Posted on January 14th, 2011 by Lynn Sheils
As we continue to conduct business in these difficult economic times, it may be necessary to temporarily shutter or close down certain operations/buildings. When doing so, there are a number of things you should consider:
· Businesses should consider using the services of a watchperson or security service. Any such persons should be trained in emergency procedures including knowing how to notify the local fire department, the locations and operation of existing portable fire extinguishers and, if applicable, the locations of sprinkler system water supply control valves.
· Vacant facilities should be checked after any severe weather events.
· Limit access to those employees who have a business need to visit the premises. Notify watchpersons, if any, when entering and leaving the premises.
· If possible, existing automatic sprinkler protection systems should remain in service. Sufficient building heat should be maintained during cold weather periods to prevent freezing of the sprinkler systems. An alternative would be to convert wet systems to dry systems.
· It may be advisable to remove combustible storage, flammable liquids and hazardous chemicals (if any) from the buildings and drain/cap-off flammable liquid piping. If combustible materials and idle production equipment will remain, they should be located in secured areas. Also, consider removing all outside combustible storage (idle wooden pallets, etc.) and flammable materials.
· All sprinkler system water supply control valves should be maintained in the full-open position using hard shackle locks.
· A management level employee should make regular inspections of the buildings and visual checks of the sprinkler system water supply control valves.
· The facility should be kept in repair and grounds maintained so the buildings do not become targets for vandals.
· Regular self-inspections of the sprinkler systems, water supply control valves, fire extinguishers and building conditions should be conducted.
· All unnecessary electrical equipment and gas-fired appliances should be shut down at the main disconnect points. Outside supply lines should be shut in, as appropriate.
· Cutting and welding operations should be conducted only when absolutely necessary, should be strictly supervised, and should be conducted under the terms and conditions of hot work permits/programs.
· Smoking should be prohibited throughout the buildings.
· All existing fire doors should be maintained in their closed positions.
· Attractive nuisance issues should be addressed.
· Those responsible for insuring the building(s) should review their policies to determine when, and what types of notices, must be given to their insurers relative to vacancy. Many property insurance policies contain such notice requirements. Also of note is that insurance coverage for vacant buildings may be reduced or restricted; refer to your specific policy for details.
Posted on December 28th, 2010 by Lynn Sheils
- authored by Steve McElhiney, CPCU, President of EWI
As we move into 2011, EWI offers the following insights into the insurance, reinsurance, and financial markets as well as various economic trends.
We share the sentiments of most industry pundits that we are in a continuing soft insurance and reinsurance market as a result of more than adequate market capacity coupled with resurgent investment asset valuations (from both fixed income instruments in the generationally low interest rate environment buoyed by “Q.E. II” and soaring equity market valuations) and a manageable 2010 CAT environment. Despite a fairly active 2010 global CAT environment, the North American continent has seen fairly benign CAT activity. Global capacity remains more than adequate to support global insurance and reinsurance demand; the “supply/demand” dynamic continues to favor buyers of the insurance product into 2011.
A key potential “game changer” is a global Mega-CAT event in 2011. The unusually quiet California EQ environment, from a long-term historical perspective, would appear to be an anomaly; a major EQ event in California (such as recurrences of historically significant fault movements along the San Andreas, Elysian, or Hayward faults) would be a reinsurance market turning event. Similarly, there are literally dozens of potential Mega-CAT events that could occur in the United States, or globally, that would serve to consume available capacity and serve to turn the market.
On balance, we see many parallels of the current insurance market to that of the late 1990’s; continued price softening year-over-year (5%+ average price declines in 2011 are forecast across most lines). We see ample reinsurance capacity for most accounts that we present to reinsurers; including start-ups and management “lift-out” units, captive and alternative risk vehicles, and MGA program deals.
It is our view that the US and global economies are, clearly, in the early stages of a full economic recovery from the 2008 and 2009 lows. While this will serve to increase ratable insurance premiums in the US, there is also more than capacity to support these risks and no significant market pricing impact will be evident as a result in 2011.
Longer-term, we see those global insurance organizations that have a significant presence in the emerging markets of China, India, and Brazil; and to a lesser extent, Southeast Asia and certain Persian Gulf countries will continue to show overall financial outperformance in comparison to those insurance entities that are focused exclusively upon the more mature economies of the US, EU and Japan. This trend will continue in 2011 and beyond.
These emerging countries are in secular growth cycles that will extend over a generation. Rapid technological, energy, and economic development in these regions will drive demand for insurance products that will also evolve as the underlying societies become increasingly advanced. More insurance product for emerging lines of coverage will be demanded as these countries become more advanced over time.
We do not subscribe to the view that a “double dip” economic down-turn is likely in 2011 in the absence of a major catalyst event (such as a geopolitical outbreak or a major terrorist event). There is ample global liquidity to withstand any economic pressure and the systemic effects of 2008 will not likely occur again within a generation.
Thus, we see slow and gradual economic improvement as the US economy struggles to overcome major structural unemployment and global competitiveness issues with unemployment showing a very “sticky” level over the next few years.
Certain US states will show improved economic results more quickly than the nation at large due to shifting economic activity surrounding global trade and overall relative competitiveness, in this new global framework.
The “main event” in 2011 in the United States will be the continued impact of budgetary shortfalls in various states and municipalities given funding constraints and swelling post-employment liabilities. This will also coincide with significant political tension on a national level as certain states seek federal funding and the Congress will not accommodate these requests, in our view, in the current political environment. Thus, several states and municipalities may face severe budgetary constraints that could affect debt service and ongoing pension obligation requirements. Interest rate spreads on state governmental obligations will continue to widen. This is a trend that will begin in 2011 and evolve over the next few years as various states face the impact of diminished growth, contraction in core industries, and swelling pension liabilities.
The generally positive economic trends that are underway will serve to further support US equity market valuations in 2011 with only slight market pull backs throughout the year in reaction to macroeconomic events that may occur, such in the Euro-zone. We see the S&P 500 continuing to perform in a trading range of between 1,000 and 1,350 over 2011.
The situation in Spain, Italy, and to a lesser extent, Portugal will continue to be problematic and will cause continued political tension with relatively stronger Euro-zone export driven economies such as Germany. The Euro will continue to show weakness in this framework during 2011.
An improving export environment, coupled with an increased US focus on fiscal restraint and deficit reductions, will serve to give some short-term strengthening of the US Dollar which we forecast will improve relative to most currencies.
Interest rates will, invariably, increase during 2011 in concert with an improving economy and improved market liquidity and increased loan demand. Any such increases in 2011 will still keep rates at historically low levels.
We do not subscribe to the notion of run-away long-term inflation in the U.S. given heightened pressure for budgetary restraint and the favorable impact of increased tax receipts in concert with an improving economy. The US economy remains a stalwart in all sectors and will continue to the global leader in 2011 and beyond. The current level of the national debt and budgetary deficits is most concerning; however; the depth of the economic contraction of the financial crisis (and the massive deflationary impact) will continue to put a damper on significant price inflation.
As respects insurance carriers, we feel that fixed income returns will be under pressure in 2011 and beyond and the long-term favorable capital trend of unrealized fixed income appreciation from lowered interest rates will be abated. Insurance companies will also face interest rate reinvestment risk in 2011 as bonds with nominal rates of 5 percent or more are reinvested at much lower rates, in the short-run.
The spiked pricing trends in 2010 of certain commodity prices is distressing and is reaching the level where economic expansion could be threatened; particularly, as respects the price of oil and food. A return to $4.00 to $5.00 per gallon gasoline will inhibit GDP growth markedly. We feel that a strengthening US Dollar and a slight decline in the demand for energy in China will contain this threat.
On balance, we forecast the pricing of certain global commodities will show a slower rate of growth in 2011 given potential constraints in the Chinese economy that are becoming evident in reaction to a potential asset “bubble” and recent governmental restraints.
Posted on December 3rd, 2010 by Lynn Sheils
- by Michael McKee
The holiday season ushers in wonderful celebrations and events. The joy of gift exchanges, parties, company events and family reunions make the season special. Many of us (especially me) look forward to the time of year when we can express our inner Clark Griswold and turn our houses into a twinkling light show! However, every year these happy times are ruined for thousands of individuals and families by injuries and deaths caused by unsafe ladder practices. Most of us don’t use ladders on a regular basis and certainly not at heights required to string our merriment. We should appreciate the risk of working at heights and take appropriate steps to negate and manage that risk while hanging and taking down that electronic holiday cheer. Here are some tried and true safety tips for working on ladders:
o Climb slowly and steadily while always facing the ladder. Many people are hurt falling when they are distracted or make sudden movements.
o Don’t lean off to the side to reach something. The ladder’s center of gravity will move with you as you move up in height. Leaning to the side dramatically affects this and can cause the ladder to shift and fall. The ladder should have four points of contact with the working surface and downward pressure on each leg should be proportional.
o Ladder should always be based on a level surface. Never stack ladders or prop a ladder on top of another object.
o Wear rubber soled shoes and be mindful of slippery rungs and footwear.
o Don’t try and carry heavy or bulky items when you climb. You should always maintain three points of contact with the ladder (two feet and one hand or two hands and one foot). Tow loads on a tow line or have it handed up once in position. If using fall protection equipment such as lifelines, lanyards, and harnesses, seek proper training in the use and selection of that equipment. It must be assembled properly to work properly.
o All ladders are not equal. Differing construction defines its weight and working height capacities. If you have a ladder rated for 200 lbs and you weigh 260, get a different ladder or hire a pro to hang the lights for you (you can go on a diet next year).
o If using a ladder around electrical lines it should be wood or fiberglass. Aluminum is a wonderful electrical conduit and will flow energy to the nearest grounding source (you).
o Be mindful of weather conditions. Winds blow harder the higher you are from the ground so what seems like a light breeze on your porch may be very unnerving at 20-feet. Your vision should be clear so clear sunny days are a must.
o Don’t drink and climb! This may seem silly to say but many people are injured each year when they have a couple of drinks and decide to adjust a light bulb. Alcohol and drugs not only affects your decision making but also your balance and vision. If you need a drink to get the courage to hang the lights, then hire a professional to do your light work!
Posted on November 16th, 2010 by Lynn Sheils
Second part of a three part series on enterprise risk management authored by Steve McElhiney, president of EWI Risk Services and vice president of CPCU Society. This second article focuses on risks within an ERM framework.
Pratical ERM Considerations – Part 2
Posted on November 9th, 2010 by Lynn Sheils
By Tomas Escamilla and Jorge Cardona, EWI Risk Services
Oil and gas companies are expanding their utilization of single parent captive insurance companies as a more cost effective tool to syndicate risks and achieve potentially broader coverages for potential liabilities.
The trends include:
• As a result of the Macondo well spill in the Gulf, companies engaged in offshore exploration and production are examining the captive concept as part of broader enterprise risk assessments to expand capacity and achieve tailored coverage via manuscripted policy forms with reinsurance support; to expand protection from such events.
• Domestic natural gas producers are embracing the captive concept due to potential higher environmental liabilities resulting from the use of hydraulic fracturing techniques and its effect on deep underground water reservoirs.
• Other companies including the majors are using their captives in more creative ways in order to offer environmental impairment property coverage as well as pollution liability, property, business interruption and workers compensation coverages. In the area of employee benefits they are using captives to offer enhanced group life, and long-term disability coverage to employees, and to capture superior experience from their employees compared to standard group rates in the fully insured benefit market.
In hard or soft insurance pricing markets, captives offer great leverage to influence positive behaviors due to the embedded unique relationship between insurer and insured as a long-term value accretion and risk management tool.
Posted on October 26th, 2010 by Lynn Sheils
We are getting into the time of year where northern locations need to start thinking about issues associated with Ice and Snow. Below are some ideas and tips related to the protection of commercial property:
The weight of ice, snow, and accumulated water on a building’s roof can be tremendous. A contributing factor to roof collapse is the rapid freeze and thaw cycles that often occur throughout the winter. Ice can quickly accumulate in roof drains preventing water from properly draining. The following loss control guidelines will help prevent a roof collapse.
Verify that drains are clear to allow melting, or heavy rains, to run-off. If the roof is pitched and without drains, open paths to the eaves to ensure drainage and prevent “ponding”.
If a roof is susceptible to large snow drifts, is in an area with heavy snowfall, or is difficult or hazardous to access, initiate a formal snow removal program with a local contractor qualified for roof snow removal with trained staff and proper equipment (shovels, snow blowers) and the appropriate safety planning for those workers/contractors. Equipment that can damage a roof, e.g., ice chopper, blowtorch (a fire hazard!), should never be used. Keep an updated winter emergency response plan in effect, especially for snow removal. Include emergency contact numbers for qualified contractors and the building landlord (if leasing the building).
If snow loads are already at a dangerous level, and qualified contractors are not available, remove snow from the roof in increments – if you deem it safe to do so. This is critical in areas where snowdrift potential exists, including:
1) Roof elevation changes;
2) Moderate- or low- sloped, peaked, or curved roofs where winds cause drifting;
3) Valleys formed by multiple-gable or multiple peak roofs;
4) Roofs with multiple projections (parapets, etc.);
5) For standing seam metal roofs, remove snow in strips starting at the peak and ending at the eaves, alternating side to side to assure the roof load is maintained in balance; and
6) Identify loads added to the building since it was constructed; such as equipment hung from the roof, or roof mounted equipment. Additional bracing may be needed. Ensure that any additional internal bracing does not interfere with the effectiveness or operation of automatic sprinkler systems.
Regularly inspect drains and remove any debris, which could prevent flow. Make sure exterior down spouts are clear of snow or ice at outlets.
Be alert for the beginning of ponding-deflection cycles. As snow compresses and absorbs rainwater, the increased weight on the roof will result in areas of depressions that will not drain. Once this condition begins it only gets worse and eventually the roof could collapse.
For new construction, ensure that the roof is properly designed to meet snow load calculations and the adequate number and size of roof drains is provided.
Ensure that wet type sprinkler systems are adequately heated so that system does not freeze.
Large amounts of water, ice and snow can accumulate in containment dikes and protective berms. Facilities should be aware of this exposure and take steps to reduce the volume of such accumulations, as appropriate, so that the dikes/berms have enough available volume to contain spills. Care should be taken to avoid pollution when removing ice, snow or water.
Cleared drives and parking areas allow easier site access for emergency response vehicles and personnel.
Posted on August 30th, 2010 by Lynn Sheils
The surplus lines specialty casualty market has always been in the forefront in responding to new and innovative management and professional liability products for financial institutions. The Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (“Act”) bill may be just the catalyst for the E&S market to outperform the standard property & casualty (“P&C”) market.
The basis of this opportunity is two-fold: First , Title V – (Insurance), Subtitle B (State-Based Insurance Reforms) of the Act eliminates the diligent search requirement for US-domiciled “exempt commercial purchasers”. Exempted commercial purchasers are those commercial buyers that that have paid aggregate P&C insurance premiums in excess of USD$100,000 in the past year and meet one or more net worth or net revenue thresholds and related criteria. This exemption has the potential to eliminate a competitive barrier that has hindered growth and creative risk solutions in the surplus lines market in recent memory. Consumers of products of all types benefit in a marketplace that favors competition, and commercial insurance should not be an exception. Subject to final rulemaking and enactment in 2011, the elimination of the diligent search requirement for larger commercial insured’s should provide ample opportunity for growth if the surplus lines market is prepared to innovate new and expanded coverages in exchange for the appropriate level of premium.
The second opportunity for non-admitted specialty casualty insurance markets resides within Title IV of the Act – referred to as the Private Fund Investment Advisers Registration Act of 2010. Title IV requires hedge funds and other private fund advisors previously exempted from SEC registration to register as investment advisors under the Investment Advisers Act of 1940. Private Funds with less than $150M would remain exempt from SEC registration, but may be subject to register as an investment advisor in the state it maintains its principal place of business. The new registration requirement and accompanying reporting and disclosure requirements, combined with heightened regulatory and corporate governance oversight requirements (including the expansion of authority of the Securities and Exchange Commission in the form of its mandate to write dozens of new rules, create five new offices, and increase enforcement) contain a number of procedural and substantive provisions that will likely increase SEC enforcement actions and securities litigation. The non-admitted and surplus lines market is uniquely well positioned to meet these new perils rapidly with enhanced coverage grants and endorsements.
By 2011, the demand by first-time purchasers for blended “1940-Act” Financial Institution management (D&O) and professional (E&O) liability policies should increase significantly. This demand will be driven by the real and perceived personal liability exposures imposed upon fund managers, advisers, sub-advisors and independent directors of these newly regulated funds as a direct result of the enforcement of the “Act.” And, if past is prologue, private securities litigation will follow. Whereas the Act authorizes the SEC to engage in the oversight and protection of hedge fund and private funds investors , it remains to be seen if the Act will be stretched to also give private right of action for injured private fund investors, as the statute does not expressly provide for such a right.
The Act did however address the issue of scheme liability. Prior to the enactment of the Act, the SEC was required to demonstrate that individuals charged with aiding and abetting a fraud “knowingly” provided assistance to another person in violation of securities laws promulgated under the Securities Act of 1933, The Securities Exchange Act of 1934, the Investment Advisers Act of 1940 and/or the Investment Company Act of 1940. Section 929 will make it easier to target those who allegedly “aid and abet” federal securities fraud as the new provision lowers the requisite state of mind of the offender from a “knowledge” standard to a “reckless conduct” standard. This statute will likely not only affect hedge funds and private funds, but will likely create additional securities litigation risk for publicly-traded companies.
The Sarbanes-Oxley Act of 2002 was the last legislative sea-change that the specialty casualty and D&O insurance market had to respond to. It is arguable that the domestic insurance market responded slowly at the time and that many fund advisors, directors and officers lacked certain explicit insurance coverage grants that an efficient marketplace should had been able to quickly deliver to the corporate consumer of insurance. This lackluster response was in-part a result of an almost non-existent Lloyd’s of London appetite for D&O insurance in 2002 (as certain Lloyd’s syndicates were still recovering from adverse loss development as a result of securities litigation losses as a result of the technology risk implosion in 1999-2001) whilst the surplus lines E&S market was concurrently being held hostage to the anti-competitive “diligent search” requirement. Almost a decade later, neither of these two constraints exist. The question remains however, will knowledgeable surplus lines E&S brokers and diligent underwriters collaborate to provide state-of-the-art policy wordings that better protect directors, officers and fund advisors from the rapidly evolving regulatory and judicial perils, or will the industry yet again allow the standard market to take the lead in due course?
- Scott Uhl, EWI Specialty Casualty
