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Managing Director
Marsh, New York

Mining the Coverage Supply

The biggest energy story of 2012 was the renaissance of domestic oil and gas production, and by November, the International Energy Agency predicted that by 2020, the United States could produce more oil annually than Saudi Arabia.

The back story of the unconventional resource boom in North America is that the new producing areas are in different parts of the country than the traditional oil patch, so pipeline activity has been intense, both new construction as well as mergers and acquisitions among existing lines. That growth has meant major new property and casualty exposures, which is where Jonathan Ball, managing director -- casualty leader for Power, Utility and Energy for Marsh USA Inc. in New York, has earned his laurels.

"We have grown like crazy in the past year," one client said. "Jonathan and his team have maintained their enthusiasm even as we push higher and higher on limits and excess liability."

In 2012, this client said, Ball was able to find domestic insurance capacity as well as in the Bermuda and London markets. "Our retentions are much lower than companies of comparable size," the client said. "We spent the whole year presenting new challenges to him and his team, and they just kept making the process more streamlined."

Ball also got kudos for handling 2012 renewals and placements. Even for clients that had suffered losses, he was able to secure level rates and terms at renewal. "He knows our facilities inside and out, and was able to explain to our carriers the nature of our operations," said one risk manager.

Senior Vice President
Marsh, Philadelphia

The Gaudet Breadth

One of the challenges to capital markets as well as risk-transfer markets in the domestic oil and gas boom has been the corporate form for the producing companies. For the most part the companies have not been the global oil and gas majors but rather the smaller independents.

Some of the smaller companies are publicly traded, others private, but within those structures they create a wide range of limited partnerships and subsidiaries to develop different fields. "Mike was essential in our initial public offering this year," one client said. "He spent a great deal of time with us to ensure that the language of our coverage dovetailed with the issue as it developed."

Moving assets around during the IPO process raised the complexity of the coverage, in particular when it came to claims.

Gaudet, senior vice president/East Zone Power and Utility D&O leader at Marsh USA Inc., exhibited the breadth of his ability by being able to move easily from high finance to high tech.
Another client lauded Gaudet for his ground-breaking cyberrisk coverage. It might seem surprising that a basic commodity industry would have such an exposure, but oil and gas development today is akin to rocket science done underground. "This was a serious area of concern for our board," the risk manager said. "It was not driven by a loss, just an awareness of the growing exposure."

Few companies are placing this kind of risk today, but "Mike got in early and got us in front of a strong group of underwriters, domestic and offshore," the risk manager also said.

Managing Director
Aon, Houston

Refining the Terms of Coverage

The huge new volumes of domestic crude oil are of no value until they are refined. Yet, underwriters are necessarily leery of large volumes of hydrocarbons at high temperatures and pressures. Enter Wayne Kearney, managing director for Aon Risk Solutions in Houston.

"He was able to differentiate our company and our risk profile in front of the carriers," said one client. "In our latest renewal he got us better than market rates, which was a significant achievement given our exposures."

Clients said that Kearney is an expert on the operational liabilities and issues involved in running a refinery. One challenge is that capital improvements, expansions and retrofits come in large chunks, so pipe racks and reactor vessels of different vintages are often linked in the same process train. Even so, there is constant maintenance, often done by third-party contractors on site.

"We have had claims," said the risk manager with one of the nation's major refiners. "That is the nature of our business. What Wayne was able to do for us this year is to make sure that the coverage we bought is the same coverage we got come claims time. He kept underwriters from separating the policy language in the underwriting process from the claims adjustment process."

Kearney does not frequently involve himself in the claims process, but in 2012, did so in a few instances. "He did not broker the coverage and then step away, knowing that we were bound to have claims," the risk manager for the refiner said.

Managing Director
John L. Wortham & Son, Houston

A Handle on the Pulse

Merger and acquisition activity in most industries involves large facilities, offices and manufacturing sites.

In the oil-and-gas sector, production facilities can change hands in deals ranging from entire companies or vast fields down to fractional ownership in single wells. The surging involvement of international companies and investment groups adds another layer of complexity. There are sophisticated spreadsheets for dealing with the tax and royalty bookkeeping in such a fragmented business, but the insurance coverage is still done by hand by specialized brokers like Ryan Smith, a managing director with Wortham Insurance and Risk Management in Houston.

One client praised Smith's ability to consolidate his various energy packages and improve coverage terms after the firm completed an acquisition in Europe. "Ryan handled all the documents from Europe," the insurance manager said. "We completely relied upon his expertise to handle the time and language and legal differences across two continents, and as we changed from a private firm with one owner to an SEC-reporting company."

Beyond aligning the pre-existing programs for acquirer and acquiree, the client said, Smith "enhanced our directors' and officers' program as well as our drilling and property coverage."

For another global project for a different oil and gas producer, Smith helped place the international property program for the oil and gas company's operating subsidiaries around the world, replacing coverage in a hurricane-prone region with more comprehensive terms at a lower price.

Managing Director
John L. Wortham & Son, Houston

Standing up in the Face of the Elements

The renaissance of domestic oil and gas production has posed several challenges to the risk management sector, not the least of which is the rapid and widespread expansion of the sector's physical plant of pipelines and processing facilities.

One client that has grown significantly over the past few years, said that excess liability renewals "are always a hassle."

"The underwriters are just skittish about the oil business, moving it or processing it," this client said.
"Annemarie and her whole team at Wortham did a wonderful job with our property and liability program." The Bermuda placement, which Annemarie Tobin, a managing director at Wortham Insurance and Risk Management in Houston, handled, was "definitely a key placement for us last year in the face of a very tough market."

Two other aspects for which Tobin's coverage was lauded are elemental: wind and fire. Clustered on the U.S. Gulf Coast as the traditional energy sector is, named windstorms are always a peril. Tobin has been able to obtain "reasonable rates," said another client, despite exposure to hurricanes like Katrina, Ike and Rita, and the inland peril of wildfire to the north and west. Clients credit Tobin with discerning placement in Bermuda and London, and prudent balancing between retaining and transferring the risk.

Risk managers in the sector said there is no doubt that capacity is available for the industry to expand, but that premiums and terms can limit growth. "Annemarie and her colleagues made a great effort in getting protection for that growth ... ," said one client.

Managing Director
John L. Wortham & Son, Houston

Spot On Even with the Gusher of Acquisitions

In very few industries are the financial investors as close to the operations as they are in oil and gas.

Private-equity investors, bank lenders, private debt lenders and venture capitalists are all active in the domestic hydrocarbon market, often to the level of individual wells.

One client, who manages private equity with 70 wells, about half of which are active, mined Zarr, a managing director with Wortham Insurance and Risk Management, for his expertise. "His knowledge of the industry and ability to detail our assets to the market were essential," the client said.

The trick, the client added, is that many of the wells and their operating companies had been self-insured, more out of default than from any careful cost-benefit analysis. "Across the portfolio we built, we had widely varying coverage, too much in some places and not enough in another," the client said. "It was quite a feat for Dave to come in and make sense of it all."

Zarr also won accolades for handling asset transactions in the midst of an initial public offering.

Another client, whose firm's IPO last year doubled the size of the company, said it was a "real challenge" to get updated coverage spot on in the wake of acquisitions leading up to the offering. "If it was not all exactly right at the time of closing, we would have had to withdraw the offering. And that would have been real bad," this client said.

Vice Chairman
Wortham Insurance & Risk Management
Houston

Managing Director
Marsh
Philadelphia

Managing Director
Aon Risk Solutions
Houston