RISK MANAGEMENT IN NUCLEAR POWER PLANT CONSTRUCTION Risk Management in Construction Phase Insurance Procurement

Transcription

1 RISK MANAGEMENT IN NUCLEAR POWER PLANT CONSTRUCTION Risk Management in Construction Phase Insurance Procurement 6 SEPTEMBER 2016 Matthew Kendle Power Construction Leader, Marsh Ltd IAEA Vienna

2 Risk Management and Construction Phase Insurance Agenda Economic Cost of Risk Role of a construction insurance advisor in risk management process Advisory Placement Servicing MARSH 1

3 Economic Cost of Risk Economic Cost of Risk Additional dimension of construction projects additional risk sharing MARSH 2

4 Economic Cost of Risk Risk management in the context of insurance Insured Retained - Deductible? - Uninsured? - Uninsurable? Transferred - Construction contracts - Indemnities - Offtaker (and/or other financial mechanisms eg. Contract for difference in the UK) MARSH 3

5 Economic Cost of Risk Transfer of risk and risk sharing Flow of risk MARSH 4

6 Role of a construction insurance advisor in risk management process Advisory (pre-binding of insurance) Transactional Insurance Placement (binding of insurance) Ongoing servicing/claims settlement (post binding of insurance) MARSH 5

7 Role of a construction insurance advisor in risk management process Advisory Evaluate (Contracts/risk registers...) Retain or transfer - Contract - Insurance Communicate (within Project company/lenders/contractors ) A clear insurance philosophy will assist in contractor tender process - The commercial trade off slightly differing wants of each party Design MARSH 6

8 Advisory Treatment philosophy and negotiation - contractors Significant risk sharing during construction Contractor has full risk of loss with exception of designated Employer s Risks Responsibility to deliver on time plan and specification. Time relief on force majeure events Key negotiations: Insurance responsibility Deductible retention. Scope of defects cover - Workmanship/Materials/Design. Control of claims negotiations. Indemnities & Limitations of liability more complicated in nuclear context. Full cover for manufacturers careful to review definition of subcontractors. Different contractors/suppliers can have significant variance in their risk and insurance philosophy MARSH 7

9 Advisory Treatment philosophy and negotiation - lenders Lenders only security of repayment resides in the project and the project revenues. Any risk which devalues the assets or endangers project revenues reduces the lenders chances of repayment. Insurance plays a major role in reducing (transferring) the risks to which the project assets and revenues are exposed, and the lenders security is therefore directly enhanced. Lenders require the insurance protection to be as wide as is reasonably available from the insurance market, and to include revenues as well as assets (normally), they are less concerned about the cost of insurance than the breadth of cover. Lenders are naturally risk-averse, and especially so on such long term projects with such large capital expenditure MARSH

10 Advisory Treatment philosophy and negotiation - lenders Early and proactive engagement with Lender s Insurance Advisor is critical Key negotiations: Class of cover during each phase of the finance agreement Determination of minimum scope of cover for each class Agreement of security documentation - Assignment documentation - Lenders endorsements Receipt of claims proceeds. MARSH 9

11 Role of a construction insurance advisor in risk management process Transactional Insurance Placement The nuances and complexities of nuclear construction insurance Structural transition to Operational Phase Implications of Delay in Start Up Insurance (DSU) Technology developments Construction period Asset Value MARSH 10

12 Transactional Insurance Placement Structural transition to operational phase MARSH 11

13 Transactional Insurance Placement Implications of Delay In Start Up (DSU) Insurance Interdependency of assets DSU sum insured Required/Desired project retention MARSH 12

14 Transactional Insurance Placement Technology developments No accurate definition of Prototype hours is out of date. All technologies are insurable: Warranties. Deductibles. Price. Design cover Will the risk sharing matrix be bankable? Will the manufacturer or contractor retain added risk under contract? MARSH 13

15 Transactional Insurance Placement Construction period Based on our benchmarking data of over 75,000MW of power generation construction projects (anticipated, not actual): Average gas fired project duration: 2 years 4 months Average coal fired project duration: 3 years 2 months Average hydroelectric project duration: 3 years 6 months Average nuclear: circa 10 years? Plus an amplified by longer development period MARSH 14

16 Transactional Insurance Placement Asset Value Physical damage capacity Total anticipated market capacity on a PML basis USD3.5bn. Exaggerated when DSU is required As an example of the influence Delay in Start Up capacity requirements can have on the insurance market, in a recent nuclear construction placement the lead insurer offered a lead line (share of the risk) in excess of 20% if the placement did not include DSU, which fell to 8% in case DSU was bought MARSH 15

17 Role of a construction insurance advisor in risk management process Ongoing Servicing/claims settlement Claims Manuals Insurance workshops Stewardship meetings Insurer surveys Claims settlement Change management And more MARSH 16

18 Risk Management and Construction Phase Insurance Conclusion Early development and implementation of insurance and risk allocation strategy Insurance role much broader than insurance procurement Importance of advisory phase insurance will not be a solution in isolation Nuclear construction remains a preferred class for insurers but its complexities need to be understood and managed MARSH 17

19 Marsh S.p.A. - Sede Legale: Viale Bodio, Milano - Tel Cap. Soc. Euro ,00 i.v. - Reg. Imp. MI - N. Iscriz. e C.F.: Partita IVA: R.E.A. MI - N Iscritta al R.U.I. - Sez. B / Broker - N. Iscriz. B Società soggetta al potere di direzione e coordinamento di Marsh International Holdings Inc., ai sensi art c.c.