Towers Perrin: Finding the Optimal Approach to Risk Transfer and Retention
When developing an insurance portfolio, energy companies must carefully assess their risks and work with sophisticated intermediaries and insurance carriers to identify areas of vulnerability and determine how much risk to retain and how much to transfer. The use of enterprise risk management principles also plays an important role in helping companies assess risk exposures across the corporation and put together a comprehensive insurance and risk finance structure.
"The energy business is a very unattractive risk with a limited market for (insurance) products," says Glenn Thebeau, manager, risk management, at St. Louis-based Ameren Corp., one of the nation's largest investor-owned electric and gas utilities.
Two years ago, in the midst of the ERM process, the company determined the need to completely restructure its risk portfolio and find alternative markets for its property/casualty coverage.
The largest electric utility in Missouri and the second largest in Illinois, Ameren provides energy services to more than 2 million electric and nearly 1 million natural gas customers.
"We were looking into the idea of forming a captive to transfer some of our property risks and reassessing the handling of our casualty risks," Thebeau says.
Thebeau was working with a Towers Perrin consultant who referred him to the company's Consultative Insurance Placement practice, which offers sophisticated insurance brokerage and risk finance.
"Towers Perrin enabled us to broaden our marketplace and put us in touch with folks willing to look at a structured portfolio that matched our risk profile," Thebeau says.
Long known for its consulting expertise in the areas of risk and financial management, human capital management and reinsurance intermediary services, Towers Perrin provides strategic analytical resources for clients looking to develop innovative insurance solutions and deal with risk more efficiently.
Consultative Insurance Placement, which emerged from a joint venture between Towers Perrin's Reinsurance and Risk Management Consulting Services, combines the strong analytical resources of Towers Perrin's insurance consulting and reinsurance brokerage businesses.
"We're a retail broker specializing in working with Fortune 1000 companies and other financially oriented and sophisticated clients. These companies are looking at risk broadly and seeking a more comprehensive approach to managing risk," says John Bowman, senior vice president and principal in the Boston office of Towers Perrin.
As a partner for Ameren, Towers Perrin was a great fit.
"We take an analytical approach to help clients evaluate their risk portfolio and determine the optimal level of risk transfer and risk retention," says Bowman.
Consultative Insurance Placement offers a combination of traditional and innovative intermediary services, which include risk identification and evaluation, program design, placing and implementing risk protections, catastrophe modeling and exposure management, claim management and advisory services, and insurer analysis.
Bowman worked closely with Thebeau to evaluate Ameren's property/casualty exposures.
"Towers Perrin performed a thorough risk retention study and provided a measure of our exposures through an actuarial analysis. They provided an analysis of risk at different confidence levels to provide a basis for our program design and helped determine the amount of risk we wanted to retain and transfer," Thebeau says.
"The risk retention study helped us analyze areas where our premium spending was suboptimized, where additional risk transfer was needed, and where risks could be accumulated within a captive for our various operating companies and then reinsured on a cost-effective basis," he continues.
Ameren formed a captive to handle business-interruption risks, property exposures and terrorism risks, and is currently evaluating the potential for covering some liability risks through the captive.
"Towers Perrin assisted in the design and implementation of our reinsurance program, which is a critical component to the success of the captive," Thebeau notes. "In addition to their excellent actuarial services, they've helped us place structured products in the insurance marketplace and provided innovative design suggestions for our overall insurance program. In the two years that we've been working with Towers Perrin, our loss exposures have been driven down by $250 million, and our risks have been much more manageable."
"Our goal is to give clients more control over their insurance solutions," Bowman says. "We look at whatever makes the most sense for the client and develop programs to help them deal with risk more efficiently and effectively."
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April 8, 2008
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