDENTIFICATION AND ANALYSIS We identify risks that might adversely affect completion of a project on time, on budget or to specification. We analyze the insurability of those risks, advise on risk retention and prepare an outline of insurance solutions to the parties involved to optimize the final degree of risk retention, mitigation and transfer. We are expert in: Hamaoka Japan Uljin Korea Higashidori Japan Chernobyl Ukraine 5

6 Construction All Risks Program Construction Time Element Exposures Construction Transit Exposures Casualty Wrap-up Programs Surety CONTRACT REVIEW AND DRAFTING OF RISK PROVISIONS We advise on appropriate revisions to insurance-related indemnity provisions contained in commercial contracts. Insurance summaries or draft wordings are available to assist you with commercial contract negotiations. During the development phase of the project, the review of the contractual obligations contained under EPC contracts, suppliers contracts, manufacturers warranty contracts, etc. is critical. PRODUCTION OF UNDERWRITING PRESENTATIONS Our underwriting presentations are thorough and professionally conducted. We spend time with the client and, if appropriate, members of the project team in order to understand all of the risk management and control features implemented. This ensures that each risk attracts the attention it deserves from the insurance market. LIAISON AND NEGOTIATION WITH FINANCIERS OR LENDING INSTITUTIONS We are expert in the provision of services for projects where structured finance is employed and where lending is on a nonrecourse or limited-recourse basis. We offer expert advice on both the value of coverage requirements being set by lenders and the impact of loan covenants imposed by lenders. DESIGN OF TAILORED POLICY WORDINGS We design policies around your needs, including protection for your key assets, liabilities and financial exposures. MARKETING OF RISKS Our preeminent position in the worldwide construction insurance market allows us keep our clients fully up to speed on market developments. It also allows us to comment widely on the scope and availability of coverage from insurance markets globally and to optimally negotiate exclusive capacity. MARKETS There are a number of markets with an appetite for insurance nuclear power plant construction projects (see appendix). These insurers include mutual insurers developed purely to insure nuclear risks, mutual insurers involved in a broad range of energybased exposures, and conventional investor-owned insurers with an appetite for nuclear construction programs. The key to selecting the right insurers is to identify those companies that have three qualifications: An appetite for this class of business The expertise to fully analyze the risk The financial security to handle a risk exposure that will stretch over an extensive multiyear period. We help our clients decide which insurers to partner with and secure the most advantageous construction insurance program. 6

7 CLAIMS You buy insurance to protect against the unexpected losses that can have a severe impact on your balance sheet or on the lenders financing the project. We have a wealth of experience in the conventional loss experience at large power generation construction projects, and in nuclear losses. Our claims management experts are an integral part of our client servicing team, playing an active role in designing claims procedures, establishing policy liability, and negotiating quantum with insurers leading to claim settlements. This coordinated approach ensures that when a loss does occur all parties are aware of policy issues. Early involvement of the claims team facilitates efficient loss notification and adjustment. This helps minimize any delays in project completion and the adverse financial consequences these may bring. CONTACT DETAILS For further information contact your local Willis representative or: NORTH AMERICA David Scott Willis Americas 100 Matsonford Road One Corporate Center Building 5, Suite 200 Radnor, PA U.S.A. Tel Fax david.scott@willis.com Paul Becker Willis Construction 26 Century Boulevard Nashville, TN U.S.A. Tel Fax paul.becker@willis.com Ayesha Navarro Willis Canada 145 King Street West, Suite 1200 Toronto, Ontario, M5H 1H8 Canada Tel Fax ayesha.navarro@willis.com EUROPE David Warman Willis Construction Risks 8th Level, The Willis Building 51 Lime Street London, EC3M 7DQ U.K. Tel. +44 (0) Fax +44 (0) david.warman@willis.com James Cook Willis Construction Risks 8th Level, The Willis Building 51 Lime Street London, EC3M 7DQ U.K. Tel. +44 (0) Fax +44 (0) james.cook@willis.com 7