More Than One Way to Skin a CAT Crisis

Editor's note: Aon's Kurt Tentinger, a Risk & Insurance® Power Broker, and John Keely, senior vice president, director, Aon's exploration and production practice, discuss offshore coverage and the role of global markets.

R&I: How catastrophic is the CAT market?

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John Keely: Capacity was not gone by June as some people had feared, except for certain blocks along storm tracks. But programs have become much more patchwork. We have had to sit down with clients to look at all their exposures and the options for each one. Prior to the hurricanes, the U.S. market was more aggressive. Now we are spending a lot of time helping clients build a program.

Kurt Tentinger: Yes, there is capacity. But the key strain (in the market) is how to deploy that capacity, how to assemble coverage based on exposures. In regular risks, for example, there is actually more capacity than before the storms. And some of our clients have a lower exposure to loss, so we are able to deploy a broader spectrum of the market in those cases.

R&I: London has long been the center of energy and utility brokerage. How do you coordinate with other Aon offices and with independent brokers?

JK: The upstream energy market has historically been spread out. There is a fairly large business with the alphabet houses and also with the independents and boutiques. When we win an account, the client may already have relationships established with a buyer in London. We don't stand in the way of those, and in that I think we are different from some of the other majors. That said, our team in London does as good a job as any. For us to work with an independent, that firm has to show some talent that Aon London does not have.

KT: In the U.S., we function in the capacity of broker but also retail services. In London, we are classified more on the wholesale side, design and broking.

R&I: You spoke of deploying capacity and assembling coverage. How do you do that?

KT: Innovation comes mostly from the clients. They have the need. Brokers, through the discovery process, come up with transfer strategies. It is really not an issue of whether the broker is big or small. Techniques come from the brokerage, but creativity comes from the teamwork.

R&I: Why do independents seem to have a new stature in the international energy brokerage business?

KT: There is too small a sample to say that there is a "rise" of boutique brokers. But in London, it is very difficult for an individual to go out on his own. You have to have Lloyd's association. You need money and you need an affiliation.

R&I: How do you see the international energy market for the rest of the year?

KT: Never assume anything in this environment.

JK: Markets are definitely firming as we come nearer to the end of capacity. Coverage will be less flexible. We are very busy in London right now.

August 1, 2006

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