Risk of Hydro Power Sector in Nepal. Mahesh Guragain, FCA Chairman, NepalRe (

Transcription

1 Risk of Hydro Power Sector in Nepal Mahesh Guragain, FCA Chairman, NepalRe (

2 INTRODUCTION Contractors All Risk Insurance (C.A.R. also known as Contract Works Insurance) is an insurance policy specially designed for builders and a number of other trades working at a contract site. The main part of the contractors all risks insurance is the contract works section which provides cover for the value of the materials and property being used on a project (e.g. house, Hydropower, roads, bridge etc.). However, where there is an existing property (e.g. the existing structure when building an extension), cover for the existing property.

3 COVERAGE The C.A.R. policy provides an All Risks cover. Every risk is covered which is not especially excluded. This means that almost any sudden and unforeseen loss or damage occurring during the period if insurance to the property insured in the construction site is indemnified. The more important cause of losses indemnifiable under C.A.R. insurance are:

4 COVERAGE Fire, Lightning, explosion Flood, Inundation Windstorm of any kind Earthquake, landslide etc. Theft and Burglary Accidental Damage, Breakdown, bad workmanship, lack of skill, negligence, Malicious acts or human error. Collapse, impact, etc. Act of terrorism, etc. Loss of Profit,

5 Risk Management Transferring Risk to Insurance Company, Loss Prevention and Mitigation, Insuring Risk for Prosperity,

6 COVERAGE Civil Engineering projects like dwelliing houses, multistoried buildings, office buildings, warehouses, hospitals, schools, churches, theatres, cinemas, factories, silos, water tower, concrete bridges and steel bridges, barrages, dams, canals, tunnels, irrigation and water supply system, drainage and sewer systems, roads, railways, runways of air port, hangers etc. construction work in connection with power stations etc.

7 COVERAGE The coverage under CAR policy is under two sections: Material Damage (Section I) Third Party Liability (Section II) Each section has its own exclusions. In addition, there are general exclusions applicable to the entire policy and general conditions. The period of cover is defined in the policy as also the basis of indemnification.

8 MATERIAL DAMAGE (SECTION I) Material Damage - covering physical loss, damage or destruction of the property insured by any cause, other than those specifically excluded in the policy. The clause provides that if the property described in the schedule be lost, damaged or destroyed by any cause, (other than specifically excluded), such loss etc. will be made good, by repair or replacement, subject to the sum insured, each item and overall under the policy.

9 SUM INSURED Sum insured is required by the policy to be equal to the estimated completely erected value of the contract works inclusive of materials, wage, construction costs, freight, customs duties and items supplied by the principal. If, in the event of a loss it is found that the sum insured is less than the amount required to be insured (which is likely to occur as a result of increase in the cost of materials and wages) the insurers will apply average to the extent of underinsurance. Some Exclusions Clause

10 CONTRACTOR PLANT AND MACHINERY (CPM) There are different types of Contractors Plant and Machinery that are usually put into operation at the construction or Erection site. The Plants, Equipment and Machinery are exposed to a number of risks inherent in their operations in addition to the exposure to natural calamities. Such Machinery and Plants include shovels, excavators, rollers, dumpers, earth moving equipments, cranes and the like as well as site vehicles amongst others.

11 SCOPE OF COVER The policy covers sudden, accidental, external damage to the insured equipment due to any cause other than those specifically excluded in the policy. The policy covers the machinery whilst they are in operation or at rest or whilst being dismantled for the purpose of cleaning or overhauling or whilst being shifted within the premises.

12 SURROUNDING PROPERTY The cover applies to loss or damage to property located on or adjacent to the site belonging to or held in care custody or control of principal or the contractor only of occurring directly sue to the erection/ construction of items insured.

13 Nepalese Insurance Industry - History - Started from Transportation Transit guarantee, Nepal Insurance, 2 Indian Companies Branches, - Current Market: 17 General Insurance (Non-life) Companies, (+3 new companies) - Market size: Approx. NPR 20 Billion Annual GPI, Average Growth is around 20%. - Hydro Electricity: during construction and post construction period, Binding clause on Banks consortium financing during the loan roll out period. - Re-insurance: Mostly Hydro Projects at private sectors are Insured on Facultative basis, - Claims: Claim settlement process is unique for Hydro Insurance - SWOT: Risk bearing Capacity, Accuracy on Claims, Settlement process, growth on financial strength (Equity and Reserve)

14 Hydro Project Insurance - 14 Hydropower projects were affected by April Earthquake in 2015, loss of 150 MW, - Nepal had only 564 MW distribution including 210MW imported from India. - Claims cases: claim amount and settled amt, almost 80% claims are settled to date.

15 Re-insurance of Hydro Projects - Other General Information on Hydro Insurance: - Legal clause: must be a local Insurance as a ceding Insurance, - Re-insurance is compulsory as per Insurance regulations (limit: Retention capacity), - Mostly Hydro Projects are reinsured under Facultative (individual).

16 Claims - Major cases - Claim Settlement Process

17 CLAIMS PROCEDURE The duties of the insured are to: a) Give notice of loss to insurers: b) Submit proofs and particulars of loss:

18 CLAIMS PROCEDURE Processing and settlement of claims requires a sound basic knowledge of : a. The general law of contract b. the special law of contract, that is, principles of common law, as applicable to fire insurance, viz., indemnity, subrogation, utmost good faith, etc. c. the terms, exceptions and conditions (legal part): the policy, the extensions of this policy, warranties and clauses.

19 SURVEYOR S DUTIES The surveyor s primary duties are to: Investigate, ascertain, advise on loss minimization and protection of salvage and reporting. Details of damaged items Final Assessment of loss Surveyor s general observations, recommendations etc.

20 SURVEY REPORT There is no standardized survey report form and each surveyor uses his own format for submitting report. On the based of survey report insurer issue the cheque in the name of the insured, joint names of all the insured's, the name of the bank or financial institution (during financing period), etc.

21 Re-Insurance in Nepal Nepal Re-Insurance Co. Ltd. Share holding & Equity - Nepal Government - Non-life Insurance Companies, - Life Insurance Companies & some financial institutions - Having Paid up Capital NPR 5 Billion, and - Total equity NPR 8 Billion, - A National Re-insurance Co in Nepal

22 Reinsurance Market in Nepal Nepal is a small insurance market based on volume of premium. Currently the volume of market premium of non-life is around NPR 18 billion. Out of this NPR 4 billion (US$ 40 m) is Motor Premium, NPR 2 billion (US$ 20 m) Aviation and the balance NPR 12 billion (US$ 120 m) property. At present, there are 17 nonlife insurance companies in Nepal.

23 Reinsurance Market in Nepal - There are 17 Non-life insurance and 9 life Insurance companies in Nepal. - Non Life has around 240 Million Market Premium, -Life has around USD 400 Million s Market Premium.

24 Insurance and Reinsurance in Local Market - There are 17 Non-life insurance with paid up capital of NPR 1 Billion, and - 18 Life Insurance companies with paid up capital of NPR 2 Billion. - Non Life has around USD 240 Million Market Premium, -Life has around USD 400 Million s Market Premium.

25 Reinsurance Market in Nepal Recently, Nepal government has announced in the budget speech for 2017/18 that a mandatory arrangement is made for Nepali life and non-life insurance companies compulsorily reinsure major share of their insured liability to Nepal Re-Insurance Company with effective from 16 th July 2017, forthcoming renewal.

26 Reinsurance Market in Nepal Nepal Re will arrange to accept 30% Direct Cession (Policy Cession) as applied mandatory cession for all classes of insurance, except Aviation business from the year Nepal Re will accept the Treaty Cession of the domestic non-life companies in the leader s terms to the extent 30%. All classes of facultative reinsurance except Aviation will be accepted from domestic companies.

27 Reinsurance Market in Nepal Nepal Re is in process of the formation of NAT CAT Pool. Nepal Re is building the capacity of Hydro Power construction (CAR) insurance Nepal Re is in process to absorb the portion of Aviation Reinsurance in the lead terms.

28 Reinsurance Market in Nepal Nepal Re was limited accepting the facultative and treaty cessions from SAARC countries in and has been extended Afro-Asia including Middle East Asia, but excluding USA, Canada, Caribbean, Australia, New Zealand, Japan, Israel, Europe and the sanctioned, prohibited or restricted countries under United Nations resolutions or the trade or economic sanctions, laws or regulations of the European Union, United Kingdom or United States of America from

29 Nepal Re s inward business Direct Cession of Domestic Non-life Insurance Companies. Reinsurance Treaty Cessions of Domestic & International Non-life Re/Insurance Companies. (Nepal Re has already participated in Reinsurance Treaties from 5 Countries) Reinsurance Treaty Cessions of Domestic Life Insurance Companies. Facultative Acceptances from Domestic & International Non-life Insurance Companies. (Nepal Re has already accepted Facultative Reinsurance from 15 Countries)

30 Nepal Re s inward business Terrorism Pool All 17 non-life insurance companies ceding the premium of this risks 90% to Nepal Re. Agriculture & Livestock insurance pool Non-life insurance companies are imposed to write this business with a minimum of 5% of their total premium and ceding 80% to Nepal Re. (Nepal Government subsidies 75% of premium payable by the Insured) Engineering: 8% of Total Revenue, out of NepalRe, GPI of Nepal Re: GPI in FY 2072/73 NPR 17,16M, GPI in FY 2073/74 NPR 31,53M,

31 Government Subsidized Market Nepal Government subsidies 75% of premium on Agri, Livestock and Micro payable by the Insured, Health Insurance, Market and Practice Bank financing and industry practices

32 Nepal Re-Insurance Relation India, Asia Pacific London- Lloyds Brokers regulations

33 Some Challenges and Experience - Big Earthquake, - Landslides, - Natural calamities,

34 Cases Co A Covers Hydro Insurance: 12 Nos, - GPI (Gross Prem. Income): NPR2,73,55K - Loss: EQ in 15, Flood in 17, Total Amt NPR. 723,78K 282,00K Ratio on GPI 265% 103% 365%

35 Cases: Co B Covers Hydro Insurance: 7 Nos, Gross Premium Income (GPI): FY 73/74: NPR 44,25,35K FY74/75: NPR14,92,98K (to date) Gross Sum of Insured (Hydro Power Project) Min Amount: NPR47,690 K Max Amount: NPR 20,75,07,09 K Gross Risk Exposure: FY 73/74: NPR 67,48,79,26K, FY74/75: NPR 64,65,30,26K 5% of Sum Insured (obligatory cession) to Nepal Re & Facultative Support by Nepal Re up to NRs. 200,000,000, per policy/risk/location.

36 Re-insurance of Hydro Projects (Engineering + Fire in NepalRe) Particulars Domestic Hydro Business Scenario FY16/17 Amt in NPR K FY17/18 to date Amt in NPR K Fire Engineering Fire Engineering No of policies Minimum Sum Insured 380,756 33, ,321 8,440 Maximum Sum Insured 5,111, ,808 1,687, ,467 Total Risk Exposure 13,725,622 1,492,587 3,093, ,094 Risk Layer From reinsuracne from Nepalre (Maximum) 800, ,000 1,000, ,000 Minimum Limit of Nepal re (Net Retention) 60,000 36,000 60,000 42,000 Type Of Reinsurance From Nepal Re (retro Limit and Coverage)- Quota Share and Surplus) 900, ,000 1,100, ,000 Xol Minimum and Maximum Coverage Min- 20,000 Min- 20,000 Min- 20,000 Min- 20,000 MAX- 60,000 MAX- 60,000 MAX- 60,000 MAX- 60,000

37 Bhote Koshi Flood

38 Bhote Koshi Hydro

39 Bhotekoshi after Landslide

40 Landslide & Sanima Hydro

41 Sanima Hydro after Landslide

42 Investors: after Insurance Claim

43 Investor, Not Insured after event, Probably, Sunkoshi Hydro

44 Public Sector During Construction Period: Insurance Coverage under Contract Clause After Construction and During Operation Period: mostly no insurance coverage (Like: Sunkoshi, Hydel Project)

45 Thank You all!!!! Thomas Edison