Event Cancellation Risk

Doubts Buzz Around Rio Olympics

The threat of Zika continues to prompt calls for the cancellation of the 2016 Olympic Games.
By: | July 5, 2016 • 6 min read
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As the threat of the Zika virus remains an urgent one in Brazil, calls have been made for the cancellation or relocation of the 2016 Olympic Games – an extreme decision that would cause enormous losses to the global insurance market.

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Some of the world’s largest insurers and reinsurers, including Swiss Re and Munich Re, have exposures to the tune of hundreds of millions of dollars each for cancellation insurance policies that would likely be triggered if the games were not to take place.

Such policies cover financial losses caused by the cancellation of events and are purchased by the International Olympic Committee (IOC), which organizes the games, and by companies and organizations with significant interests in the games. They include sponsors, TV networks, tourism operators, airlines, brands with Olympic-focused marketing campaigns and others.

Underwriters must have sighed with relief when the World Health Organization said “there is no public health justification for postponing or cancelling the games.”

The risk of cancellation gained steam in recent weeks after a group of more than 150 high-profile scientists released an open letter urging the games to be suspended in order to prevent Zika from spreading around the world.

“An Unnecessary Risk”

“The Brazilian strain of Zika virus harms health in ways that science has not observed before,” the scientists said in the letter. “An unnecessary risk is posed when 500,000 foreign tourists from all countries attend the Games, potentially acquire that strain, and return home to places where it can become endemic.”

They pointed out in the document that the 2003 Women’s World Cup was moved from China to the U.S. due to the risk of SARS, which should be a precedent for the cancellation of Rio 2016.

Royal Oakes, insurance partner, Hinshaw & Culbertson

Royal Oakes, insurance partner, Hinshaw & Culbertson

Underwriters around the world must have sighed with relief when the World Health Organization released an answer to the scientists, stating that “there is no public health justification for postponing or cancelling the games.”

“It is very likely that current policies have no exclusions for public health events such as epidemics,” said Royal Oakes, an insurance partner at Hinshaw & Culbertson in Los Angeles.

The market may have dodged a bullet, but insurers and reinsurers may still face a bill due to the pesky Aedes mosquitoes, which transmit not only Zika, but also other viruses such as chikungunya, dengue and yellow fever; all common diseases in Brazil.

“Cancellation policies are such long shots that usually nobody gives them any attention,” Oakes said. “But now everybody is talking about cancelling Rio 2016 due to Zika.”

According to sources, at least one of Europe’s largest reinsurers signed a large cancellation contract with NBC, which owns TV rights to the Olympics in the U.S. It has been pressured to consider the possibility of triggering the coverage even if the games go ahead, but key American athletes decide not to compete, affecting ratings and, consequently, publicity revenues.

Although this kind of clause may not be usual in policies, Oakes said, it may have been arranged between the parties, as wordings are non-standard and are subject to agreements between buyers and underwriters. That said, he would be surprised if a policy was triggered by the fact that athletes do not show up.

Top golfers Rory McIlroy of Ireland and Jason Day of Australia, and Tejay van Garderen, one of America’s top cyclists, have already announced they are not going to Rio in August because of Zika.

Others include NBA star Pau Gasol, the most famous member of Spain’s Olympic team, U.S. soccer player Hope Solo and tennis star Serena Williams. All have expressed doubts about participating in the games due to the risk of contamination. Some NBC staffers are also passing on the opportunity.

Companies that send staff to Brazil during the games have been advised to provide information to their employees on Zika prevention.

The Brazilian government said that measures have been taken to stop the propagation of Zika during the Olympics. Furthermore, it argued that the games will take place during the Brazilian winter, when the activities of the mosquitoes diminish considerably.

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“There is no risk for the spreading of Zika to gain pace during the Olympics,” Health minister Ricardo Barros said in early June.

But the failure of the Brazilian authorities to stop the virus so far raises doubts about the minister’s claim.

Since the autochthonous version of the outbreak was first spotted in April last year, almost 92,000 cases of Zika contamination were reported in the country, according to the government.

Since October, there have been nearly 1,500 known cases of babies born with microcephaly, which has been linked to the virus. A total of 223 have already been associated to Zika via lab tests. The actual number could be much higher, as the tests to identify both Zika and microcephaly cases are not available to all Brazilians.

Companies that send staff to Brazil during the games have been advised to provide information to their employees on Zika prevention.

They range from simple measures such as applying repellent and wearing long-sleeved clothes that reduce the skin area that can be targeted by mosquitoes, to avoiding poorer regions of Rio de Janeiro, where sanitation infrastructure is precarious, and practicing safe sex, as the virus can also be transmitted during sexual intercourse.

Security Risks

But Zika is not the only risk that worries participants in the event.

Debora Rocha, regional security manager, International SOS

Debora Rocha, regional security manager, International SOS

Security is a big issue in Brazil, and 90,000 security agents will be deployed by the authorities to guarantee safety. Although terrorism is not a common threat in the country, the security forces said that they have been collecting information about potential attacks during the games and are working with other countries to neutralize the risk.

“Brazil has hosted the Pan American games, the Confederations Cup and more recently the FIFA World Cup, so there is considerable experience in dealing with large events and collaborating with security forces from other countries,” said Debora Rocha, the regional security manager at International SOS in Brazil.

But crime is a major concern in Rio de Janeiro, and it is on the rise as a consequence of Brazil’s economic crisis.

Rocha said visitors should avoid walking around beautiful Rio de Janeiro while carrying valuable items — such as iPads, smartphones or expensive watches — and they should not wander around impoverished parts of the city.

“We do not recommend that people go to ‘favela’ tours that have been fashionable in recent years,” she said, referring to Rio’s famous, and very dangerous, shantytowns.

Another important precaution is to only take taxis that are called by hotels, restaurants or telephone services. Picking a taxi on the road is a particularly bad idea as some cab drivers can be criminals in disguise.

In general, information on risk management systems and structures have not been made public, which has raised questions about the robustness of ERM at the Rio games.

“Crime is among the top two or three concerns, along with Zika and the general preparedness of infrastructure and venues in Rio,” said Abbott Matthews, an analyst at IJET International.

In the latter case, the Olympics organization has been dogged by work delays, bribery suspicions and faulty execution, as illustrated by the crumbling in April of a scenic, seaside waterway that was built as a legacy of the games to the city of Rio de Janeiro.

Preparedness has in fact been a concern throughout all of the construction of Rio’s Olympic structures, and a lack of focus on risk management may have played a role.

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The local organizers hired an experienced Brazilian risk manager to focus on enterprise risk management in 2013, but he left the next year after disagreements with his bosses. Since then, the position has not been filled.

Public speeches on risk management at the games have been delivered by a military police colonel who is in charge of security and who focuses mostly on policing issues.

In general, information on risk management systems and structures have not been made public, which has raised questions about the robustness of ERM at the Rio games.

“In large scale events, especially when there is taxpayers’ money involved, there is a deep obligation to have the most transparent processes in place,” said Joanna Makomaski, president of Baldwin Global Solutions, who was the vice president of ERM with the Toronto 2015 Organizing Committee of the Pan American Games.

Rodrigo Amaral is a freelance writer specializing in Latin American and European risk management and insurance markets. He can be reached at [email protected]
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Reinsurance

Basking in the Sun Once More

Solvency II equivalency and NAIC’s “qualified jurisdiction” designations help Bermuda strengthen its position as a leading reinsurance domicile.
By: | May 24, 2016 • 5 min read
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Bermuda is one of the world’s biggest and most successful offshore reinsurance markets, largely as a result of its tax advantages, strong regulatory system and its proximity to the U.S. and Europe.

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But in recent years, many of the island’s reinsurers redomiciled to Europe, amid concerns over Bermuda’s international reputation, regulatory uncertainty and political instability.

The outflux started in 2010, when Flagstone Re redomiciled to Luxembourg and Allied World moved its holding company to Switzerland. The latest, Canopius, followed suit at the end of last year.

Companies are now returning to the island, though, after the announcement in March that the European Union granted it Solvency II equivalence.

Bermuda, along with Switzerland, is the only country that garnered Solvency II equivalence and was designated a “qualified jurisdiction” by the National Association of Insurance Commissioners (NAIC), allowing free cross-border trade with the U.S.

Brad Kading, president and executive director, ABIR

Brad Kading, president and executive director, ABIR

Further evidence of the island’s resurgence is borne out by the fact that 64 new reinsurance companies incorporated in Bermuda last year, according to the Bermuda Monetary Authority (BMA).

Meanwhile, seven of the island’s biggest reinsurers merged or were acquired over the last four years, with more deals expected, according to the Association of Bermuda Insurers and Reinsurers (ABIR).

Bermuda is also firmly established as one of the leading offshore domiciles for captive insurance, as well as an alternative capital market.

“Bermuda was always a leading reinsurance domicile,” said Brad Kading, president and executive director of ABIR. “These two bilateral agreements [Solvency II and NAIC qualified jurisdiction status] further cemented its position as a reputable domicile for reinsurance.”

Movers and Shakers

XL Catlin’s proposed move from Ireland back to Bermuda made the biggest headlines this year and will be accomplished in the third quarter, subject to shareholder approval. Bermuda was a stronghold for both companies before their merger. XL moved its main operations there 30 years ago, and Catlin incorporated its holding company in Bermuda in 1999.

XL Catlin’s CEO Mike McGavick said the fit with Bermuda is a natural one, given that a significant part of the company’s business and its largest operating subsidiary are already there.  He cited Solvency II equivalence as the main reason behind the move, adding that it would benefit clients, partners and shareholders alike.

“These two bilateral agreements [Solvency II and NAIC qualified jurisdiction status] further cemented its position as a reputable domicile for reinsurance.” — Brad Kading, president and executive director, Association of Bermuda Insurers and Reinsurers

“With the recent determination of full Solvency II equivalence in Bermuda, it has been concluded that the BMA is best situated to serve as XL’s group-wide supervisor and to approve XL’s internal capital model,” McGavick said.

Qatar Re also announced at the end of last year that it would relocate its main operations from Dubai to Bermuda after its merger with parent Qatar Insurance Co.’s Bermuda-domiciled reinsurer Antares Reinsurance.

CEO Gunther Saacke cited Bermuda’s “decades of proven reliability” and said that the move would enable the company to consolidate its capital and move closer to its brokers and clients in the U.S.

Ross Webber, CEO of the Bermuda Business Development Agency (BDA), said the decision by all of these companies to redomicile to Bermuda sent a “very positive message.”

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“No doubt Solvency II equivalence played a big part in all this, but Bermuda’s improving economic outlook and growth in business confidence is also a factor,” he said.

“Our company register is growing across all sectors at present, while consolidation only strengthened the physical presence of companies such as XL Catlin here on the island.

“As a result of all this, we are already seeing companies looking to set up new operations, to merge or to expand their operations here in Bermuda.”

Taking Flight

Webber said that the main reason behind companies leaving Bermuda in the first place was a move from U.S. and European regulators to bring companies back onshore.

Being offshore “was perceived as somehow being unpatriotic and somewhere you shouldn’t be,” he said.

Ross Webber, CEO, Bermuda Business Development Agency

Ross Webber, CEO, Bermuda Business Development Agency

“Some left simply because the CEO and leadership wanted to physically move themselves back onshore, along with the corporate structure that goes along with it.”

David Brown, a retired insurance industry veteran and former CEO of Flagstone Re, which redomiciled from Bermuda six years ago, said there was no single trigger for the exodus.

“I think that people were almost hedging their bets — not knowing if Bermuda was going to get Solvency II equivalence — by moving to jurisdictions in the EU that were considered more likely to succeed,” he said.

“Another factor at the time was the political risk associated with an unsustainable public debt growth, as well as a negative political climate against international business and expat employees generally.”

But he added that since the government started to tackle the debt problem and make the island more welcoming to international business, companies now are taking another look at the island.

Solvency II Equivalence

Gaining Solvency II equivalence means that Bermuda is now better positioned to meet the regulatory standards being redrawn by the International Association of Insurance Supervisors, said Kading,  as well as to provide more capacity for markets like Asia and Oceania.

Being offshore “was perceived as somehow being unpatriotic and somewhere you shouldn’t be,” — Ross Webber, CEO, Bermuda Business Development Agency

“All this means is that the Bermuda Monetary Authority is now recognized as a global group supervisor for targeted insurance groups and reinsurance can be conducted on a cross-border basis without market barriers,” he said.

“For Bermuda insurers, this means an efficient rather than redundant layer of group supervision and for reinsurers, it means cross-border trade without individual jurisdictional restrictions.”

Susan Molineux, senior financial analyst at A.M. Best, who was based on the island for more than a decade, said that achieving Solvency II equivalence was a “big win” for Bermuda.

“Bermuda expended a lot of effort to really explain to Europe what they do and how they do it, and it paid off in the long run,” she said.

The Future

Despite the positives, Bermuda still has a way to go to convince everyone that it is on the rise.

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Saddled with a $2 billion debt after seven years of deep recession, the government is under pressure to rein in costs and to find new revenue sources, mainly through tax collection.

A.M. Best said last year that it maintained a negative outlook for the island’s reinsurance industry. In response to this, the BDA is setting up industry focus groups. It is promoting Bermuda as a domicile in conjunction with ABIR members to attract new business from emerging markets such as Latin America and China.

After years of departures and uncertainty, Bermuda is seemingly restoring its position as a leading reinsurance market. &

Alex Wright is a U.K.-based business journalist, who previously was deputy business editor at The Royal Gazette in Bermuda. You can reach him at [email protected]
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Sponsored Content by Chubb

Electronic Waste Risks Piling Up

As new electronic devices replace older ones, electronic waste is piling up. Proper e-waste disposal poses complex environmental, regulatory and reputational challenges for risk managers.
By: | July 5, 2016 • 4 min read
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The latest electronic devices today may be obsolete by tomorrow. Outdated electronics pose a rapidly growing problem for risk managers. Telecommunications equipment, computers, printers, copiers, mobile devices and other electronics often contain toxic metals such as mercury and lead. Improper disposal of this electronic waste not only harms the environment, it can lead to heavy fines and reputation-damaging publicity.

Federal and state regulators are increasingly concerned about e-waste. Settlements in improper disposal cases have reached into the millions of dollars. Fines aren’t the only risk. Sensitive data inadvertently left on discarded equipment can lead to data breaches.

To avoid potentially serious claims and legal action, risk managers need to understand the risks of e-waste and to develop a strategy for recycling and disposal that complies with local, state and federal regulations.

The Risks Are Rising

E-waste has been piling up at a rate that’s two to three times faster than any other waste stream, according to U.S Environmental Protection Agency estimates. Any product that contains electronic circuitry can eventually become e-waste, and the range of products with embedded electronics grows every day. Because of the toxic materials involved, special care must be taken in disposing of unwanted equipment. Broken devices can leach hazardous materials into the ground and water, creating health risks on the site and neighboring properties.

Despite the environmental dangers, much of our outdated electronics still end up in landfills. Only about 40 percent of consumer electronics were recycled in 2013, according to the EPA. Yet for every million cellphones that are recycled, the EPA estimates that about 35,000 pounds of copper, 772 pounds of silver, 75 pounds of gold and 33 pounds of palladium can be recovered.

While consumers may bring unwanted electronics to local collection sites, corporations must comply with stringent guidelines. The waste must be disposed of properly using vendors with the requisite expertise, certifications and permits. The risk doesn’t end when e-waste is turned over to a disposal vendor. Liabilities for contamination can extend back from the disposal site to the company that discarded the equipment.

Reuse and Recycle

To cut down on e-waste, more companies are seeking to adapt older equipment for reuse. New products feature designs that make it easier to recycle materials and to remove heavy metals for reuse. These strategies conserve valuable resources, reduce the amount of waste and lessen the amount of new equipment that must be purchased.

Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels.

For equipment that cannot be reused, companies should work with a disposal vendor that can make sure that their data is protected and that all the applicable environmental regulations are met. Vendors should present evidence of the required permits and certifications. Companies seeking disposal vendors may want to look for two voluntary certifications: the Responsible Recycling (R2) Standard, and the e-Stewards certification.

The U.S. EPA also provides guidance and technical support for firms seeking to implement best practices for e-waste. Under EPA rules for the disposal of items such as batteries, mercury-containing equipment and lamps, e-waste waste typically falls under the category of “universal waste.”

About half the states have enacted their own e-waste laws, and companies that do business in multiple states may have to comply with varying regulations that cover a wider list of materials. Some materials may require handling as hazardous waste according to federal, state and local requirements. U.S. businesses may also be subject to international treaties.

Developing E-Waste Strategies

Companies of all sizes and in all industries should implement e-waste strategies. Effective risk management should focus on minimizing waste, reusing and recycling electronics, managing disposal and complying with regulations at all levels. That’s a complex task that requires understanding which laws and treaties apply to a particular type of waste, keeping proper records and meeting permitting requirements. As part of their insurance program, companies may want to work with an insurer that offers auditing, training and other risk management services tailored for e-waste.

Insurance is an essential part of e-waste risk management. Premises pollution liability policies can provide coverage for environmental risks on a particular site, including remediation when necessary, as well as for exposures arising from transportation of e-waste and disposal at third-party sites. Companies may want to consider policies that provide coverage for their entire business operations, whether on their own premises or at third-party locations. Firms involved in e-waste management may want to consider contractor’s pollution liability coverage for environmental risks at project sites owned by other entities.

The growing challenges of managing e-waste are not only financial but also reputational. Companies that operate in a sustainable manner lower the risks of pollution and associated liabilities, avoid negative publicity stemming from missteps, while building reputations as responsible environmental stewards. Effective electronic waste management strategies help to protect the environment and the company.

This article is an annotated version of the new Chubb advisory, “Electronic Waste: Managing the Environmental and Regulatory Challenges.” To learn more about how to manage and prioritize e-waste risks, download the full advisory on the Chubb website.

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This article was produced by the R&I Brand Studio, a unit of the advertising department of Risk & Insurance, in collaboration with Chubb. The editorial staff of Risk & Insurance had no role in its preparation.




With operations in 54 countries, Chubb provides commercial and personal property and casualty insurance, personal accident and supplemental health insurance, reinsurance and life insurance to a diverse group of clients.
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