2018 Power Broker

Renewable Energy

A Partner to Weather All Storms

Susan Garrard, AIS, AINS
Managing Director
Beecher Carlson, Boston

Beecher Carlson’s Susan Garrard supported a client through a complex transaction involving the purchase of a lease interest in a portfolio of power projects from a bankrupt company.

“A material chunk of the portfolio is in a part of the country seriously affected by the hurricanes this year,” explained the client’s managing director, “so we have been trying to close deals over multiple potential claims.”

In some cases, the extent of damage remained unclear for a while. The company needed to ensure that new insurance would be available once the transaction closed.

“Susan has been creative, helpful and patient while dealing with these significant challenges on a portfolio that is very important to us,” said the managing director.

Garrard’s approach to carriers was that they were already on the risk and had an opportunity to recoup some premium. The lead carrier declined, but Garrard persisted down the list and found one carrier that concurred.

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“Susan has been a fantastic partner,” said the founder of another client company. “She, and her colleagues, helped me manage through purchasing a large property and liability insurance policy for a portfolio of solar projects last year, and then renewing that policy this year.

“With their help she managed the barrage of questions associated with my financing. They were actually more helpful than my internal insurance department at my last company. I could not have navigated the insurance buying process without her.”

A Precedent for Success

Geraldine Kerrigan
Executive Managing Director
Beecher Carlson, Boston

“Geraldine has revamped how we have developed our wind projects [internationally] and set an incredible precedent,” said the director of insurance and risk management for a client of Beecher Carlson’s Geraldine Kerrigan.

“We had been limited in the coverage [available] in the local market. We were faced with subpar service and limited options.

“Geraldine was able to provide multiple options for our projects to manage our exposures at a significant advantage. We completed our first construction close using one of Geraldine’s designs and have set an effective precedent and model for our future projects in the region.”

That model was wholeheartedly accepted by the company’s headquarters as well as local offices, “which is a really big deal,” said the client.

There were more than a few variables in the equation. The revamped program would have to meet the approval of local partners and contractors, as well as lenders and management at the client in the U.S.

For example, that meant looking beyond usual markets for catastrophe coverage that would be placed internationally but meet local requirements in places where wind energy is still relatively new.

Kerrigan was able to engage a major European underwriter that also had a presence in the region where the client had operations. The result was an English policy form with limits and deductibles that were in line with the client’s existing worldwide program as well as compliant with all local regulations.

The Know-How to Get It Done

Mary Leighton
Senior Vice President
Beecher Carlson, Boston

Renewable energy is no longer considered “alternative,” with wind and solar setting the cost basis in some wholesale markets. The complexity of transactions has evolved as well.

“This year we sold a large renewable facility,” said the VP of finance for a client of Beecher Carlson’s Mary Leighton.

“It was our largest transaction to date, and Mary led the way through the transaction for our program and working with the buyer as well.” Mary’s leadership helped ensure the process went smoothly, said the VP.

The client praises Leighton for supporting most of the firm’s activities, including refinancing another large operation and doing advance work for expansion into Asia.

“Mary really took on the tax equity structure in the refi. She made sure that the risk was balanced on both sides. Lenders always ask for the world and she was instrumental in bringing a realistic business approach to the risk.”

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Another client operates a waste-to-energy facility. Insurance costs were rising every year, and still renewals were difficult. When Leighton took on the business, she had her work cut out for her.

Leighton updated and streamlined the program, focusing on gaps but also on inefficiencies and excesses. That set the stage for an aggressive campaign to put the client in front of new markets. Leighton was able to pare the casualty program to the essentials. Liability costs were cut by almost a third.

Getting Ahead of Hurricane Claims

Michael Perron, ARM, P.E.
Power Generation Practice Leader
Willis Towers Watson, New York

With named storms wreaking havoc in 2017, some brokers impressed clients with their expertise in handling claims or even completing renewals or placements while claims were still open.

But for one client of Willis Towers Watson’s Michael Perron, the broker’s most impressive feat was what did not happen as the result of the year’s big storms.

“We did have some potential claims,” said the company’s international risk manager, “but importantly some of the loss-control that was put in place before the storm may have prevented major losses.

“This was a major win. I am a former property insurance broker, and based on that experience, I can say that Mike was very tactical in what he put together for us.”

The key was a detailed review of several policy sublimits. Perron specified certain ones to increase, including service interruption, doubling that. So when a hurricane left the area without power for a protracted period, the higher service interruption limit could not have been more timely.

Another client, a solar-panel developer, needed clarity on their third-party liability exposure for panels installed on residential properties. The client’s counterparties were seeking coverage that the client thought was excessive.

Perron worked with underwriters for the client as well as for the counterparties to quantify both the liability and property risks. In the end, the client purchased a limit higher than what had originally given them pause, but that decision was driven by hard data.

An Objective Expert

Marc Toy
Senior Vice President
Beecher Carlson, Seattle

“Marc Toy was able to help me navigate the correct decision in purchasing non-standard insurance,” said the VP of project finance at one of Toy’s clients, a solar developer.

“We use third-party tax equity in our capital structure. One tax-equity investor wanted us to provide a certain level of production insurance for the first few years. That is not standard.

“We were choosing between an established firm offering this coverage and a new entrant. Marc walked me through the policy for each and presented the pluses and minuses. He did not promote either option, even though going one direction was in his favor. Marc just provided clear and objective analysis of both policies.”

Insurance to support the viability of a portfolio of solar projects — and to backstop the revenue stream in the event of an energy shortfall event — is gaining traction in the sector. As yet, there are just a few carriers offering it, so brokers have a challenge taking this risk to market.

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“We have an extremely complicated international company structure,” said the director of insurance and risk management at another client. “Marc was instrumental in ensuring our risk exposures, public and private, were adequately addressed.

“Throughout numerous company evolutions this year, he has been able to mitigate any detrimental effects to our worldwide master liability coverage while obtaining extremely competitive rates to our programs.”

The Innovation to Win

James Wagner, CPCU, CIC
Senior Vice President
Marsh, Charlotte, N.C.

A client of Marsh’s James Wagner had a joint-venture wind farm that was approaching the end of original equipment manufacturers (OEM) warranty. The warranty included maintenance on site.

“We knew we needed to be competitive in the bid process to perform the maintenance ourselves and compete against the OEM’s bid, which was a full wrap with one price for service and labor,” said the risk manager for the client. The company needed a way to provide the confidence of a full wrap to the board.

“Jim listened and concluded that we needed ‘financial smoothing.’ This type of coverage did not exist, but he brought the concept to a specialty underwriter and together they were able to create ‘cost cap’ coverage. Using that, we won the bid.”

The cost cap is essentially a layer of coverage that sits above the annual maintenance to provide protection against inaccurate projections of maintenance costs.

Since the placement was such a success, the client has placed it for several other farms that had also fallen off warranty. Those multiple placements allow the company to proceed with other business ventures.

Also, the client’s all-risk property carrier has since lowered its rates on the wind farms with the new warranty in place.

“Jim has helped to create a world-class property program for us,” said another client. “He worked tirelessly to make sure all the pieces aligned and the program we implemented was solid and yields the savings we projected to the shareholders.”

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]