Global RiskDialogue

The BIG issueWorld record risks

SPECIAL TOPIC

Saudi Arabia’s Kingdom Tower will reach unprecedented heights of 1km becomingthe tallest building in the world. The Mojave Desert’s Ivanpah complex is the largest-ever solar thermal plant, set to power more than 140,000 homes. Removal of theCosta Concordia wreck presented the industry’s biggest-ever salvage operation. Unique projects present unique challenges. Risk management plays a crucial role in ensuring their success.

Allianz Global Corporate & SpecialtySpring 2014

07Loss Log

Global shipping losses analyzed by region, vessel and cause

09Regional Eye

The Asia Pacific region’s top business risks revealed

14The future of Europe’s energy supplyFacing economic, ecologic and technical change

Contents

02

09 Asia Pacific's top business risksA new study shows business inter-ruption and supply chain risks are major concerns

SPECIAL TOPICThe big risks

IN BRIEF

04 Global risks at a glance05 News06 The cost of the weather07 Loss Log: shipping08 4 Questions for ...

Alexander Mack, Chief Claims Officer, AGCS

REGIONAL EYE

“Mega ships“ pose significant challenges for salvage operations when things go wrong at sea.

California hotspot: The Ivanpah complex will generateelectricity for 140,000 homes.

26

PUBLISHERAllianz Global Corporate &Specialty SE, 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 March 31, 2014.

EDITORGreg Dobiegreg.dobie@allianz.com

PUBLISHING HOUSEMedienfabrik Gütersloh GmbH, Neumarkter Str. 63, 81673 Munich, Germany

EDITORIAL CONTRIBUTORSLaura BrownStuart CollinsNeil HodgeGregory MorrisAnnika Schuenemann

ART DIRECTORNadine SchröderStephanie Ritter

PRINTERMedienfabrik Gütersloh GmbH,Gütersloh

PHOTO CREDITSAGCS, Expert Days, EulerHermes, MTN, TITAN Sal-vage, Shutterstock, Corbis,fotolia

DISTRIBUTION TERMSAllianz Global Risk Dialogueis published twice a year.Excluding VAT and shippingcosts, the price per copy is€ 20.00.

CONTACT FOR SUBSCRIPTIONagcs.dialogue@allianz.com

ISSN 2191-7566

DISCL AIME RContributors´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.Although 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

18

18 Ivanpah – the largest solar plantProject cargo underpins solar energy innovation

22 Kingdom Tower – the tallest buildingA unique construction project facingunique risks

26 “Mega ships“ – the biggest vesselsAs Costa Concordia showed, salvaging such vessels is complex

Sour

ce: C

orbi

s

Sour

ce: C

orbi

s

03

RISK FUTURES

30 Changes to clinical trials insurance in EuropeProposed new legislation could make it easier to conduct clinical trials

31 AGCS content showcaseWhere to find the latest AGCS research and news

31 Calendar

New heights: Architect's vision for The Kingdom Tower, Jeddah, soon tobe the world's tallest building.

22

10 Out of AfricaGlobalization is creating opportunities for companies like African telecoms firm MTN

14 Debating the future of Europe's energy supplyThe energy market faces dramatic economic, ecologic and technical change

IN CONCLUSION

AGCS is now on TwitterFollow the Twitter handle@AGCS_Insurance

EDITORIAL

Jeddah’s Kingdom Tower will be 1kmhigh when completed, the tallestbuilding in the world. In the MojaveDesert the world’s largest solar ther-mal plant, Ivanpah, is already trans-forming the alternative energy land-scape. Last year’s successful parbuck-ling of the Costa Concordia wreck wasthe marine industry’s biggest-eversalvage operation.

Big projects can bring big challenges,particularly when they are record-breaking ones. This issue of GlobalRisk Dialogue explores some of theunique issues encountered whenworking on such initiatives.

And as it reveals, sophisticated risk management has a crucial role to playin ensuring their eventual success.

Axel TheisCEO Allianz Global Corporate & Specialty SE

Sour

ce: A

drian

Smith

& G

ordo

n Gi

ll Arc

hite

ctur

e

Global risks at a glanceIN BRIEF

04

Third Risk Barometer released

China’s transformation will normalize, and the USwill reindustrialize despite the vagaries of the Fed-eral Reserve’s easy money policies, according toAGCS sister company Euler Hermes. These are justtwo of the top 10 economic “game changers” thetrade credit insurer has forecast for 2014.

In addition, developed economies in North Ameri-ca, the eurozone and Japan should contribute moreto global growth, while major elections could cre-ate uncertainty in key emerging countries.

“While 2014 will still be a challenging year, manyeconomies will begin to gain more traction, espe-cially as activity is set to be more evenly distributeddue to improved prospects for advanced econo-mies,” said Ludovic Subran, Chief Economist at Euler Hermes.

View the full report at www.eulerhermes.com

Natural and man-made disasters caused about $40bn in insuredlosses last year, according to analysis from Guy Carpenter.

This is considerably less than the 10-year average loss of approxi-mately $60bn and well below the total in the significant years of 2005and 2011, when the annual global catastrophe insured loss bills ex-ceeded $100bn, driven largely by events such as Hurricane Katrina(2005) and the Japanese earthquake (2011).

The reinsurance broker said in its annual global catastrophe reviewthat the lower loss bill for 2013 could be partly attributed to the un-usually quiet 2013 Atlantic tropical hurricane season. About 47% ofinsured losses in 2013 were reported in the Americas, 31% in Europeand 20% in Asia and Australasia.

Guy Carpenter said last year would be remembered as the “year of theflood”, with significant events affecting Central Europe, Australia, theprovince of Alberta in Canada and Colorado in the US.

Business interruption (BI) and supply chain, natural catastro-phes, and fire/explosion are the principal risks that continue tooccupy the attention of global companies, according to the thirdannual Allianz Risk Barometer, which surveyed over 400 corpo-rate insurance experts from 33 countries.

The study highlights the increasing complexity of business risks,including a combination of new technological-, economic- andregulatory-related risks, potentially creating a systemic threat for

businesses. It suggests that companies can respond to these growing challenges through stronger internal controls, com-bined with a holistic approach to risk management.

The Risk Barometer also highlights that businesses are more con-cerned about cyber and reputational risks than ever before. Theyare also more worried about market stagnation/decline and,especially in growth markets, about talent shortages. View thefull report at www.agcs.allianz.com/insights

The year of the flood

10 economic“game changers”

Heavy flooding impacted Berkshire, UK, in February 2014.

Sour

ce: C

orbi

s

News from AGCS and Allianz www.agcs.allianz.com

05

AGCS opened its newestbranch in Stockholm, Swe-den at the end of the lastyear, further expanding itsservices within the Nordicregion. The specialty insurer

has been ac tive in the country for the past five years through a dedicatedkey account manager in Stockholm, supported by its Nordic region hubbased in Copenhagen.

The move to open a local branch office in Stockholm reflects the in -creasing demand for AGCS products in this market and the strategic im-portance of Sweden within the region. The branch is focusing on servingcompanies with a turnover in excess of €70m, typically those with multi-national operations extending beyond the country.

The opening of the Stockholm office takes AGCS’ total number of officesaround the world to 28. It is headed by Stig Jensen, CEO of AGCS NordicRegion and is located at Regeringsgatan 54 (7th Floor), 111 56 Stockholm,Sweden. T: +46 (0)8 210614.

Stockholm office open for business

With the fast-paced development of the inter-net and social media as global communica-tion tools, companies increasingly face newthreats to their reputation and IT systems.

To help protect businesses from these risksAGCS’ Singapore branch recently intro -duced its Cyber and Reputation Protectproducts to brokers and clients in Singa -pore, Hong Kong and Malaysia.

Cyber Protect covers a variety of first- andthird-party damage sustained by busi -nesses if they become victims of cybercrime or their customers hold them liable.Complementing this insurance offering,Reputation Protect helps companies pre -pare for the unexpected in the event of a cri-sis, enabling them to mitigate any negativeimpact on brand value.

According to Symantec research Singaporesuffered the highest cyber losses per capitaworldwide during the past year, rankingfour times above the global average cost pervictim of $298. Meanwhile, the Sophos Se-curity Threat Report 2013 found thateight of the 10 most threatened countriesworldwide are situated in the Asian region.

AGCS launches Cyber Protect in Asia

AGCS is the leading rein-surer for the construction ofthe Kingdom Tower in SaudiArabia, which will becomethe world’s tallest build ingwhen it is completed. Lo-cated along the Red Sea onthe north side of Jeddah inSaudi Arabia, the kilometer-high skyscraper will be morethan 170 meters taller thanthe Burj Khalifa in Dubai,which is currently the tallest building in the world.The tower will house offices, apartments and a hotel andwill form the centerpiece of the new Kingdom City devel-opment. For more on the Kingdom Tower constructionproject, see our special feature on page 22.

AGCS takes the lead

Chin Feng (AGCS), Vivian Lines (Hill + Knowlton),Roland Schatz (Media Tenor), Nigel Pearson (AGCS).

Sour

ce: C

orbi

s

Sour

ce: A

dria

n Sm

ith &

Gor

don

Gill A

rchi

tect

ure

Sour

ce: A

GCS

06

Volatile weather activity is increasingaround the world as evidenced by recentmajor events such as the UK floods, whichcontributed to the wettest winter in the UKfor 250 years and the huge snow stormswhich struck the US north-east coast earlierthis year. Meanwhile, at the same time theseevents were taking place, the southern hemisphere was experiencing the warmeststart to a year ever recorded.

In a recently-published report The WeatherBusiness – How companies can protectagainst increasing weather volatility,which focuses on the growing importance ofweather risks for businesses, AGCS’ spe-cialist alternative risk transfer businessunit, Allianz Risk Transfer (ART), highlightsthe economic impact of fluctuating weath-er conditions and how companies can pro-tect themselves, using new approaches to weather risk management.

However, the weather does not have to be ex-treme in order to have a negative impact on acompany’s cash flow. Sometimes it is enoughfor it to be uncommon, unseasonal or merelyunexpected to generate a decline in revenue.

In fact, according to the report, the economicimpact of increasing everyday weather vola-tility far exceeds the already huge sums an-nually associated with natural catastrophes.

AGCS estimates that the impact of routine weather variation on the European Union’s economy could total as much as €406bn(£346bn /$561bn) a year. As a comparison, thereport shows that during 2012, there were 905natural catastrophes worldwide, 93% of whichwere weather-related disasters, costing $170bn.

Retail is just one of the many sectors heavilyexposed to poor weather. Others badly af-fected include the agri-food industry, con-struction, distribution, energy, tourism andtransport.

Despite these losses, the report says manybusinesses are failing to identify adequatelythe link between climatic conditions and theirown revenue streams.

“However ‘bad’ the weather is, it is no longera good excuse for disappointing earnings,”explains Karsten Berlage, Global Head of Weather Risk Management at ART. “Whilecompanies cannot be expected to controlthe weather they are now expected to bettercontrol the risk of its financial impact. This

IN BRIEF

The weather forecastExtreme events may capture theheadlines but minor fluctuationsin expected weather can have bigimpacts on business performanceacross a wide range of industries,according to a new study.

The cost of the weather on business

Routine weather variance on the US

economy is as much as

3.4%of GDP

Routine weather variance costs the EU This equates to

$534bn

Weather is the cause of approximately of the delays in the National Airspace System (NAS).70%

Cost of weather-related delays to trucking companies per year$2.2bn $3.5bnto

84% of all delays occur on the ground (gate, taxi-out, taxi-in),

o

ut of which 76% are prior to take off

Weather is responsible for approximately

delay hours per month in the National Airspace System1 , – 4 ,

The total weather impact is an estimated national cost of for accident damage and injuries, delays, and unexpected operating costs.

Total value of annual output of agricultural sector in the US

Adverse impact routine weather variations have on this economy each year

or

$187 bn

Source: National Science Foundation, AGCS, Federal Aviation Administration, US Department of Transportation

12% $22.4 bn

can be achieved through weather risk man-agement solutions.”

The report notes there is increasing awarenessand interest in such solutions, which enable com-panies to hedge weather risk, similar to the waythey might do with interest rate movements andforeign currency exchange rates.

Using independent data, such products are linked to actual fluctuations against pre-agreed weather indices which, when certaincriteria are met, can trigger a payment. Crucially, unlike with traditional insuranceproducts, no physical damage is required for a payment to be made to the affected policyholder. To view the full report visitwww.agcs.allianz.com/insights

IN BRIEF

07

18

179

8

6

5

4

3

3

3

Grand Total

94Others

18

There were 94 losses between January 1 and Decem-ber 31 last year, according to the second annualAGCS Safety and Shipping Review 2014, which ana-lyzes reported shipping losses of over 100 gross tons.

This compares favourably with 2012 when there were 117 reported losses, meaning that total losses are down by 20% year-on-year. The 2013accident year also represents a significant improve-ment on the previous 10-year loss average (2003-2012 period) which totals 140. (2013 total lossesdown by 32%). In total shipping losses have de-clin ed by 45% around the world since 2003 whenthey totalled 174 (see chart).

More than a third of 2013’s total losses were con-centrated in two maritime regions. As in 2012,South China, Indo China, Indonesia and the Phil ippines was the region with the most losses(18), closely followed by Japan, Korea and NorthChina (17).

The most common cause of losses in the past yearwas foundering (sinking or submerging) (69), ac-counting for almost three quarters of all losses

(73%). This was up on both 2012 – 55 (47%) and theprevious 10-year average – 62 (44%).

Wrecking/running aground (11) and fire/explosion(11) were the cause of the majority of the re-maining losses.

More than a third of the vessels that were losseswere cargo ships (32) with fishery (14) and bulkcarriers (12) the only other type of vessels to recorddouble-digit losses.

To view Safety and Shipping Review 2014 visitwww.agcs.allianz.com/insights

Loss LogShipping losses continued their downward trend in 2013 with thetotal number for the year coming in below 100 for only the secondtime in 12 years.

Japan, Korea andNorth China

East Mediterranean& Black Sea

West Mediterranean

East AfricanCoast

West Africancoast

Bay of Bengal

Arabian Gulf and approaches

S.China, IndoChina, Indonesia &Philippines

Source: AGCS Safety and Shipping Review 2014

Total losses per regionfrom January 1, 2013 to December 31, 2013This loss map analyzes reported shipping losses (of over 100 gross tons).

2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

174152 151 154

170150

128 12189

11794

TOTAL LOSSES PER YEAR – A DECLINING TREND

CanadianArctic andAlaska

British Isles, N. Sea, Eng.Channel, Bay of Biscay

08

4 Questions for ...

You have been directly engaged in the claimsbusiness for 27 years. What is the biggestchange you have seen during the course of yourclaims career?Alexander Mack: The evolution of claims from backoffice function to one of the key differentiators in thecompetition for clients. We see a significant increasein the demand from corporate clients to have a directrelationship with their key claims contacts and toestablish bespoke claims handling protocols. Today,claims is a strategic function, not just a servicing one,and is a key part of the sales process. Claims handlingis the moment of truth – the moment where wefulfill our promise. You can have excellent policyconstruction and coverage but what clients needmost is a smooth and professional handling of aclaim because a claim is not their core business.Their core business is to produce and sell their prod-ucts or services.

What are the major causes of property lossesworldwide? Mack: We have definitely seen an increase in busi-ness interruption (BI) and contingent business inter-ruption (CBI) claims in wake of the number of natu-ral catastrophes in recent years (AGCS estimates thatBI and supply chain-related losses typically accountfor 50% to 70% of insured property catastrophelosses). This is due to the fact that in some regions ofthe world we have a concentration of the supply in-dustry for many different sectors. We saw the impactthis had in Thailand following the floods of 2011, aswell as in Japan in the aftermath of the Tohoku quakethe same year. (BI and CBI losses were significantcontributors to total insured loss bills in excess of$12bn and $30bn for these events). Secondly, an in-teresting trend we have noticed is that during certain

times of the year you have more property losses. Thisis particularly apparent on extended public hol idayssuch as Christmas or when production sites go onannual summer breaks for example. Companies often operate with fewer staff and security person-nel at these times and this can lead to more incidentsoccurring and late detection, particularly if produc -tion or safety teams are reduced.

Which emerging risks do you think will impactthe claims industry the most in the future?Mack: Due to increasing insurance demand we willsee many more insured cyber risks than we havedone in the past. The claims community will have tocope with this. Then there is the increasing numberof non-physical losses, such as loss of reputation forexample. The legal and commercial aspect of 3Dprinting is something we are also watching. From alegal perspective we expect to see a growing expo-sure to mass tort claims in parts of the world such asEurope and emerging markets where this has beenunknown so far. On the other hand we see a trend inthe US to address some of the excesses seen withclass actions, setting higher barriers for classes to becertified in courts.

What is the most satisfying part of your job?Mack: What is satisfying is when you have claimswhere you can be of real support to the insured.Then you can really see the value of insurance. Forexample, in the event of a property loss our expertscan help a company to be up and running again in avery short time frame. We can aid the rebuildingprocess and assist with bringing production back ontrack. We help our clients to not lose market share bygetting them back in business as soon as possible.That is a good feeling.

Alexander Mack explains why the handling of a claimrepresents the moment of truth for insurers andwarns businesses of the need to be extra vigilant onpublic holidays.

ALEXANDER MACK

A qualified attorney atlaw, Alexander Mackhas 27 years of expe ri-ence of claims manage-ment. Prior to joiningAGCS, he worked for 20years at an internationalindustrial insurer wherehe was for 13 years Global Head of Liabilityand Financial LinesClaims. He joined AGCSin January 2007 as Global Head of Claims,Long Tail (Aviation, Financial Lines, Liability)and became GlobalHead of Claims in May2013. He is based inMunich, Germany,where he oversees ateam of more than 450claims experts basedaround the world. Hewas appointed ChiefClaims Officer and amember of the board ofmanagement at AGCSin April 2014.alexander.mack@allianz.com

Alexander MackChief Claims Officer at AGCS

Asia Pacific companies are most concerned about the impact business interruptionand supply chain risk could have on their businesses, according to a new study.Loss of reputation, the threat of cyber crime and the prospect of a more punitiveregulatory environment also loom large on the risk management landscape.

GREG DOBIE

09

REGIONALEYE

Barometer identifiesrisk pressures

This is just one example of how Asian Pa-cific businesses are now following whathas been a longstanding trend in the Americas and Europe for becoming in-creasingly occupied with the require-ments posed with new or changing legisla-tion and regulation – 22% of Allianz ex-perts believe it now constitutes a majorconcern, ranking it fourth in the top 10 perils.

Meanwhile, AGCS Regional CEO, Asia, Alexander Ankel said another major riskfacing Asia Pacific businesses is the lackof skilled and trained candidates to re-place an aging workforce. “Competition isfierce among global companies in the region to hire the best talent,” he said.

BI and supply chain risk replaced naturalcatastrophes as the number one risk in theAsia Pacific region overall in this year’s study. It was also ranked the top risk in theAustralian market. Fire and explosion wasthe number one business risk in Singapore.

Business interruption and supply chain risk,natural catastrophes and fire/explosion arethe top perils that continue to occupy the at-tention of businesses across the Asia Pacificregion in 2014.

However, companies are increasingly awareof the growing threat posed by a number of emerging risks such as cyber crime andloss of reputation. These perils are some ofthe biggest movers (see chart) in the thirdannual Allianz Risk Barometer, which quizzes over 400 corporate risk and insur-ance experts from more than 30 countries,including seven in the Asia Pacific region –Australia, China, Hong Kong, India, Japan,New Zealand and Singapore.

Loss of reputation appears in the top fivebusiness risks in the region for the first time,while cyber is a new entrant in the top 10 AsiaPacific risks, buoyed by a developing legisla-tive landscape, with new data protection lawsbeing enacted in Australia and Singaporeand debated in a number of other territories.

DID YOU KNOW?

AGCS estimates that BI and supply chain-related losses typicallyaccount for 50% to 70%of insured property catastrophe losses, asmuch as $26bn a year.

Asia Pacific 2014 2013 Trend

1 Business interruption, supply chain risk 46% (47%) (2)

2 Natural catastrophes 30% (50%) (1)

3

4

Fire, explosion

Changes in legislation and regulation

25% (27%) (3)

22% (-) (-)

5

6

7

8

Cyber crime, IT failures

Loss of reputationor brand value

Commodity price increases

Market fluctuations

21% (14%)

18% (-) (-)

16% (17%) (5)

13% (18%)

(7)

(4)

Intensified competition

9

10 Talent shortage, aging workforce

Intensified competition 12% (11%) (9)

9% (12%) (8)

20132014acificAsia P rendTT

1

2

3

4

5

6

(47%)

(1)

46%supply chain riskBusiness interruption, (2)

(50%)30%Natural catastrophes

(3)

(-)(-)22%and regulation

(27%)25%Fire, explosion

Changes in legislation

(7)

(-)

(14%)

(-)18%failures

21%or brand value Loss of reputation

Cyber crime, IT

New

New

7

8

9

10

failures

(5)

(4)(18%)13%Market fluctuations

(17%)16%increasesCommodity price

(9)

(8)(12%) 9%aging workforce

(11%)12%Intensified competition

alent shortage,TTa

TOP 10 BUSINESS RISKS BY REGION IN 2014

Source: Allianz Risk Barometer 2014

Much of the insured loss from theThailand floods in 2011 stemmedfrom business interruption.

Sour

ce: C

orbi

s

“There are expected to be 140,000 multinationalcompanies by 2020.”

10

RISKFUTURES

11

For Shauket Fakie, Christmas 2013 meant organising theemergency evacuation of his company’s employees fromSouth Sudan, the world’s newest nation, which was thenon the brink of civil war.

Such crises are all in a day’s work for Fakie and his team.As Chief Business Risk Officer at MTN Group Ltd, alead ing telecoms provider in Africa and the Middle East,he is responsible for keeping a watchful eye on the myri-ad risks his company faces on a regular basis.

Established in 1994 in South Africa, MTN now has 204million customers spread across 22 countries in Africaand the Middle East, including some challenging mar-kets like Iran, Syria and Afghanistan.

MTN Group is just one of a growing number of compa-nies expanding into foreign markets, in particular thosein promising emerging or high-growth countries in Asia,Africa and Latin America.

Since the 1950s, an increasing number of companieshave been benefiting from the rapid growth of interna-tional trade and the opening of markets. The numbers ofmultinational companies grew from around 7,000 atthe end of the 1960s to almost 104,000 by 2010, accor-ding to UNCTAD.

That number is projected to reach around 140,000by 2020.

The world at a company’s disposalThe world has seen a “big shift” from advanced to emerging economies, according to Pankaj Ghemawat ofthe Europe-based IESE Business School, and author of theannual Depth Index of Globalisation report. And despitea recent slowdown in growth for emerging market econo-mies and a decline in foreign direct investment, theworld’s output continues to shift from advanced to emerging economies, he says.

“If emerging economies tend toward advanced econo-mies’ levels of globalization as they grow wealthier, the bigshift beyond trade has only just begun,” he adds.

The growing interest in emerging markets has also beenreflected in the insurance multinational companies pur-chase, according to Vinko Markovina, who heads the In-ternational Insurance Solutions (IIS) unit at AGCS.

“Most large companies in Western markets have alreadyinvested in overseas markets, but what we now see ismuch more emphasis on emerging markets in Asia, LatinAmerica and Africa. The world is now pretty much at acompany’s disposal,” he says.

Many of AGCS’ large corporate clients are now present inaround 20 to 30 countries, while some operate in as manyas 70 countries, explains Markovina. As a result, the compa-ny has seen a noticeable rise in the numbers of local policies issued under its international insurance solutions.

STUART COLLINS

Out of AfricaGlobalization is creating huge opportunities for companies like MTN, which in the past two decades has grown out of its South African home market to becomeone of the most recognised telecoms brands in Africa and the Middle East. But robust risk management at a local level is key if companies are to make the mostof the opportunities expanding into new markets can bring.

Source

: Shu

tterstock

A NEED FOR GLOBALCOVERAGE

Telecoms specialist MTN's Johannesburg office. Globalization is no longera trend only for large manufacturing companies.

Globalization is no longer a trend only for large manu-facturing companies, says Markovina. AGCS has morerecently seen an increasing number of clients in the ser-vice sector looking at opportunities overseas, while moreand more medium-sized companies now require inter-national insurance solutions. While still early days, agrowing number of companies from emerging marketsare also becoming more international and looking to buyinternational insurance solutions, he says.

Economies of scale and challenging risks“In business, economies of scale are important and wehave been able to achieve this by expanding our foot-print in new markets. So globalization has been a bigfactor in our success,” explains MTN’s Fakie.

Expansion sometimes requires a degree of bravery,especially when entering markets where other com-panies fear to tread, he notes. Regulatory and politicalrisks, nat u ral catastrophes, unreliable infrastructureand competition are all challenging risks, but good

As companies have grown and expanded intonew markets they have also sought to cen-tralise the control of the business, and this hasextended to risk management and insurance.

International insurance programs are an important part of a centralised approach tomanaging risk, explains Vinko Markovina,head, IIS unit, AGCS. As well as control, theyalso provide consistent levels of insurance cover and can offer additional cover above lo-cal insurance limits.

“Companies that operate globally want theirinsurance to be global too. And this can bedone cost effectively and with effective gov-ernance and compliance, with exposures managed in a consistent and controlled man-ner with the broadest possible cover,” saysMarkovina.

As more and more companies from differentsectors expand into emerging markets, inter-national insurance solutions have broad-ened. Clients are including more lines of busi-ness and covering more exposures in their in-ternational insurance programs, such asliability products, cyber and D&O.

However, each multinational has its own unique footprint, and every insurance markethas its own rules and practices.

Regulations and tax rules are not always clearand are open to interpretation, Markovina ex-plains. At the same time, many emergingmarkets have also become more protection-ist and often require companies to insurewith local insurance companies. Yet localmarkets do not always offer the levels of cover that multinational companies wouldlike to buy.

Global programs can fill these gaps in pro-tection, says Markovina. However, given thecomplexity of local insurance requirementsand regulations, compliance has become amajor focus for clients in recent years.

“Clients need to be certain that any solutioncan pay a claim in the country where it is needed and in the desired currency. Be waryof solutions that appear overly-complex ortoo creative,” says Markovina.

12

Source

: MTN

EXAMINE INTERDEPENDENCIES OF RISKS

risk gov ernance means that they are dealt with in theday-to-day running of the business. When the politi-cal situation in South Sudan deteriorated just beforeChristmas, Fakie knew that he could rely on local managers. Such crises happen but strong local riskmanagement capabilities help the telecommunica-tions company deal with emergencies quickly and ef-ficiently.

Dealing with informal economiesAnother key ingredient for success when expandinginto new markets is to develop local capabilities and toassimilate, according to Fakie. “When expanding intonew territories you have to master the local nuances ifyou are to make the business work,” he says.

A factor some companies often overlook is the rele-vance of the “informal sector”, an important part ofmany emerging economies. Indicators like GDP andunemployment in some emerg ing markets are enoughto deter companies from investing.

“If you are prepared to be flexible then the ’informalsector’ can be turned into a business opportunity,” saysFakie. For MTN, adapting to the “informal sector” has meant selling “air time” through local street sellers, rath -er than a centralised telephone sales centre.

Protecting reputation and brand is another challengenot always associated with emerging markets. But whenMTN acquires a company, maintaining quality and pro-tecting re putation are paramount, explains Fakie. Pastacquisitions have seen MTN invest heavily to bringequipment up to its high standards. “The quality of thenetwork is key to our brand,” he concludes.

The world might be integrating at a fast pace, but multinationalcompanies will find life abroad very different to operating in theirhome countries. Cultures are diverse while fiscal rules, legal frameworks and regulations differ from country to country.

In many emerging markets there is also little understanding of theinterdependencies of risks and investments. And it can be chal-lenging to identify interdependencies between suppliers in thesupply chain in regions like Asia.

Two powerful demonstrations of this challenge in the context ofglobalization are the 2011 floods in Thailand and the devastatingearthquake and tsunami in Japan. The extent of supply chain dis-ruption from these two events was largely unforeseen, yet provedto be very costly for the many multinational companies involved.

Such interdependencies are often overlooked by companies asthey consider expanding overseas, according to Vinko Markovinaof the International Insurance Solutions unit at AGCS in New York.

“Political risk and regulatory compliance often top the lists of con-cerns when companies are expanding into new markets,“ he says.“But all too often insurance exposures – like natural catastrophe –are seen as secondary and companies may not fully understandthe potential impact on their supply chains or their existing insur-ance arrangements,” he adds.

WWW.AGCS.ALLIANZ.COM/SERVICES/INTERNATIONAL-INSURANCE-PROGRAMMES

VINKO MARKOVINASenior Vice President, Global Practice Leader, International Insurance Solutionsvmarkovi@aic-allianz.com

13

14

GREG DOBIE

AGCS says the energy market is facing a period of dramatic economic, eco-logic and technical change and warns of the increasing threat posed by powerblackouts and cyber attacks at its Expert Days risk conference in Munich.

RISKFUTURES

Debating the future of Europe’senergy supply

15

AGCS brought together leading international expertsfrom 11 countries to discuss the issue of future energysupply in Europe at its recent Expert Days conference.

Representatives from academia, suppliers, power gener-ation and the insurance industry gathered at TheCharles Hotel in Munich over the course of two days inorder to exchange expertise and experience around thelatest innovations in areas such as renewable energies,smart grids and information technology security.

More than 130 leaders in the energy sector also dis-cussed the opportunities and challenges around imple-mentation of the European Commission’s long-termstrategy for the sector Energy Roadmap 2050, whichaims to not only restructure the energy market in the Eu-ropean Union – in order to reach specific climate targets– but at the same time ensure security of its supply andcompetitiveness.

The EnergiewendeDirector of the Environmental Policy Research Centerand Professor of Comparative Politics at the University ofBerlin, Dr. Miranda Schreurs (see page 17 for a specialGlobal Risk Dialogue Q&A) told Expert Days delegates

that energy policy across Europe is still “a national mat-ter” despite the best efforts of the European Union, whichposes a challenge for Europe to establish common goals.

In Germany, the Energiewende – the term used to de-scribe the planned move by the country towards an era ofrenewable energy, energy efficiency and sustainable de-velopment – is currently changing the risk governanceand risk management landscape at a “breathtakingspeed”, according to Hartmut Mai, Chief UnderwritingOfficer, AGCS.

Politicians in Europe's largest economy want renewablepower to contribute 35% of the country's electricity con-sumption by 2020 and 80% by 2050 as part of its cleanenergy drive.

“Planned transition of the energy supply has triggeredthe most intense topic discussion, given the massive andradical changes this will have for the next decades andgenerations to come,” Mai said at the Expert Days event.“These changes cause challenges not only to politicians,scientists, industry, government, regulators and societybut also to the insurance industry in terms of whether ithas sufficient solutions.”

“The reality is that Germany andEurope as a whole do not havethe fossil fuel resources thatNorth America or Russia have.”

Sour

ce: S

hutte

rsto

ck

Mai said there were a number of issues around energy transitioncurrently occupying insurers, including how such transitions ofenergy supply will be financed and whether such models aresustainable.

“How will basic energy supply be granted in this economic envi-ronment? The mix between flexible and non-flexible power gen-eration is not solved yet. How will the peaks of alternative energysupply be balanced to grant for this basic supply?” Mai said.

Impact of increasing interconnectivityAnd while there are technical, legal and financing challenges as-sociated with energy transition moves across Europe, he also

warned of the increasing risk cyber attacks couldpose, “as the risk potential of the future takes ona new dimension in terms of scope and gravitas”.

The energy sector is already the fifth most fre-quent sector targeted by cyber hackers, ExpertDays delegates heard and attacks will becomemore likely due to increasing connectivity.

The threat posed by power blackouts is also increasing. Outsideof Europe, major power outages in the US caused by weather increased from five to 20 each year during the mid 1990s, to 50 to135 each year during the past five years.

The impact of power quality and blackout issues in the US cur-rently costs industrial and commercial companies between$132bn and $209bn.

Meanwhile, in Germany 77% of production plants are affected atleast once a year by power outages, according to AGCS.

16

HARTMUT MAIChief Underwriting Officer, AGCShartmut.mai@allianz.com

THOMAS MESCHEDEHead of Risk Consulting Germany, AGCSthomas.meschede@allianz.com

MICHAEL BRUCHHead of Risk Consulting Germany, AGCSmichael.bruch@allianz.com

DID YOU KNOW?

21% of European grosselectricity productioncomes from renewablesources.

European governments are trying to improve the quantity of energyfrom renewable sources. Germany's target is 35% by 2020.

EXPERT DAYS HITSSOCIAL MEDIA

For the first time, this year’s Expert Days conferencesaw AGCS “tweeting” live news from the event viaits new Twitter account @AGCS_Insurance:

#AGCSExpertDays Relevance of #photovoltaic powergeneration will grow for insurers as its share of totalpower generated increases in future

China, Russia and Brazil will spur further growth in hy-dro power plants up to 2050, says Voith Hydro's JiriKoutnik #AGCSExpertDays

#AGCSExpertDays Scandinavia leads Europe when itcomes to #renewableenergy. Norway – over 95% of itsenergy mix is renewable. Sweden 75%

#AGCSExpertDays Power outages lasting less than asecond – the cause of majority of disruptions (72%) –can cause production outages of 7 days

#AGCSExpertDays Total insurance premium volumefor European offshore wind sector approx. €500m. Ex-pected to double until 2020

Get the latest news and research from AGCS first on Twitter. Follow @AGCS_Insurance at www.twitter.com

More than 130 leaders in the energy sector debated the futureof Europe's supply

Sour

ce: S

hutte

rsto

ck

Sour

ce: A

GCS

17

What are the biggest challenges for the Energie-wende right now?Dr Miranda Schreurs: There are a few different bigissues. Development of the grid infrastructure is cer-tainly one. Right now the pace of development of re-newable capacity is enormously high, but if we can’ttransport the energy to demand centers, it’s a prob-lem. If we don’t have rapid enough development ofthe infrastructure then there could be regional prob-lems with energy security. This is another big issue:how do we make sure that we have a smooth transi-tion in all regions of Germany?

At the AGCS Expert Days conference you said thatGermany would be able to manage the Energie-wende technically but not in terms of costs.What’s the solution?Schreurs: Germany technically has enough wind, sunand biomass potential to meet domestic demand. Butthe costs would be quite high if you were to try to meetthis demand just domestically. It’s more efficient to co-operate with neighboring countries. Quite simply youmight have better wind capacity or sun capacity somewhere else. When the wind isn’t blowing in Germany it might be blowing in some other area. So ifyou are interconnected then you can smooth outsome of the fluctuating problems with renewables. Itwould also give you the opportunity to maybe, say, cooperate with Austria or with Scandinavia in terms ofstorage capacity so you can store some of the renew-able energy for times when it’s in demand.

Can Germany manage the energy transition andat the same maintain its competitiveness as aneconomy?Schreurs: Yes, it’s possible to have an Energiewendeeven if the cost of energy is more expensive in Europe.

The reality is that energy prices have long been muchhigher in Europe and in Germany than in the US andyet Germany has remained one of the most competi-tive economies. Why? One answer is that because ofthese higher prices, Germany has had to become aleader in energy efficiency, in production processes,and in finding ways to reduce the resource inputs intomanufacturing. I think the same argument applies tothe future. If Germany chooses now to slow down onthe Energiewende, the costs in the long term could bevery high. The reality is that Germany and Europe as awhole do not have the fossil fuel resources that NorthAmerica or Russia have. So the only way Europe isgoing to be able to compete in the long run is if it be-comes the most efficient place in terms of energy andresource use. Higher prices are hard but they drive in-novation and the search for more energy efficiency.

France and the UK rely on nuclear power. Polandclings to coal. What has to be done to bring theEnergiewende to a European level? Schreurs: I think discussion at the European levelneeds to continue in relationship to CO2 emissions. Wehave targets for 2020: 20% efficiency improvement,20% renewable energy target, 20% CO2 emission re-duction target. We need to develop new targets for2030 that will help to keep the price of coal higher, andfix the emissions trading system, so that the price ofcoal increases. Doing this would be one important stephelping to shift the economy away from fossil fuel tomore renewables. There are also changes in other Eu-ropean states. France is currently 78% dependent onelectricity from nuclear power. However, there is littlechance that France will be able to replace all of its oldnuclear power plants with new nuclear capacity. It’ssimply too expensive. So there is going to also be a pushfor more development of other energy sources.

DR MIRANDA SCHREURS

is Professor of ComparativePolitics and Director of theEnvironmental Policy Re-search Center at the FreieUniversität Berlin. She is alsoChair of the European Envi-ronment and SustainableDevelopment AdvisoryCouncils (EEAC). Previously,she was Associate Professorat the University of Marylandand remains affiliated to theUniversity of Maryland LawSchool. Her research is fo-cused on the comparativeanalysis of international political systems, environ-mental and energy policy,and the role of civil society,governments and economicactors.

Implementation of the Energiewendeis not going to be easy…

Q&ASPECIAL

High energy prices have dimmed the initial elation over the prospect of shifting the entire country over to renewable energy. But there is no alternative for Europe, argues Dr Miranda Schreurs, director of the Environmental Policy Research Center at the University of Berlin. In a special Global Risk Dialogue Q&A she explains why the Energiewende is the only way for Germany and Europe to stay competitive.

18

SPECIALTOPIC

As 2013 wound down, a dramatic new technology wasfired up in California’s Mojave Desert. The world’s largest solar-thermal project was brought on line opening a new chapter in renewable energy.

Located 50 miles southwest of Las Vegas, the Ivanpahgenerating complex is jointly-owned by utility compa-ny NRG Energy, technology provider BrightSource Ener-gy, and Google. According to the operating venture, itcovers 3,500 acres of public land and uses three hugecircular arrays of mirrors to focus the sun’s rays onthree solar furnaces atop towers to create steam thatturns turbines.

Once fully operational, the 392 megawatt (377 mega-watt net) plant will generate enough electricity topower 140,000 homes annually. Ivanpah’s three powertower units will also nearly double the commercial so-lar thermal energy capacity now operating in the

United States – Pacific Gas and Electric signed an agree-ment to purchase power from two of the generatingunits; power from the third is being sold to SouthernCalifornia Edison.

In addition electricity from Ivanpah will avoid millions oftons of carbon dioxide and other air pollutants – the equiv-alent of taking 70,000 cars off the road. It is estimated theproject will create more than 2,100 jobs for constructionworkers and support staff and 86 jobs for operations andmaintenance employees in addition to hundreds of mil-lions of dollars in local and state taxes. Little wonder thenthat the $2.2bn project is hailed by its stakeholders as “adurable model for far-reaching employment and econom-ic benefit both locally and nationally.”

The tagline for the project, as outlined on its website,reads: “What if we could deliver on solar’s promise?”and the development of such an ambitious and innova-

One spot in the Mojave Desert is nowhotter thanever before …

The Ivanpah complex is the world’s largest solar thermal plant. Its develop-ment is helping to transform the alternative energy landscape in the US, generating enough electricity to power 140,000 homes a year and doublingthe commercial solar thermal energy capacity currently available.

GREGORY MORRIS

19

tive project offers further evidence of the increasing relevance and importance of solar as an alternativeenergy form in the US and California in particular (seebox, page 20).

A stellar year for solarOf course there is still some way to go before the uti-lization of solar comes anywhere near to challenging thecountry’s reliance on fossil fuels. According to the US EnergyInformation Administration coal and natural gas plantsproduced 37%and 30%of US electricity respectively in 2012,while wind generated 3.5% and solar just 0.1%.

Yet the third quarter of 2013 was the second largest onrecord for the US solar industry, according to the SolarEnergy Industry Association (SEIA).

Most of the solar energy generated in the US, and in-deed around the world, is photovoltaic (PV), where light

shining on silicon chips creates power directly. There was 930 MW of new PV capacity installed in Q32013, representing a 35% increase in deployment overthe third quarter of 2012. This strong third quarter keptthe US market on pace for another record year.

Meanwhile, SEIA and GTM Research forecast that an ad-ditional 1,780 MW of PV and 800 MW of concentratingsolar (or solar thermal, such as Ivanpah) would be in-stalled in the fourth quarter of 2013 alone, bringing thetotal for the year to over 5,000 MW of new solar electriccapacity. There are more than 10,250 MW of cumulativesolar elec-tric capacity operating in the US, enough topower more than 1.7 million average American homes.

And following the launch of the Ivanpah solar electric generating system, to give it its full title, it appears thesolar sector in the US and the Golden State in particularis set to burn even brighter …

Sour

ce: C

orbi

s

THE GOLDEN STATE –SOLAR POWERINGTHE USAccording to The Solar Foundation over142,000 people are employed by the solarindustry in the US, with over a third based inCalifornia – making it the epicenter of thesector.

The growth of the solar-powered industrywas fuelled when the state informed its bigelectric utilities they would have to generate20% of the state’s electricity from renewablesources by 2010.

Three years ago it toughened its renewableportfolio standard to 33% by 2020 (at least30 US states have adopted such require-ments).

Subsequently, companies began pro-posing to build large plants, many of themin federal land in California’s sparsely pop-ulated deserts, aided by a federal invest-ment tax credit available for renewableenergy projects, energy department loanguarantees and incentives in the federaleconomic stimulus package.

The result is a growth in solar power that isplainly visible in parts of the state, sparkingconcern from some corners about the im-pact such development is having on the lo-cal environment.

There are currently well over 200 utility-sizedsolar plants under construction in the US,many in the south-west and California. Othersignificant solar developments in the state in-clude the Topaz Solar Farm, a 550 megawatt(MW) solar photovoltaic power plant, beingbuilt in San Luis Obispo County and the DesertSunlight solar farm in the Chuckwalla Valleyin east Riverside County.

Additional sources: The Guardian Weekly,The Solar Foundation

ProjectCargounderpinssolar energyinnovation

20

Sour

ce: C

orbi

s

“Overall the challenge for project cargo risk control is that technologykeeps evolving,” says Wolfe. “The constant is that if one piece gets de-layed or damaged, the projected ‘on time’ completion date for the proj-ect is in jeopardy. In some instances things are not simple or quick torepair or replace. We know we can’t eliminate risk, but we can managerisk if we work collaboratively with clients and brokers.”

The key, Wolfe says, “is open communication, from the underwritingon through loss-control to the broker and client. We always start with akick-off meeting with our groups, including loss-control, and the client,especially their logistics group. We definitely want to get in touch earlyand keep in contact.”

Allan Breese, Senior Risk-Control Engineer, AGCS acknowledges thatarranging and keeping to shipping schedules is always a challenge.

“The closer we get to the end of the project the more the pressuregrows on scheduling because there is less and less time to recoverfrom delays.

“Sometimes we get a critical shipment notice with very little time toarrange for a surveyor.”

Even when timing works well, there are instances when surveyorsare not comfortable with the handling arrangements. “Sometimes ithas to go back to the top of the food chain,” says Breese, “because if asituation like that continues unchanged it threatens the shipment.”

That said Breese is quick to add that “we arenot hidebound. We like to find workable solu-tions and alternatives. In the end everyone un-derstands the implicit reality that risk man-agement will be compromised if shippingstandards are not upheld.”

The development of major infrastructure initiatives in remote loca-tions can result in a number of significant challenges, particularly withregards to the transit portion of critical components.

Construction of innovative power projects such as the Ivanpah com-plex can often involve the transporting of a great number and variety ofhigh-tech components from all around the world, due to the complexi-ties of today’s modern supply chains, as Tim Donney, Global Head, Marine Risk Consulting, AGCS explains to Global Risk Dialogue.

AGCS offers project cargo insurance for such scenarios ensuring thetransportation of these components is fully protected and any loss ordamage to the cargo is covered.

“For example, you can have mounting assemblies coming from Israel,hardware out of Malaysia, Indonesia, and Korea and steam turbinesfeed pumps out of Europe. The loss-control complexity can be veryhigh,” he explains.

“So the project cargo process involves a lot of collaboration with theclient, their suppliers and any other participating companies.”

“The key is communication and preparation. Nobody wants the loss-control surveyor to arrive and not be able to approve a move, becausethis creates needless delays and costs; so everyone needs to work veryhard to review plans carefully in advance.”

Many regard the groundbreaking ceremony as the official launch of a de-velopment but the project cargo exposure really starts with the trans-portation of the components from around the world to the job site, addsKevin Wolfe, Global Head of Project Cargo & Marine Head North East.

The project cargo policy in many instances is extended to provide cov-erage for loss of income, commonly referred to as “delay in start-up” or“advance loss of profits.” This is basically another form of business in-terruption insurance. Without the ability to demonstrate that “delay instart-up” coverage is in place, many projects would not receive the nec-essary funding, as lenders insist on this type of coverage as part of theirloan agreements.

He adds more broadly that the key to marine underwriting and projectmanagement is not the obvious risks like mirrors or million-pound tur-bine components, but the non-obvious but critical things such as acustom-built crane or highly-specialized feed pumps.

Another non-obvious risk for any component or movement is thephysical reality of the move itself. Limits of underpasses, bridges,and tunnels are obvious but limits such as turning radius for roadsor land-transport complications to or from ports less so, becausethey may not be mapped.

WHAT IS IVANPAH?

Location: Ivanpah Dry Lake, CaliforniaSize: Approx 3,500 acresPower Production:377 MW nominal (392 MW gross)Homes Served Annually: 140,000Construction Commenced: 2010

TIM DONNEYGlobal Head, Marine Risk Consulting, AGCS tim.donney@agcs.allianz.com

KEVIN WOLFEGlobal Head of Project Cargo & Marine Head North East, AGCSkevin.wolfe@agcs.allianz.com

ALLAN BREESESenior Risk-Control Engineer, AGCSallan.breese@agcs.allianz.com

21

SPECIAL TOPIC

22

King

dom

Tow

er, 1

km

Burj

Khal

ifa, 8

29.8

m

Chry

sler B

uild

ing,

319

m

Lond

on’s

Shar

d, 3

06 m

Eiffe

l Tow

er, 3

24 m

Stat

ue o

f Lib

erty

, 93

m

"Elevatorswill travel ata rate of 10meters persecond."

Towering above –how the KingdomTower compares

The Kingdom Tower could fit nearly 11 Statues of Liberty (93m fromground to torch tip).

A unique design feature is a skyterrace, roughly 30m in diameter,at level 157 – there are 167 floorsin the building.

Sour

ce: A

dria

n Sm

ith &

Gor

don

Gill A

rchi

tect

ure

Sour

ce: A

dria

n Sm

ith &

Gor

don

Gill A

rchi

tect

ure

23

NEIL HODGE

A toweringnew vision

The development of Saudi Arabia’s Kingdom Tower is set toreach unprecedented heights – becoming the tallest building inthe world and the first structure to reach the 1km-high mark.Construction of such unique projects can pose unique risks.

Sour

ce: A

dria

n Sm

ith &

Gor

don

Gill A

rchi

tect

ure

24

1 At a projected height of 1km high, the KingdomTower will be over 170m higher than Dubai’s BurjKhalifa Tower (829.8m) – the world’s tallest buildingsince 2010 – and over three times the height of London’s Shard (306m), currently the tallest buil-ding in the European Union.

2 Kingdom Tower will be over three times theheight of the Chrysler Building (319m), and four times the height of the tallest observation deck on theEiffel Tower (276 m), and could fit nearly 11 Statuesof Liberty (93m from ground to torch tip) end to end.

3 The great height of Kingdom Tower necessitatesone of the world’s most sophisticated elevator sys-tems. The Kingdom Tower complex will contain 59elevators, including 54 single-deck and five double-deck elevators, along with 12 escalators. Elevatorsserving the observatory will travel at a rate of 10 me-ters per second in both directions. Another uniquefeature of the design is a sky terrace, roughly 30 me-ters (98 feet) in diameter, at level 157 – there are 167storeys in the building, according to the architect’sbrochure. It is an outdoor amenity space intended foruse by the penthouse floor.

4 The project will feature a high-performance exte-rior wall system that will minimize energy consump-tion by reducing thermal loads. In addition, each ofKingdom Tower’s three sides features a series ofnotches that create pockets of shadow that shieldareas of the building from the sun and provide out-door terraces with stunning views of Jeddah and theRed Sea.

THE KINGDOM TOWER – HOW BIG?

Sour

ce: A

drian

Smith

& G

ordo

n Gi

ll Arc

hite

ctur

e, Sa

udi B

auer

, Jedd

ah Ec

onom

ic Co

mpa

ny, w

ww

.king

dom

tow

ersk

yscr

aper

.com

, ww

w.sk

yscr

aper

cent

er.co

m, K

ingd

om H

oldi

ng C

ompa

ny

ASSESSING THE KEY RISKS WITHTHE WORLD'S TALLEST BUILDINGS

Claims and risk consulting services are especially important on a con-struction site, even more so when dealing with increasingly complexhigh-rise building projects which can present a number of significantchallenges, according to AGCS experts.

AGCS has been involved in insuring a number of internationally-re-nowned high-rise building projects, including the Petronas Towersin Kuala Lumpur, Malaysia – formerly the world’s tallest building –and the current holder of this title until the Kingdom Tower project is

completed – the Burj Khalifa in Dubai. It is acting as a reinsurer on theKingdom Tower project, via its subsidiary Allianz Risk Transfer, thegroup’s specialist risk transfer arm.

For an insurer or reinsurer acting on projects of this nature one ofthe key issues is to assess what level of risk – and impact – any seis-mic activity might have on the structure in question.

“If an event such as an earthquake or another natural catastrophewas to occur, it could obviously have a potential impact,” says CliveTrencher, Senior Risk Consultant at AGCS.

“Therefore the foundations need to be very strong to withstand suchan event.“

“Consideration also has to be given to potential exposures such asflash flooding, which may pose a risk when initial building work startson such projects because there will be large excavations in theground that could get filled with water,“ he adds.

The choice of building materials also poses challenges. Glass panelsneed to be thicker and more durable for the higher storeys, whileconcrete mixes design also have to vary so that they can withstandthe differing buildings loads which vary with height. And this is noeasy feat. Ahmet Batmaz, Global Head of Engineering Risk Consul-tants at AGCS, says that “it is very difficult to pump concrete at thisheight – the high-strength concrete requires a specialized mix de-sign to enable it to be pumped and it requires special equipment andpump lines as pressure can reach over 400 bar. It also creates sometechnical challenges during the stage where the concrete is mixedand placed as such concrete tends to set after two hours only,” headds.

Although many of the technical issues that the latest high-rise buildingprojects face may appear to be similar to previous super-tall skyscraperdevelopments, AGCS experts advise against making assumptions thatthe same technical solutions can be used.

“Such constructions are unique projects that will face unique risks.Every construction project faces challenges and the more ambitiousand large-scale the project might be, the more challenges it willcreate,” says Trencher.

“Each project has to be planned and assessed on its own merits andspecific risks. While we may learn some techniques from the con-struction of other tall buildings, it would be wrong to assume thatthey can be fully risk assessed or planned just because they havebeen used on similar tall structures.”

Construction projects of this size need to be fluid, according to Stefan Atug, engineering underwriter at AGCS/ART Dubai: “Timelinesmay extend, design plans may need to change, engineering challengesmay arise, and technical risks may need to be managed or mitigatedin different ways. As a reinsurer, we need to be able to take a flexible approach and adapt our services to suit the client’s needs, whichmeans forging as close a relation ship as possible to be able to react tochanging circumstances.”

25

Saudi Arabia’s Kingdom Tower will be the centerpiece and first phase of a development known as “Kingdom City” that will be lo-cated on a 50-hectare plot of waterfront land along the Red Sea on thenorth side of Jeddah. When completed, the tower, which is expectedto weigh nearly one million tons and comprises a mixture of resi-dential and commercial property, will reach unprecedented heights,becoming the tallest building in the world and the first habitable structure to reach the 1km-high mark.

With a projected finishing date of 2019, construction began last year,with the piling and foundation work already being completed. Bothposed challenges: the foundation and piling – which involves the useof large diameter bored piles to ensure structural stability within thefoundations – has had to be uniquely designed to overcome subsur-face issues such as soft bedrock and porous coral rock without thepile loads overstressing the ground conditions. Added to that, theconcrete also has to have low permeability in order to resist the salt-laden ground water which is characteristic of the region.

According to foundation contractors, Saudi Bauer the work involvedinstalling 72 piles of 110 meters in length and 1.5 meters in diameter;a further 154 piles of 1.5 meters in diameter and between 49 and 89 meters in length; and 44 piles with a diameter of 1.8 meters, all downto a depth of 50 meters.

The construction work also needs to ensure that the finished tower suffers only minimal building sway, which is more prevalent in highstructures because of stronger winds and the sheer scale of the building.

To achieve this, the Kingdom Tower has been designed to prevent theexcessive movement that would otherwise make the occupants of upper floors experience sickness or discomfort on windy days, in- cluding using very high strength concrete that will be up to severalfeet thick in certain parts of the core. This, along with the highly inte-grated steel frame and shear walls, is also intended to prevent ca-tastrophic structural failure. Additionally, the tower will incorporatea large core not only to support the structure, but also to containmany of the high-speed elevators and extensive building servicesneeded. The stability design of the building is crucial. At KingdomTower’s proj ected height, it is considered unfeasible to use a tradi-tional square design. Instead, like the Burj Khalifa in Dubai – pres-ently the world’s tallest building – it will have a three-petal triangularfootprint for stability and a tapering form with a sloped exterior,which will reduce wind loads.

The smooth, sloped façade of the building will create a phenomenonknown as “wind vortex shedding”. Normally, when wind movesaround a building it can create tornado-like vortices which initiatesway in the building due to variations in pressure, direction, and ve-locity. However, the smooth taper of the Kingdom Tower’s design ismore aerodynamic, which reduces the risk of the vortices forming,just one of many innovative features that will ensure the futuristicskyscraper will lead the way when it comes to cutting-edge buildingdesign, as well as height, when it is completed in five years’ time.

WHEN – AND WHERE –WILL A MILE-HIGH TOWERBE BUILT?

There remains a strong appetite in the Middle East for suchconstruction projects.

The world’s tallest buildings look set to continue to dominate the skylines of the Gulf region for years to comefor a number of reasons including the fact that there re-mains a strong local appetite for such construction projectsas well as significant levels of investment available to fundthem. Meanwhile labour costs are lower than in the US orEurope, ensuring such projects are feasible.

In July 2011, a report by consultancy EC Harris, which is partof global engineering and consultancy firm, ARCADIS,found that Saudi Arabia is the cheapest country in theMiddle East to build in, half as expensive as Bahrain, and34% cheaper than the United Arab Emirates, where BurjKhalifa is located.

Yet the dream of building a mile-high structure may nothappen anytime soon. While skyscraper experts havestated that towers well over one kilometer, even twokilometers (6,562 feet) high, are technically buildable,physical sustainability and practicality issues come intoplay in towers of this height. The key challenges are findingmaterials to replace steel and cement, and identifyingmethods beyond traditional elevators to move people.

Adrian Smith, the Chicago architect responsible for theBurj Khalifa and the Kingdom Tower, said in September2012 that “technologically, mile-high buildings are feasi-ble to do, you can build them now, but my guess is thatwon’t happen for another 20 to 30 years.”

Smith added that beyond one kilometer, skyscraperswould likely need to have two or three buildings inter-connected, with horizontal elements bracing the “legs”,meaning that single tower structures such as the KingdomTower may be unfeasible much beyond one kilometer.

STEFAN ATUGEngineering Underwriter, AGCS stefan.atug1@allianz.com

CLIVE TRENCHERSenior Risk Consultant, AGCS clive.trencher@allianz.com

AHMET BATMAZGlobal Head of Engineering Risk Consultants, AGCS ahmet.batmaz@allianz.com

Sour

ce: B

auer

AG

SPECIAL TOPIC

26

Never too big, to fail ...

More than two years after the grounding ofthe Costa Concordia, which resulted in thedeath of 32 passengers and crew, the totalloss figure is approaching $2bn – making it one of the largest marine casualties ever.

As of the time of writing, the authorities have yet to fig-ure out what will happen to the wreck of the vessel.

It is only natural that cruise ship disasters dominate theheadlines, particularly when such a tragic loss of life is in-volved, but such incidents are not the only potential casual-ties that the maritime industry has to worry about.

According to the world shipping council about $4trnworth of goods is transported on the world’s oceansevery year. This cargo is shipped by vessels such as con-tainer ships and tankers that are ever-increasing interms of size, as shipowners strive to reduce operatingand shipping costs through greater economies of scale.An example of this is the introduction last year of the

Maersk Triple E generation cargo ships – the Triple E re-fers to Economy of scale, Energy efficiency and Environ-mentally-improved – which are the largest containervessels in the world, measuring 400 meters in lengthand carrying more than 18,000 teu (twenty foot equiva-lent unit). Four hundred meters in length is equivalentto the combined size of two basketball fields, two foot-ball fields and two ice hockey rinks.

Such vessels are so large that they exceed the capacity ofthe Panama Canal and the depth of many ports. For exam-ple, there are no ports in either North or South Americawhich can handle the deeper drafts or they exceed the ca-pacity of some of the traditional container cranes.

And should one of these supersized container vessels beunlucky enough to be involved in a significant incident atsea – as the Costa Concordia grounding has demon-strated – the salvage operation to remove the wreck can beincreasingly complex and technically challenging.

DID YOU KNOW?

Container ship capacityis expected to triple by2018 with 24,000 teuships anticipated.

Sour

ce: T

ITAN

Salva

ge

27

ANNIKA SCHUENEMANN

In the age of the “mega ship” the ever-increasing size of cruiseships, containers and tankers is creating significant challengesfor salvage operations when things do go wrong at sea.

The Costa Concordia wreck presented the in-dustry's largest salvageoperation to date.

Salvaging – a risky businessThe ever-increasing size of ships, containers and cruiseships, means that costs for any salvage operation in-crease exponentially due to the need for different, some-times more customized equipment, more specializedpersonnel and expertise, as well as heightened environ-mental requirements.

Escalating costs around salvaging and wreck removalhave an effect on rates and deductibles for both hull andcargo insurance.

Tim Donney, Global Head of Marine Risk Consulting, AGCSwarns: “The claims arising out of maritime emergencies ofthese “mega ships” can be huge. For example, just think ofthe business interruption of ports and terminals if an acci-dent were to block a port entrance or even one of the canals.

“Depending on the specific circumstances of the situation, salvage might require unprecedented efforts

and complex operations – in some cases it may takemany months, or possibly a year or longer, to re- move all the containers from such vessels, particularly ifthe accident were to happen in a remote location, where all salvage operations are only able to operate seasonally.”

An example of this would be the container ship, Renawhich grounded off the coast of New Zealand in 2011 (seepage 28).

But how should the maritime industry deal with the in-creasing risks and costs of salvage operations?

According to Paul Warren, Senior Claims Expert in Lon-don at AGCS, it needs to come together in drafting morebinding standards and having solutions more readilyavailable when another incident involving a large con-tainer ship happens. “We need a concerted effort to dealwith this issue,” he tells Global Risk Dialogue.

28

An example for such an industry-wide initiative is the Marine Spill Response Cor-poration (MSRC) in the US, a not-for profitoperation that works on behalf of the petro-leum, transportation and energy indus-tries.

MSRC was formed in the aftermath of theExxon Valdez accident in 1989 to offer oilspill response services and mitigate dam-age to the environment. If the industry comes together in a similar vein for salvageoperations this will enable the right kind ofequipment to be more readily available instrategic locations, as well being muchmore cost-effective.

As Donney explains: “Usually this kind of heavy salvaging equipment, cranes andderrick barges are owned by marine contractors. They use it primarily for construction purposes, so the issue is oftenavailability – it’s crucial for us to keep mari-time salvage requirements in mind.”

TIM DONNEYGlobal Head, Marine Risk Consulting, AGCS tim.donney@agcs.allianz.com

PAUL WARRENSenior Claims Expert, AGCS paul.warren@allianz.com

DISRUPTION CAUSED BY RECENT MARITIME EMERGENCIES:

Emma Maersk: February 2013 incident. After passing through theSuez Canal, the ship’s engine room was flooded with 18 meters ofwater after failure of a shaft bearing and bulkhead collapse, leav-ing it unable to sail on its own and in danger of blocking the canal.This incident illustrates how crucial location is. The implica-tions of a disruption of one of the world’s major canals would bemassive. (For more information: www.dmaib.com).

MS Flamenia: Fire broke out on July 14, 2012 while crossing the Atlan-tic from the US to Europe and after an explosion the captain orderedthe crew to leave the ship. SMIT salvage was commissioned to sal-vage the vessel and to extinguish the fire with the help of two large firefighting tugs but even though the fire was under control, littoralstates of the UK, France, Spain, The Netherlands, Belgium, Germanyand Portugal refused her entry as the cargo included potentially dan-gerous containers. After three weeks and after the insurance compa-ny declared general average (all participants in the maritime venturecontribute to offset the losses incurred), German authorities finallygranted permission to enter Wilhelmshaven.

MV Rena: October 2011 grounding carrying 1,368 containers and1,733 tons of heavy fuel oil. The accident resulted in the vessel breaking in half and a major oil spill off the coast of New Zealand. Two years after the accident, owners and insurers announced plans to re-move the ship’s submerged four storey accommodation block fromthe wreck on the Astrolabe Reef. This wreck removal operation is cur-rently considered the third largest and most expensive in history.

Vale Beijing: In December 2011, the biggest iron ore carrier in theworld experienced a structural failure at the port in Brazil, emer-gency repairs were performed but there was no facility to unloadthe containers, so it was taken to Oman for unloading and then toSouth Korea for inspection and repairs.

As the Costa Concordia groundingdemonstrated, salvage operationsare increasingly complex.

Salvors at work

Sour

ce: T

ITAN

Salva

ge

Sour

ce: T

ITAN

Salva

ge

29

Where do you see the main risks and opportunitiesin the salvaging industry at this point?Lindsay Malen: The increasing size of vessels butalso their increasing complexities concern us. We assalvors are putting people at risk and often with these supersized container vessels no one can tell usexactly what we are exposing our people to.

Additionally we are seeing increasing regulationin the US, for example, the OPA 90 (Oil Pollution Actof 1990) that originated after the Exxon Valdez casu-alty is now requiring all vessels to have a fixed con-tract (funding agreement) with an approved Oil SpillResponse organization prior to being allowed to en-ter US waters. Obviously this is a good thing for a sal-vage company as it guarantees us business but it alsomeans that authorities are requiring us to have theright equipment available at any point in time andthat is very costly. Another interesting area is salvagein the Arctic conditions – a huge challenge that weneed to address as shipping routes in these areascontinue to get busier and busier.

What are some of the main lessons learned fromprevious salvage operations?Malen: We have always known, but increasinglysee, that logistics are highly important. As an effec-tive internationally active salvaging company, weneed to have the right network of partners to hand.For example, TITAN was working on the wreck re-moval of the Costa Concordia and about 30 otheroperations simultaneously. The transportation andcoordination of equipment and personnel (includ-ing things such as visas) to remote areas of the worldis a challenge. It is difficult to point to one lesson,every salvage operation is different – for example, afire in the engine room is a completely different sce-nario from the grounding of a vessel – and we arelearning from each and every one of these different

incidents. Relationships matter: for instance it is im-portant to have a relationship with the governmentalauthorities of any particular country. Another lesson we have learned is something that may becounter-intuitive but the threat of pollution can sometimes get in the way of getting the jobdone. Right now fuel removal is a huge issue in theindustry.

With the rise of 18,000 teu container ships, howdoes TITAN ensure that it has the right equip-ment for these increasingly challenging sal-vaging operations?Malen: TITAN is always investing in new equipmentand not just buying it but rather “maritizing” it, meaning adapting it to the specific circumstancesneeded in a particular operation. TITAN does notown tugs internationally but rather deploys its per-sonnel and expertise, knowing where to access theright equipment. The industry expects us to preparefor increasing ship size casualties but there is limitedbroader backing for the salvage industry. Just to putit into perspective, the largest Triple E ships are muchlarger than the largest cruise ships, so in our view, theentire industry needs to step up and see how we canhandle these increased risks and they are.

How are increasing environmental and regulatoryconcerns influencing salvaging operations? Malen: Both environmental factors and the publicperception seem to be the largest factors in drivingthe costs of salvaging operations today. An exam-ple is the emergency response in the Farne Islands(Last year, TITAN successfully refloated the 262-foot container ship M/V Danio from its stricken position on England’s Northumberland coast). There was a lot of pressure amid huge environ-mental concerns.

LINDSAY MALEN

Lindsay Malen has been in themaritime industry for over 10years. Her background is a BS inPsychology and Chemistry withadvanced courses in marine in-surance and ship brokerage. Spe-cializing in emergency responseshe has worked with Future Care,a maritime medical care man-agement and cost containmentfirm developing a unique "Caringfor the Crew Program." She trav-eled the world vetting medicalfacilities with the top P&I clubsand insurers and partook in thelargest case study of pre-existingmedical conditions for seafarersof our time, now taken up by YaleUniversity. After founding MalenMaritime; providing independentmaritime brokerage, consultingand sales, she joined TITAN Sal-vage and the Marine ResponseAlliance (MRA) as their Directorof Business Development in De-cember 2012. As of 2013 she is afounding board member of theYoung Shipping Professionals ofHouston and has been publishedin various maritime journals.

Salvagingin Practice ...

Q&ASPECIAL

In a special Q&A, Global Risk Dialogue speaks to Lindsay Malen, Director Business Development at TITAN Salvage, an industry leader in global salvage,emergency response and wreck removal operations. Together, with Italian partnerMicoperi it had the wreck removal contract for the Costa Concordia, resulting in its successful parbuckling and the biggest maritime salvage operation ever undertaken.

30

• Simplified reporting procedures• More transparency on whether recruitment for

participating in a clinical trial is still ongoing and on the results of the clinical trial

• The ability for the commission to conduct controls to make sure the rules are being properly supervised andenforced.

For those trials posing risk insurance will still be required. It is also proposed that sponsors can put in place indemnity through the new proposednational indemnification scheme.

There is a number of challenges for how the national in-demnification schemes would operate including:• member state authorities will need to set up schemes

with sufficient financial capital to ensure prompt claims handling

• There will need to be sufficient resources and expertiseto administer the scheme – perhaps working with insurance companies

• The possibility of conflicting compensation schemes will need to be considered

• Developing the expertise to adequately calculate the risks of cover

• Be cost-effective and operate effectively

The EC proposal claims there has been an 800% increasein insurance costs since the implementation of the Clin-ical Trials Directive. However, this figure does not appearto be substantiated with empirical data and is disputedby insurers; indeed some pharmaceutical companieshave not reported such an increase. If the figure advo-cated is not correct then introducing national indemni-fication schemes may not save money.

In conclusion, the EU Health Commissioner Tonio Borgsaid the revised rules "will ensure that the EU remains anattractive location for clinical research“ (2013). How-ever, there are significant questions remaining abouthow the proposed legislation will deliver on its aims.

Proposed new legislation could make it easier to conduct multinational clinical trialsbut questions remain about how it will work in practice, says Dr Laura Brown.

IN CONCLUSION

DR LAURA BROWN

Dr Laura Brown is an independent QA and Training Consultant andDirector of the MSc inClinical Research, Schoolof Pharmacy at the Uni-versity of Cardiff andCourse Director of theMSc Regulatory Affairs,TOPRA. Laura has manyyears’ experience in thepharmaceutical industry.She has worked for sever-al companies includingGSK, Hoechst Marion.She is an internationalexpert on regulatory re-quirements in clinical re-search. She is a memberof the Editorial board ofSCRIP Clinical ResearchJournal. In addition she isauthor of SCRIP’s latestGCP guide, a practicalguide to the Clinical TrialDirective and has writtena chapter on GCP in In-ternational Pharmaceu-tical Product Registration(2009). If you would liketo learn more about clinical trials and the pro-posed changes in the EU legislation you cancontact Dr Brown atlaura.brown.training@googlemail.com or viaher web www.laurabrowndevelopment.com

In January the European Parliament’s committee re-sponsible for public health voted in favour of a revisedversion of the EU Clinical Trial Regulation initially pro-posed by the European Commission in July 2012.

This paves the way for formal adoption of the regulationby the European Parliament and Council of the EU in2014. The main impact for the insurance of clinical trialswill be that member states will need to provide for a na-tional indemnification mechanism for compensatingdamage occurring in clinical trials and set out how thiswill operate.

The new EU clinical trial regulation, which is expected tocome into effect in 2016 and aims to ensure that the rules for carrying out clinical trials are identical throughout the EU, is being brought in to replace the EUClinical Trials Directive which has received much criti-cism since its 2004 implementation.

Many clinical research professionals feel that the di-rective which was designed to improve patient protec-tion, harmonize European clinical trials and boost thequality of research has given rise instead to many prob-lems, hindering the progress of clinical research. For example:• A “25% decrease of clinical trials was reported since 2007”• It is claimed the directive has “substantially increased

the costs and administrative burden of conducting clinical trials”, doubling administrative costs overall and in particular suggesting that “insurance fees having increased by 800% for industry sponsors.” (EU health commissioner John Dalli, 2012).

By contrast, it is suggested the new regulation will makeit easier to conduct multinational clinical trials inEurope because it provides for:• An authorisation procedure for clinical trials which

will allow for a fast and thorough assessment of the application and which will ensure one single assess-ment outcome

“Many clinical research professionals feel the previous directive has given rise to many problems.“

Major changes to clinical trialsinsurance in Europe

31

Visit www.agcs.allianz.com for the latestAGCS news and expert research on topicssuch as weather risk, aviation safety, cyberthreats and shipping safety.

CONTENTSHOWCASE

AGCS is now on TwitterFollow the Twitter handle@AGCS_Insurance

Attacks by Somalian pirates have domi-nated the headlines in recent years butthe steps that the international mari-time community has taken to reducethe threat of piracy in the Gulf of Adenregion have been extremely successfulas the infographic demonstrates.

According to the International Mari-time Bureau, piracy at sea reached itslowest level in six years in 2013, with264 recorded attacks – down 11%year-on-year and 40% since Somalipiracy peaked in 2011.

But while incidents attributed toSomali pirates have plummeted piracyattacks elsewhere have increased infrequency, notably Indonesia (see right)and off the west coast of Africa.

The Gulf of Guinea region accountedfor 48 of the 264 incidents in 2013 –18% of all attacks. Of these Nigerianpirates were responsible for 31 inci-dents. AGCS’s Shipping and SafetyReview 2014 suggests that the piracymodel in Somalia could be brokenentirely in “a couple of years” if navalpatrols continue but elsewhere dif-ferent models pose new challenges.

How the world of piracy is changing

Meet AGCS experts at:

Apr. 27-30 RIMS Annual Conference www.rims.orgDenver, Colorado & Exhibition 2014

June 16-18 Airmic Conference www.airmicconference2014.comBirmingham, UK 2014

Sep 10-12 DVS Symposium www.dvs-schutzverband.deMunich, Germany

Oct 20-21 FERMA Risk www.ferma.euBrussels, Belgium Management Seminar

For more information contact: agcscommunications@allianz.com

2014 Calendar

www.twitter.com

www.agcs.allianz.com

Sour

ce: A

drian

Smith

& G

ordo

n Gi

ll Arc

hite

ctur

e