Market report: keeping pace with renewables

The renewable energy sector has been growing rapidly for almost a decade, becoming ever more sophisticated as technologies evolve. As is the case in any fast-developing sector, the ability of specialist underwriters to understand its risks and offer both insurance and advice has been central to its growth.

PERse, the renewable energy-focused company of Ryan Specialty Group Underwriting Managers (RSGUM), has become one of the biggest players in the field, focusing on renewable energy risks such as wind, solar, hydro, and bio.

In recent years, PERse—an acronym of Power, Energy, Risk, securing the environment—has expanded to serve an international market, recognising that the renewables industry is now truly a global business.

Historically, the company has predominantly managed North American risks, but its international portfolio is growing. According to chief executive officer and managing director Michael Bernay, the international segment of the business now represents a sizable percentage of its portfolio as it increasingly supports domestic and international clients with risks globally.

On the back of this growth, in the past 12 months it has launched a new office in Miami to serve Latin America and significantly built up its presence in London, bolstering an office founded in 2015.

Global risk, global presence

Bernay says these new offices provide PERse with greater
agility in launching international products and allow the firm to keep a pulse on those markets. The company is also evaluating further expansion in the coming two years, studying both Africa and Asia-Pacific for
consideration. In Japan, some work has already begun.

“The last 12 months have been very favourable,” says Bernay. “We are increasingly writing business across borders and in new countries, thanks in part to our new office in Miami, which is built around an individual with strong connections in this space, and in London, where we have a new pool of underwriting talent.”

He stresses one of the key benefits of Lloyd’s: global access to markets. Although there are additional requirements for managing general underwriters (MGUs) in some markets (such as Mexico and Colombia), it remains a very efficient way of doing business globally, he notes.

“We pick our capital and working relationships carefully, but working with Lloyd’s has huge benefits when you are looking at a global picture and sector,” Bernay says.

He adds that the company’s experience in London in the past six months in particular has been very positive. It has benefited from market shakeup, as the ongoing Lloyd’s profitability review has caused a dislocation in some parts of the market, forcing some carriers to reduce their commitment to certain lines of business or withdraw completely.

“It has put us in a good position because many clients and brokers have seen us as a stable force—they see our expertise, innovation and commitment to the business we are in.

“We have met with all the syndicates we work with recently. Some have had to make some tough decisions, and some have had to cut back from certain areas,” Bernay explains.

But, he stresses, there is still an abundance of capital keen to work with PERse, which took a tougher stance on rates as long ago as 2011.

“We could see back then that some parts of this market were not sustainable, and we looked to set ourselves apart in terms of the quality of the risks we would deal with and our knowledge of the sector. From the outset, we looked to give back more premium to our capital providers.

“That is how we differentiate ourselves: our rates are sustainable, and we also have a very deep knowledge of the sector based on analytics, which sets us apart in this industry,” he says.

An important partnership

Another recent development for PERse has been the consolidation of a new partnership with Aegis, which participates as a lead insurer on almost all US public utilities’ traditional energy businesses. Under the agreement, PERse will provide engineering expertise, claims handling and reinsurance on the mutual’s renewable energy risks.

“This partnership gives us access to a broader and wider portfolio of clients and risks and a renowned partner in the power space,” says Bernay.

As utilities move towards an increase in actual ownership of renewable assets, their traditional programmes may not address the specific needs of a renewable energy risk.

“This gets us into a space we were looking to enter more aggressively. It is a big win for us and it diversifies the portfolio of the business into a different segment,” he says.

He adds that PERse is also just beginning to be involved in offshore energy, which he believes could be set for rapid growth in the US. PERse has worked with a large global reinsurance carrier to develop a bespoke product for this market which, he hopes, will shake up the marketplace. Offshore wind, which differs from onshore, requires a different skillset and capital provider commitment, he says.

“We have developed what we think is an attractive offering for additional coverages and pricing. It is a sophisticated product that we are excited about.

“We have hired a specialty underwriter, aligned ourselves with a third-party specialist engineer, hired an in-house engineer with offshore experience and worked with a worldwide capital provider to make this product viable and attractive.

“We take a tactical approach to the underwriting and the loss mitigation of each industry class we enter,” he explains.

A dedication to innovation

These additions to the PERse reach and portfolio are
just the latest in what has been a steady period of growth
and development for the company, which has always embraced change. Its team of underwriters started writing renewable energy business some 20 years ago. At that time, with the exception of hydro, very little power production came from renewable energy sources.

That has changed rapidly over the last decade. In 2017, more than 50 percent of all new power projects built in the world were renewable energy projects. Just as all these projects have become more economical and cost-effective in producing electricity, all come with their own unique exposures.

Bernay says that as owners, operators and utilities expanded and diversified into renewables, PERse worked to provide its clients with detailed and specific coverage options to meet their evolving needs.

“Today, we have written business in every renewable energy industry class,” he says. “While our written portfolio is still made up primarily of wind energy, solar and bio (biomass and biodiesel), we are a leading insurer of geothermal power plants and battery storage.”

He notes that due to recent US tax incentives, hydro projects are a cost-effective way of producing power, and many dams are being repowered, offering new and different opportunities in that sector.

“We have also provided coverage for wave and tidal projects, which may be prototypical, but are still being built,” he says.

PERse’s flagship product historically has been its property policy, which can provide up to $1 billion in capacity on any phase of any project. Bernay says the company refers to the coverage as the “cradle to grave” approach, since it can address every part of a project’s lifespan. Cargo/ocean marine, construction and operational can all be written under a single policy.

“We have added a casualty feature to our offering in order to further diversify the book. This addition allows our brokers to offer their clients all the coverage required from a single underwriting source. We believe this is an important service to our broker/agents and their clients,” he says.

He adds that battery storage in particular has become a hot and evolving topic in the renewable energy industry. He believes this will also be a growth sector for the business going forward.

“It has initially been received with some scepticism from various insurance underwriters due to misunderstood losses in the marketplace but clients, lenders and bankers are all asking for more comprehensive coverage,” Bernay says.

“We have invested the time to work with engineers to come up with answers to our capital providers’ concerns, and we now have the ability to offer $50  million and more of coverage to projects that include battery storage. We believe this type of offering distinguishes us from our competition.”

Governments drive decisions

One important aspect to understand about the renewables sector is the extent to which government policy can drive the growth of certain types of renewable energy at any given time, depending on targets that are set, investments made, or subsidies given.

This has driven changes in the industry product mix in recent years. Bernay explains that, in North America, there has been much consolidation in the wind energy sector, meaning the company is now dealing with a smaller number of larger clients—but many with more complex needs.

The other big factor changing the landscape has been an increasing number of US states stipulating how much of their energy generation must come from renewable sources. Some states are targeting 20 percent or more of energy being generated in this way.

There had previously been concern regarding the direction the Trump administration would take with respect to renewables, but it has turned out to be unfounded. The renewable energy atmosphere is buzzing, clearly evidenced by, for example, the acceleration in pace of US offshore wind.

“Government policy plays a very big part in the way this sector works and which areas develop at any one time,” Bernay says. “Renewables is still a relatively small part of the energy makeup in many countries, but most governments have policies to try to change this ratio; that is often needed to get things off the ground.”

He explains that these government policies, in turn, drive demand and the mix of PERse’s portfolio. Its risk appetite and how it works also varies by country. He says that in Latin America and Spain, for example, clients prefer to do quota share deals. In the US, on the other hand, it is more common for it to insure 100 percent of a risk.

“We take the demands of the market into consideration in how we work,” he says. “We hire expertise on that basis—our people know the market and their clients inside out and understand how best to structure deals. It is different for every client and type of renewable energy.

“Over the years, we have insured every type of renewable project there is, but wind and solar remain the primary two classes of renewables for us. Hydro is growing, and we are seeing more geothermal projects as well.”

Bernay emphasises the size of the lines the company is capable of putting down in a sector that can involve very large one-off risks. He notes that it has insured a $2.8 billion solar project and wind projects worth almost $1 billion.

“We probably have more cat capacity than any competitor,” he says. “That was not originally the case. We have a lot of technical expertise and model every project; we are often able to advise clients on what levels of coverage they should buy, which reduces their overall spend.”

Bernay is bullish about the prospects of the business over the next 12 months. He says the company ended 2018 with significant growth in terms of revenues year on year and suggests that the company could grow at the same percentages moving forward this year.

“Strong growth naturally gets harder the bigger you get, but we are seeing a lot of opportunities thanks, in large part, to our geographical expansion. We are also initiating some rate increases and more robust terms and conditions for the first time in a long time.

“Accounts that have seen losses, as well as smaller one-off projects, will definitely be experiencing rate increases. That will also help growth,” he says.

Summarising the way the company has adapted and developed in recent years, Bernay says that its core ethos promotes very technical underwriting and in-depth knowledge of each class of business it enters.  

“We believe in the RSGUM motto: ‘The culture we build helps define our success’. The MGU model is well suited to writing complex renewable energy risks. The technical and mechanical issues underpinning some of these risks demand large amounts of diverse capital and deep expertise,” he concludes. “That’s what we offer.”

Michael Bernay is chief executive officer and managing director of PERse. He can be contacted at: mbernay@powerenergyrisk.com