2016 Power Broker

Utilities, Alternative

A Rush to Excellent Coverage

Patrick Drake Property Broker Aon, Southfield, Mich.

Patrick Drake
Property Broker
Aon, Southfield, Mich.

In gathering testimonials to crown the Power Brokers every year, R&I staff ask specifically for recent accomplishments, reminding references that, at this level, every broker should have a solid understanding of your industry and carriers, and deliver attentive service. To that one risk manager retorted, “Actually, not true!”

Aon’s Patrick Drake became the client’s new P&C broker in May 2015, as the utility became a separate entity from the previous overall municipal authority. The subdivision became necessary out of severe economic distress for the municipality, so a dire fiscal regime loomed over what would already have been a steep challenge.

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As the new authority was a regional entity comprising several counties, there were the complications of multiple jurisdictions. And then to take this whole new creature to insurance markets well aware of the region’s circumstances.

“There was no familiarity with our industry or with prior carriers,” said the risk manager. “We were essentially a near-billion-dollar start-up. Patrick was responsible for aggressively marketing a property program for us with a policy effective date of December 2015. He had to learn our industry, find new carriers, facilitate tours on a program with a $6.7 billion total insured value, improve rate and pricing, enhance coverage, and effectively fold all exposures into one program. He accomplished every task: significant cost savings, substantial coverage enhancements, and coverage for all our exposures.”

Harnessing the Sun

Chris Lang, CPCU, ARM Partner Legacy Risk & Insurance Services, Walnut Creek, Calif.

Chris Lang, CPCU, ARM
Partner
Legacy Risk & Insurance Services, Walnut Creek, Calif.

Sun and shadow are apt descriptors for the solar energy business: growth potential is glaringly bright, but the complexities of government subsidies and steep conditions imposed by lenders cast a heavy umber.

“Our firm is a challenge from an insurance position,” said the associate general counsel for one client of Chris Lang’s.

“With more than 7,000 rooftop solar installations, we are responsible for the largest and densest concentration of photovoltaic solar outside of Hawaii. But our financing partners and investors impose strong insurance requirements on every aspect of our business. Chris not only bound coverage at reasonable rates, but managed successful renewal of an ever-growing portfolio.”

While there are a few major players in solar, many operators remain small. “In 2015, Chris helped connect my growing design/build solar firm to large investment groups,” said the vice president of a client company.

“He helped us insure a range of new solar installation equipment, he provided a builder’s risk option for our finance partners that met a complicated three-party agreement, introduced us to new business opportunities, and connected [us] with a legal adviser that has structured the majority of our deals.”

The president of one firm credits Lang with identifying developing coverage for his company, and then securing “a reasonable rate.”

Pulling All the Levers

Michael Perron Property Team Leader Willis Towers Watson, New York

Michael Perron
Property Team Leader
Willis Towers Watson, New York

A Catch-22.  A no-win situation.  A client of Michael Perron’s faced exactly that situation to the second power. It had twin generating units at one facility. Normally both would operate at the same time, or one could operate while the other was being inspected or repaired. But both could not be out of service at the same time or the entire facility would go offline with dire consequences.

“We had a claim for one of the two units,” said the plant manager.

“Our previous carrier dropped us a month before renewal. The one unit could be repaired fairly easily, but that was not the most immediate problem. We could not get coverage until we could get in to inspect the second unit, but we could not take the second unit out of service to inspect it until the first one was repaired.”

By sitting down with prospective carriers, the plant manager said Perron was able to get quotes from three carriers.

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“He was really pushing all the buttons and pulling all the levers. In the end we were able to bind on the last day before expiration,” the client said.

For another client, Perron was able to find a new approach to an emerging liability exposure for alternative power providers. Under some circumstances, losses have to be calculated out five years, but carriers normally hold claims open 18 months.

“We had never encountered this situation before,” said the risk analyst.

“Mike worked on a net present value calculation that enabled us to close out a claim.”

Jousting Over Windmills

Laura Rubin Senior Vice President Beecher Carlson, Boston

Laura Rubin
Senior Vice President
Beecher Carlson, Boston

If conventional energy seems ingrained in tradition and politics in the U.S., in Mexico state ownership of oil is enshrined in the constitution. Energy reform at all levels in that country has been a decades-long process, so a wind farm initiative originating north of the border is fraught with obstacles.

“Laura was critical in closing a project in Mexico, and it was complicated straight out of the gate,” said the controller of one client.

“The first part was preparing a program for the turbine-supply agreement,” said the controller.

“That had to dovetail into the requirements of the lenders backing the project. There were lots of moving parts, and it had to be done in time for the financial closing. Of course, the local policies had to be layered in, as in-country coverage is a requirement in Mexico.”

Back north of the Rio Grande, wind farms are already a major industry. As part of efforts to reduce their carbon profiles, large utilities are building and buying wind farms.

One client was involved in the sale of a very large wind farm to a very large utility.

“It was a very complex transaction, and had to be done very quickly,” said the manager.

“The acquiring utility had its own program at its own carriers and there was a great deal of back and forth. Anything we needed from Laura we got in half an hour.”

After the deal was done, Rubin then had turn around and revamp the client’s program. “We could have faced a huge increase, but she kept the change small.”

Insuring ‘The Shorts’

Danny Seagraves, CPCU, CRM, CIC Vice President Willis Towers Watson, Charlotte, N.C.

Danny Seagraves, CPCU, CRM, CIC
Vice President
Willis Towers Watson, Charlotte, N.C.

In a fast-growing and fast-changing market such as solar energy, the varying needs of insureds can make it seem as if standardization is just a beautiful dream.

Some brokers find commonalities and work with carriers and owners to develop policies that, if not universal, can at least find broad markets. Danny Seagraves of Willis Towers Watson did that in a policy that addresses a chronic problem in solar energy, revenue shortfall.

Clients laud him for this. “Investors have been wishing someone would do this for a long time,” said one insurance adviser.

Having shortfall coverage was helpful, but the more important element was “figuring out how to structure it,” said the president of one client company. “We have done a lot of acquisitions,” he added, noting that working the coverage into the process facilitated some transactions. He said his company experienced some “tricky” claims and substantial requirements from investors.

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The client noted that even though the shortfall coverage is new, Seagraves was already making modifications, in this case arranging a high-level meeting among the client, its contractor, investors, and the underwriter. That yielded significant savings in premium and deductible.

Writing multi-year policies has also helped small clients, says the insurance adviser.

“Danny has acted like a de-facto risk manager for clients.”

Helping Hedge Solar

Stefan Szulc Senior Vice President Marsh, San Francisco

Stefan Szulc
Senior Vice President
Marsh, San Francisco

As an annual award, Power Broker® judging criteria has a touch of “what have you done for me lately?” One case with a definitive answer is Marsh’s Stefan Szulc, who in 2014 put together a comprehensive package in response to an RFP. But having won the business, he could hardly relax. The client firm doubled in size in 2015, meaning that existing programs had to be overhauled.

“Stefan assembled a team including property, casualty and construction expertise and won our business,” the director of finance recounted. “At our first renewal we were able to achieve substantial savings versus our prior program. Since then, our company has grown by more than 100 percent, and Stefan has responded quickly to those growing needs.”

That sort of geometric growth is the nature of the beast with renewable energy and services, meaning that the reward for hard work is more hard work.

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“The best example of Stefan’s professionalism comes from helping me navigate credit risk in the ever evolving and risky market of solar energy,” said the CFO of one client.

“We had receivables exposure to a single credit in excess of $30 million and I was concerned about collection risk. Stefan helped me navigate the trade-credit insurance market to put in place an ideal hedge to our exposure. In addition, we were able to negotiate the cost of the hedge down nearly 40 percent from what was initially proposed.”

Solar panels have been a fast-changing insurance challenge since the well-publicized bankruptcy of panel manufacturer Solyndra in 2011.

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 and 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]