2014 Power Broker

Utilities

Hands-On Achiever

Neil Cyabyab, ARM Vice President Marsh, Irvine, Calif.

Neil Cyabyab, ARM
Vice President
Marsh, Irvine, Calif.

Nuclear power is complicated enough, but nuclear waste handling and processing is even more fraught — from public policy to insurance policy.

As the nuclear industry shows some signs of growth after years of dormancy, more opportunities are opening for processors and other service companies. But to take advantage, those firms need to be able to secure or modify coverage quickly. It is a market with few competitors, but also one that makes underwriters highly circumspect.

“We have a very significant and complicated insurance risk transfer program,” in the multimillion-dollar range, said the insurance manager for one service firm. “Neil is a highly trusted and respected colleague to our senior management team and he proved his professionalism and value throughout the course of 2013.

“For example, we had a multimillion-dollar project that could have been at risk, but the skillful, hands-on management of the relationship between Mr. Cayabyab and his team, local management, and the carrier resulted in the project moving forward successfully. I dare say that this likely would not have been the case without him.”

Another client is a nuclear power generator. The plant suffered a long idle period because of the failure of a key component. The client said that Cayabyab was involved in every aspect of the shutdown, especially handling claims with the property carrier. In particular, Cayabyab found a way to save the utility nearly a quarter-million dollars in liability protection.

Capable and Knowledgeable

Brendan Quinlan, ARM Area Vice President Arthur J. Gallagher San Francisco

Brendan Quinlan, ARM
Area Vice President
Arthur J. Gallagher
San Francisco

For clients of Brendan Quinlan, his knowledge is power.

“I worked with Brendan over the last two years to create, structure, draft and place a policy which backstops project level
debt for a power-generation project,” said the director of the development.

“The insurance policy was designed to make project lenders whole in the event the facility does not operate at warranty levels and the developer is insolvent. Brendan’s extensive knowledge of the insurance market coupled with his strong financial acumen — critical to understanding how lenders approach the project policy — were fundamental to the ultimate success of the project,” the director said.

“Brendan identified the players in the marketplace who had the knowledge and capabilities to craft a customized policy to meet the business requirements and objectives of all the parties involved.”

Another client of Quinlan’s is a power generator and distributor with conventional and renewable energy operations.

“We have grown a great deal, and we had to make changes to our policies to make the work we do in the field more palatable to our underwriters,” said the treasurer. “We’ve got people on roofs all over our region and that was beyond what some of our original carriers were down for. The rapid growth of our company has meant our bonding obligations are constantly changing. Brendan worked very hard this past year to keep all of that current and compliant.”

Persistent and Precise

Robert G. Sweeney, ARM, AIC Vice President Marsh, Philadelphia

Robert G. Sweeney, ARM, AIC
Vice President
Marsh, Philadelphia

The adage, “don’t let perfect be the enemy of good,” always leaves open the question of when and how to fix whatever was papered over the first time around.

“We purchased another utility several years ago, and that transaction came with big differences in property valuation between our numbers and the underwriter’s numbers,” said the utility’s senior director of corporate risk and insurance.

“We wanted to roll the subsidiary into our main property program, but we had this outstanding unresolved issue of a very large, insurable value increase. We knew the resolution of the issue would result in a substantial premium increase, which would pressure an already strained budget. Bob developed a strategy to implement the expected premium increase over two renewals.”

The risk director said that it was a long and complex negotiation the first time around that required Sweeney, a vice president at Marsh, to dig into the assets and operations in question, but also the terms of the acquisition and both of the existing programs.

“All of that only led to a tentative agreement with a lot to be made final,” the client said. “It was more of an agreement in principle than a firm resolution. Bob had to come back and cement the deal.

“He could have just asked for a final sign-off, but instead he went back over everything a second time and actually found more stuff to strengthen our case.”

Efficient and Effective

Andrew Moulder Senior Vice President Bowring Marsh, Hamilton, Bermuda

Andrew Moulder
Senior Vice President
Bowring Marsh, Hamilton, Bermuda

Thanks to rapid changes in the energy industry, from the domestic oil and gas bonanza to developments in alternative energy, some of the biggest names in the utility sector are growing quickly in areas that they would not have dreamed about five years ago. Bowring Marsh’s Andrew Moulder is greatly aiding that growth.

“Andrew understands and has earned the respect of the Bermuda insurance markets, enabling him to most efficiently and effectively find and align capacity for the unique aspects of a given power and utility risk,” said one insurance manager.

“His knowledge of each Bermuda market’s risk appetite enabled us to maintain hundreds of millions of dollars of excess liability capacity through the hardening market following the recession, offshore oil-rig claims, California wildfire claims, and gas explosion claims without significant premium increases, or losing coverage terms.” Much of that was in areas where a traditional utility would not previously have needed placement.

Another big utility client added, “Andrew worked with our 70-year-old company’s initial entry into the insurance marketplace, which, itself, was a unique and challenging experience.

“Then he has continued to work with our company following a large loss, which added to the challenges of placing coverage for a company new to the insurance markets.”

Throughout all of these placements, the client said, Moulder manages things with a quiet, unassuming style, banking on his relationships and industry knowledge.

Managing Difficulties

Quetzy Rivera Senior Vice President Marsh, New York

Quetzy Rivera
Senior Vice President
Marsh, New York

If there is a theme to this year’s awards in the energy, utility and related industrial sectors, it is underwriters changing, reducing or ending their participation in certain sectors, leaving brokers and their clients scrambling to replace capacity and trying to integrate new carriers and their practices into the programs.

Those carrier recalculations affect insureds of every size, including the largest international utility operating companies. Those firms said the size of their programs made adjustments more difficult than for smaller owners.

For one major power operator, the withdrawal of a significant workers’ compensation carrier left very few places the client could turn to replace the capacity. The client credited Rivera, senior vice president at Marsh, with an aggressive marketing campaign that even included underwriters that had been unwilling to participate in the past.

“The incumbent market indicated that the premium would increase substantially due to a new rating model,” said the insurance analyst for the utility. Rivera marketed the program and other markets provided a competitive quote comparable to the existing policy once they became comfortable with the insured’s exposures. “Quetzy not only was able to maintain expiring premiums, but she was also able to satisfy our budgetary constraints despite the hardening excess workers’ comp market,” the analyst said.

Beyond that specific placement, Rivera also marketed a number of the client’s additional lines at competitive rates.

Extraordinary Efforts

Gina Visor, ARM, CPCU, AU, ARM-P Vice President Marsh,Charlotte, NC

Gina Visor, ARM, CPCU, AU, ARM-P
Vice President
Marsh,Charlotte, NC

Unlike attorneys, insurance brokers are not asked to do any pro bono work; indeed non-billable time is avoided whenever possible. That said, the nature of brokerage work, especially with potential clients, is in some ways betting on the come. Sometimes the payoff is not financial, but goodwill.

The Battelle Energy Alliance, based in Idaho Falls, Idaho, is a subsidiary of the Battelle Memorial Institute. It operates nuclear reactors, but is not a utility and therefore not eligible for coverage by the power industry mutual, Nuclear Electric Insurance Ltd.

“We were covered under a Department of Energy program that just went away,” said Linda Montgomery, general counsel for the Alliance.

Typically, Marsh’s renewal discussions begin five or six months before the renewal date, but this situation arose with slightly more than two months to go. To complicate matters, the placement involved general liability, workers’ compensation and automobile liability coverage for multiple nuclear and non-nuclear exposures, ranging from security personnel authorized to use deadly force, three active on-site nuclear reactors, and more than 4,000 employees spread over 900 square miles of Idaho desert.

“We needed to scramble for coverage,” Montgomery said. “We went to Gina in a panic and she was able to get us quotes over the phone very quickly. It was extraordinary, really phenomenal what she was able to accomplish.” In the end, the Alliance went with a state program, but Montgomery plans to give Eugina Visor other business.

BlackBarFinalist:

Julie Reinhardt Vice President Marsh

Julie Reinhardt
Vice President
Marsh

More from Risk & Insurance

More from Risk & Insurance

Exclusive | Hank Greenberg on China Trade, Starr’s Rapid Growth and 100th, Spitzer, Schneiderman and More

In a robust and frank conversation, the insurance legend provides unique insights into global trade, his past battles and what the future holds for the industry and his company.
By: | October 12, 2018 • 12 min read

In 1960, Maurice “Hank” Greenberg was hired as a vice president of C.V. Starr & Co. At age 35, he had already accomplished a great deal.

He served his country as part of the Allied Forces that stormed the beaches at Normandy and liberated the Nazi death camps. He fought again during the Korean War, earning a Bronze Star. He held a law degree from New York Law School.

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Now he was ready to make his mark on the business world.

Even C.V. Starr himself — who hired Mr. Greenberg and later hand-picked him as the successor to the company he founded in Shanghai in 1919 — could not have imagined what a mark it would be.

Mr. Greenberg began to build AIG as a Starr subsidiary, then in 1969, he took it public. The company would, at its peak, achieve a market cap of some $180 billion and cement its place as the largest insurance and financial services company in history.

This month, Mr. Greenberg travels to China to celebrate the 100th anniversary of C.V. Starr & Co. That visit occurs at a prickly time in U.S.-Sino relations, as the Trump administration levies tariffs on hundreds of billions of dollars in Chinese goods and China retaliates.

In September, Risk & Insurance® sat down with Mr. Greenberg in his Park Avenue office to hear his thoughts on the centennial of C.V. Starr, the dynamics of U.S. trade relationships with China and the future of the U.S. insurance industry as it faces the challenges of technology development and talent recruitment and retention, among many others. What follows is an edited transcript of that discussion.


R&I: One hundred years is quite an impressive milestone for any company. Celebrating the anniversary in China signifies the importance and longevity of that relationship. Can you tell us more about C.V. Starr’s history with China?

Hank Greenberg: We have a long history in China. I first went there in 1975. There was little there, but I had business throughout Asia, and I stopped there all the time. I’d stop there a couple of times a year and build relationships.

When I first started visiting China, there was only one state-owned insurance company there, PICC (the People’s Insurance Company of China); it was tiny at the time. We helped them to grow.

I also received the first foreign life insurance license in China, for AIA (The American International Assurance Co.). To date, there has been no other foreign life insurance company in China. It took me 20 years of hard work to get that license.

We also introduced an agency system in China. They had none. Their life company employees would get a salary whether they sold something or not. With the agency system of course you get paid a commission if you sell something. Once that agency system was installed, it went on to create more than a million jobs.

R&I: So Starr’s success has meant success for the Chinese insurance industry as well.

Hank Greenberg: That’s partly why we’re going to be celebrating that anniversary there next month. That celebration will occur alongside that of IBLAC (International Business Leaders’ Advisory Council), an international business advisory group that was put together when Zhu Rongji was the mayor of Shanghai [Zhu is since retired from public life]. He asked me to start that to attract foreign companies to invest in Shanghai.

“It turns out that it is harder [for China] to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

Shanghai and China in general were just coming out of the doldrums then; there was a lack of foreign investment. Zhu asked me to chair IBLAC and to help get it started, which I did. I served as chairman of that group for a couple of terms. I am still a part of that board, and it will be celebrating its 30th anniversary along with our 100th anniversary.

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We have a good relationship with China, and we’re candid as you can tell from the op-ed I published in the Wall Street Journal. I’m told that my op-ed was received quite well in China, by both Chinese companies and foreign companies doing business there.

On August 29, Mr. Greenberg published an opinion piece in the WSJ reminding Chinese leaders of the productive history of U.S.-Sino relations and suggesting that Chinese leaders take pragmatic steps to ease trade tensions with the U.S.

R&I: What’s your outlook on current trade relations between the U.S. and China?

Hank Greenberg: As to the current environment, when you are in negotiations, every leader negotiates differently.

President Trump is negotiating based on his well-known approach. What’s different now is that President Xi (Jinping, General Secretary of the Communist Party of China) made himself the emperor. All the past presidents in China before the revolution had two terms. He’s there for life, which makes things much more difficult.

R&I: Sure does. You’ve got a one- or two-term president talking to somebody who can wait it out. It’s definitely unique.

Hank Greenberg: So, clearly a lot of change is going on in China. Some of it is good. But as I said in the op-ed, China needs to be treated like the second largest economy in the world, which it is. And it will be the number one economy in the world in not too many years. That means that you can’t use the same terms of trade that you did 25 or 30 years ago.

They want to have access to our market and other markets. Fine, but you have to have reciprocity, and they have not been very good at that.

R&I: What stands in the way of that happening?

Hank Greenberg: I think there are several substantial challenges. One, their structure makes it very difficult. They have a senior official, a regulator, who runs a division within the government for insurance. He keeps that job as long as he does what leadership wants him to do. He may not be sure what they want him to do.

For example, the president made a speech many months ago saying they are going to open up banking, insurance and a couple of additional sectors to foreign investment; nothing happened.

The reason was that the head of that division got changed. A new administrator came in who was not sure what the president wanted so he did nothing. Time went on and the international community said, “Wait a minute, you promised that you were going to do that and you didn’t do that.”

So the structure is such that it is very difficult. China can’t react as fast as it should. That will change, but it is going to take time.

R&I: That’s interesting, because during the financial crisis in 2008 there was talk that China, given their more centralized authority, could react more quickly, not less quickly.

Hank Greenberg: It turns out that it is harder to change, because they have one leader. My guess is that we’ll work it out sooner or later. Trump and Xi have to meet. That will result in some agreement that will get to them and they will have to finish the rest of the negotiations. I believe that will happen.

R&I: Obviously, you have a very unique perspective and experience in China. For American companies coming to China, what are some of the current challenges?

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Hank Greenberg: Well, they very much want to do business in China. That’s due to the sheer size of the country, at 1.4 billion people. It’s a very big market and not just for insurance companies. It’s a whole range of companies that would like to have access to China as easily as Chinese companies have access to the United States. As I said previously, that has to be resolved.

It’s not going to be easy, because China has a history of not being treated well by other countries. The U.S. has been pretty good in that way. We haven’t taken advantage of China.

R&I: Your op-ed was very enlightening on that topic.

Hank Greenberg: President Xi wants to rebuild the “middle kingdom,” to what China was, a great country. Part of that was his takeover of the South China Sea rock islands during the Obama Administration; we did nothing. It’s a little late now to try and do something. They promised they would never militarize those islands. Then they did. That’s a real problem in Southern Asia. The other countries in that region are not happy about that.

R&I: One thing that has differentiated your company is that it is not a public company, and it is not a mutual company. We think you’re the only large insurance company with that structure at that scale. What advantages does that give you?

Hank Greenberg: Two things. First of all, we’re more than an insurance company. We have the traditional investment unit with the insurance company. Then we have a separate investment unit that we started, which is very successful. So we have a source of income that is diverse. We don’t have to underwrite business that is going to lose a lot of money. Not knowingly anyway.

R&I: And that’s because you are a private company?

Hank Greenberg: Yes. We attract a different type of person in a private company.

R&I: Do you think that enables you to react more quickly?

Hank Greenberg: Absolutely. When we left AIG there were three of us. Myself, Howie Smith and Ed Matthews. Howie used to run the internal financials and Ed Matthews was the investment guy coming out of Morgan Stanley when I was putting AIG together. We started with three people and now we have 3,500 and growing.

“I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.” — Maurice “Hank” Greenberg, chairman and CEO, C.V. Starr & Co. Inc.

R&I:  You being forced to leave AIG in 2005 really was an injustice, by the way. AIG wouldn’t have been in the position it was in 2008 if you had still been there.

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Hank Greenberg: Absolutely not. We had all the right things in place. We met with the financial services division once a day every day to make sure they stuck to what they were supposed to do. Even Hank Paulson, the Secretary of Treasury, sat on the stand during my trial and said that if I’d been at the company, it would not have imploded the way it did.

R&I: And that fateful decision the AIG board made really affected the course of the country.

Hank Greenberg: So many people lost all of their net worth. The new management was taking on billions of dollars’ worth of risk with no collateral. They had decimated the internal risk management controls. And the government takeover of the company when the financial crisis blew up was grossly unfair.

From the time it went public, AIG’s value had increased from $300 million to $180 billion. Thanks to Eliot Spitzer, it’s now worth a fraction of that. His was a gross misuse of the Martin Act. It gives the Attorney General the power to investigate without probable cause and bring fraud charges without having to prove intent. Only in New York does the law grant the AG that much power.

R&I: It’s especially frustrating when you consider the quality of his own character, and the scandal he was involved in.

In early 2008, Spitzer was caught on a federal wiretap arranging a meeting with a prostitute at a Washington Hotel and resigned shortly thereafter.

Hank Greenberg: Yes. And it’s been successive. Look at Eric Schneiderman. He resigned earlier this year when it came out that he had abused several women. And this was after he came out so strongly against other men accused of the same thing. To me it demonstrates hypocrisy and abuse of power.

Schneiderman followed in Spitzer’s footsteps in leveraging the Martin Act against numerous corporations to generate multi-billion dollar settlements.

R&I: Starr, however, continues to thrive. You said you’re at 3,500 people and still growing. As you continue to expand, how do you deal with the challenge of attracting talent?

Hank Greenberg: We did something last week.

On September 16th, St. John’s University announced the largest gift in its 148-year history. The Starr Foundation donated $15 million to the school, establishing the Maurice R. Greenberg Leadership Initiative at St. John’s School of Risk Management, Insurance and Actuarial Science.

Hank Greenberg: We have recruited from St. John’s for many, many years. These are young people who want to be in the insurance industry. They don’t get into it by accident. They study to become proficient in this and we have recruited some very qualified individuals from that school. But we also recruit from many other universities. On the investment side, outside of the insurance industry, we also recruit from Wall Street.

R&I: We’re very interested in how you and other leaders in this industry view technology and how they’re going to use it.

Hank Greenberg: I think technology can play a role in reducing operating expenses. In the last 70 years, you have seen the expense ratio of the industry rise, and I’m not sure the industry can afford a 35 percent expense ratio. But while technology can help, some additional fundamental changes will also be required.

R&I: So as the pre-eminent leader of the insurance industry, what do you see in terms of where insurance is now an where it’s going?

Hank Greenberg: The country and the world will always need insurance. That doesn’t mean that what we have today is what we’re going to have 25 years from now.

How quickly the change comes and how far it will go will depend on individual companies and individual countries. Some will be more brave than others. But change will take place, there is no doubt about it.

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More will go on in space, there is no question about that. We’re involved in it right now as an insurance company, and it will get broader.

One of the things you have to worry about is it’s now a nuclear world. It’s a more dangerous world. And again, we have to find some way to deal with that.

So, change is inevitable. You need people who can deal with change.

R&I:  Is there anything else, Mr. Greenberg, you want to comment on?

Hank Greenberg: I think I’ve covered it. &

The R&I Editorial Team can be reached at [email protected]