Demystifying Business Interruption in Mining:

Transcription

1 Demystifying Business Interruption in Mining: An Overview of Bottlenecks, Claims & Coverage Products & Global Markets Willis Mining Seminar LATAM, June 2015

2 Agenda Operational Interdependencies Global Claims Benchmarking Business Interruption Simplified Underwriting the Operational Interdependencies 2

3 Layered Industry View Basic Value Chain Excavation Processing & Extraction Transportation Complex Value Chain Ownership & Jurisdiction Road Conveyor Pipeline Railroad Operational Interdependency BCP, Contingency Planning Risk Transfer Considerations Business Risk 3

4 Agenda Operational Interdependencies Global Claims Benchmarking Business Interruption Simplified Underwriting the Operational Interdependencies 4

5 Global Claims Benchmarking: Source Statistically relevant data, based on notifications, not Quantum Losses represented by site location not head office of insured 5

6 Global Claims Benchmarking: Industry Overview Bottlenecks include Remoteness, Access, Altitude Mitigation efforts include Critical Sparing, Utilities, Contingencies Spotlight: Latam 6

7 Audience Voting Global Benchmark between RoW and LATAM for Industry Claims Excavation Extraction & Processing Transportation Services Incl. Line Risk 7

8 Global Claims Benchmarking: Excavation Bottlenecks include Life of Mine, Site Development Planning, Dewatering Capacity Mitigation efforts include Operational Diversification (Method, Ore), Geotechnical Engineering, Hydrology/ Drainage 8

9 Global Claims Benchmarking: Extraction & Processing Bottlenecks include Prototypical/ Antiquated ME, Molten Material Breakout/ Solidification, Power Gen & back up capacity Mitigation efforts include Spare Sharing Agreements, Fire protection, in house redundancies 9

10 Global Claims Benchmarking: Transportation Services Bottlenecks include Aging Infrastructure, Single suppliers, Remoteness/ Altitude/ Access/ Distance Mitigation efforts include Infrastructure investment, multiple conveyances/ Line Risk contingencies/ Stress tested BCP 10

11 Global Claims Benchmarking: Peril Split Bottlenecks include UG Ventilation, Unskilled Labour, Methane/ gaseous risk management Mitigation efforts include Stockpiling offsite, Fire protection (water/deluge), Hot works permits, Preventative maintenance & housekeeping 11

12 Global Claims Benchmarking: Loss Propensity Snapshot Physical or Material Damage relative to Business Interruption proportion of claims Claims Lessons Learned: Relatively Small PD results in a large BI with rare outliers 12

13 Agenda Operational Interdependencies Global Claims Benchmarking Business Interruption Simplified Underwriting the Operational Interdependencies 13

14 Business Interruption 101: Intent & Definition Purpose Indemnity: Actual Loss Sustained Basis Production Loss is not equal to a BI Loss: Inventory, secondary facilities, product purchased from wholesaler Operating Costs or fixed continuing costs/ expenses Basics Loss of Income Continuing v Non-Continuing Expenses What is the financial position had a loss not occurred? Non-Continuing Expenses: Expenses to Reduce Loss/ ICOW; Extra Expense AICOW; Relative starting points: Financial Purpose (Revenue Expenses = Net Income) v. Insurance Purpose (Net Income + Continuing Expenses = BI) 14

15 Business Interruption 101: Coverage Standing Charges Indemnity for Operating Costs or Fixed Continuing Expenses Expenses/ Costs must be Incurred & Earned Relatively stable underlying operating costs avoiding volatility No Coverage for Profit or Loss. (uplift/ shortfall): Proportionality Gross Profits/ Turnover/ Earnings Indemnity up to the BI Limit declared/ reported Actual Loss Sustained Traditional BI Coverage for Standing Charges + Profits/ Earnings, Volatile but tracks real market Commodity Spot Price Fluctuations Operational Interdependencies & Bottlenecks 15

16 Business Interruption 101: Retention Schemes Attachment Point Waiting Period Is not a deductible but rather a coverage trigger detailing an exclusionary period in # days Traditional Deductible Smoothed: ADV Average daily value $ = annual BI/ #working days per year Volatile: ADV Actual daily value $ = number of days of the interruption Commodity Spot Price Fluctuations 16

17 Agenda Operational Interdependencies Global Claims Benchmarking Business Interruption Simplified Underwriting the Operational Interdependencies 17

18 Underwriting Operational Interdependencies Financial Considerations Life of Mine & annual ore grade including capacities Breakdown per site of turnover/ profits & operating/ fixed costs Production Cost for Commodities Extracted Basic Quick Ratios (ie. Cash Flow v. Debt dependency) Commodity Spot Price & Financial cycles Anticipated turnover, vs. Actual turnover Volatility & yearly re-validation Audited Balance Sheet & Annual Reports/ Statements Additional Features Proven and probable reserves (brownfield, greenfield) Extraction & Processing capacities % turnover dependent on each stage (ie. Impact of interruption at each stage of the value chain) Contingency Agreements Tested v Unproven Site Ownership (Mergers, Acquisitions, Divestitures) AISC for Gold Miners (All In Sustaining Costs, plus GAAP measures Tax, Interest, Debt, Cash Flow; Definition of Sustaining Costs Ie. What is Sustaining v Production Growth Spending) 18

19 Underwriting Operational Interdependencies Peak Exposure (MPL) Multiple unrelated losses along the value chain (EQ Damage at the Port plus Critical Equipment Failure in Processing) Man Made (FLEXA) Boiler & Machinery Breakdown Natural Catastrophes Volatility (Conglomerate v Midsize v Small relative to Market cap) Accumulations Operational exposures (ie. high flow of GDP dependent product) & Geographical concentrations Bottlenecks & Mitigation affecting more than one client Commodity Spot Price Fluctuations 19

20 Closing A Good Underwriter will consider claims lessons learned, bottlenecks, mitigations, coverage, financials, accumulations & uniqueness of each company's exposure to operational interdependencies. A Great Underwriter will truly understand your industry and underwrite your company using all of the above considerations, but with the Risk Manager's hat! 20

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22 Legal notice 2015 Swiss Re. All rights reserved. You are not permitted to create any modifications or derivative works of this presentation or to use it for commercial or other public purposes without the prior written permission of Swiss Re. The information and opinions contained in the presentation are provided as at the date of the presentation and are subject to change without notice. Although the information used was taken from reliable sources, Swiss Re does not accept any responsibility for the accuracy or comprehensiveness of the details given. All liability for the accuracy and completeness thereof or for any damage or loss resulting from the use of the information contained in this presentation is expressly excluded. Under no circumstances shall Swiss Re or its Group companies be liable for any financial or consequential loss relating to this presentation. 22