TOPICS RISK SOLUTIONS

Insurance solutions for industry Issue 4/2015

More transparency for major projects risks An insurance solution unique in the world protects property developers and investors from unforeseen additional costs PAGE 4

LED performance ­warranty Switching to LED lighting is sustainable

Renewable energies Insuring storage ­technology correctly

Column Iran – A new economic beginning

EDITORIAL Dear Reader, Our cooperation with the Stuttgart software house RIB Software AG will play a role in revolutionising the construction industry and the insurance of large projects. “Now he’s exaggerating”, I hear you thinking. But let me explain why I am so sure about this. RIB’s iTWO software transforms construction projects into 5D visualisations, adding the crucial dimensions of time and cost to 3D virtual models. Since the iTWO 5D technology significantly reduces risk and provides a high level of transparency as well, for the first time, Munich Re is in a position to offer insurance cover for additional costs in construction projects. This is a win-win situation: the construction industry experiences greater predictability regarding project procedure, time and costs. And property developers and investors can at last take out insurance cover for additional costs. All in all, the solution is innovative and sustainable. I wish you a stimulating read.

Torsten Jeworrek Member of the Board of Management of Munich Re and Chairman of the Reinsurance Committee NOT IF, BUT HOW

Contents Getting the big ­picture High risks, planning errors and unforeseen logistical problems can make a major project con­ siderably more expensive. These costs had been considered ­uninsurable – until now.

Page 4 News 2 Performance warranty cover for LEDs – Munich Re and DEKRA cooperate 3 COMPLEX MAJOR PROJECTS Cost overruns are a thing of the past The new iTwoPCI insurance solution offers protection against unplanned additional costs RENEWABLE ENERGIES Energy storage systems Risk management must keep pace with new technologies COLUMN Iran – New opportunities for business The sanctions are being lifted, but there are still many obstacles to overcome Imprint and preview

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NEWS

LLOYD‘S OF LONDON

LIFE SCIENCE

LIABILTY

Munich Re Syndicate Ltd.

New protection for ­regulation risks

Drones for all

From 1 January 2016, Munich Re Underwriting Ltd will be renamed Munich Re Syndicate Ltd, which will be the managing agent for Munich Re’s Syndicate 457 at Lloyd’s. This change underlines the strategic importance of this unit of Munich Re. Mark Watkins, CEO of Munich Re Holding Company (UK) Limited: ”The rebranding will allow us to optimise the leveraging of the synergies which arise out of the entire Group.”

The new non-damage business interruption insurance NDBI Pharma IQ combines risk transfer and consulting services to assist life sciences companies in managing the impact of regulatory actions imposed by the US Food and Drug Administration (FDA). NDBI Pharma IQ is only available through Marsh and Munich Re. Additional insurance capacity and consulting services are available as needed.

Until recently, no more than a gimmick in science fiction films, they are now very much reality. These unmanned flying objects with between four and eight rotor blades are small and highly manoeuverable, featuring battery-powered motors and capable of carrying small payloads. No wonder then that the commercial use of drones is increasing, for example to monitor technical installations or agricultural production. What changes can the insurance industry expect with the advent of this new technology?

>> M  ore information at www.munichre.com/en/risk-solutions

>> More information at www.munichre.com/corporatenews

>> M  ore information at

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Munich Re Topics Risk Solutions 4/2015

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LED – Bright lights, low energy Sustainability experts agree that LED technology is the most energy-efficient lighting solution available. Corporate Insurance Partner, a member of Munich Re’s Risk Solutions family, and the international testing and certification group DEKRA are cooperating to make the transition to LED (light emitting diode) lighting more attractive. The cooperation facilitates access to risk-transfer solutions and supports the growth of LED as an energy-saving, green technology: Now manufacturers that earn the DEKRA LED Performance Mark qualify for Munich Re’s performance warranty covers. LEDs reduce CO2 consumption by 70 percent With a service life exceeding 50,000 hours, high-quality LED lamps promise considerable savings over conventional light sources, while at the same time reducing CO2 emissions by as much as 70%. This is a significant contribution to climate protection, considering the fact that worldwide lighting accounts for 1.9 billion tonnes of CO2 annually.

“We see increasing demand for tailored risk-transfer in the LED lighting area. The right insurance solution can help to increase credibility, secure a broader investment base, decrease financing costs and allow LED manufacturers a more flexible capital allocation”, states Michael Schrempp, Head of Green Tech Solutions. DEKRA, as one of the leading certifiers in this market, awards its LED Performance Mark based on extensive experience in LED technology, individual product testing and factory audits. Jacob Nuesink, Global Account Manager at DEKRA Certification B. V., explains: “The DEKRA LED Performance Mark enables LED manufacturers to validate their product features through a third-party opinion. The quality mark covers both electrical safety and performance.” >> M  ore information at www.munichre.com/greentechsolutions

The LED performance warranty cover is part of CIP’s Green Tech Solutions programme, which includes innovative covers that tap the growing market for sustainable technologies and renewable energy sources.

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MAJOR PROJECTS

Digital revolution in the construction industry iTWO – Project Cost Insurance is the world’s first cover for additional costs in construction projects.

Billions of euros over budget, years behind schedule and still without a definitive opening date, the new Berlin Brandenburg airport is an unmitigated disaster. In a recent interview, a member of Angela Merkel’s CDU party even suggested scrapping the whole thing and starting again. The airport has become an international symbol of how not to manage a major building project. It’s in good company, though: throughout history, some of the world’s most renowned constructions, from the Sydney Opera House to the Channel Tunnel and China’s Three Gorges Dam, have encountered major delays and huge cost overruns.

The bad news is that owners, developers and investors around the world are undertaking ever larger and more complex building projects. Closely calculated margins, high risks and teams of people spread across the globe are increasingly common. Large volumes of information are exchanged at different times and in different places between the parties involved. This can lead to planning errors and all manner of unforeseen logistical problems, incurring significant extra costs. Difficult to predict, these unplanned cost surges have also been uninsurable – until now. Virtual design technology has already brought huge improvements in planning, cost-control and quality in the automotive and aerospace sectors, and it’s now kick-starting a revolution in the construction industry. Powerful building information modelling (BIM) software is enabling entire projects to be planned and simulated in detail before a foundation has even been dug, greatly improving cost transparency and reducing risk. “The last major turning point in this sector was the Bauhaus movement almost 100 years ago. But now, thanks to big data and virtual technology,

Large construction projects never rest these days. Construction progress is increasingly dependent upon precise planning and logistics. Munich Re Topics Risk Solutions 4/2015

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MAJOR PROJECTS we’re standing at the beginning of a new revolution in construction,” explains Michael Sauer, Executive Board Member at RIB Software, one of the world’s leading providers of BIM technology. This is opening up new possibilities in the world of insurance. Teams from Munich Re’s Engineering and Special Enterprise Risks departments have collaborated with RIB to develop iTWO Project Cost Insurance (PCI), the world’s first cover for additional costs in construction projects. “Munich Re has chosen RIB as its partner for this ground-breaking new product, as it is the market leader in BIM technology, with more than 50 years’ experience in the construction industry,” explains Roman Boos, Senior Underwriter New Risk Solutions at Munich Re. RIB’s iTWO software transforms construction projects into 5D visualisations, adding the crucial dimensions of time and cost to 3D virtual models. At the very start of a project, during the “lab” phase, detailed information is gathered from each party involved,

including architectural designs, material requirements, schedules and costs, and entered into a single database. Once the data has been fed into the iTWO enterprise solution, it runs through a virtual execution of the entire project to identify and eliminate potential problems in the process, from design shortcomings to scheduling errors. When an issue is flagged, project members can work together to find the solution. This means troubleshooting happens in the lab and not on the construction site, as is often the case, saving time and money. With iTWO PCI, once the simulation is able to complete the construction process smoothly, risk experts from Munich Re analyse the model and use it as the basis to offer insurance to the owner for the actual construction. This insurance covers the difference in costs between what the simulation calculated and the actual finished building. Throughout the construction process, the BIM programme serves as a single source of information for every partner and on-site

Digitalisation to change the world of construction Michael Sauer, RIB Software AG and Roman Boos, Munich Re work together to boost use of new technology advances.

Topics Risk Solutions: iTWO PCI is a unique product that will revolutionise the construction industry. In what way? Michael Sauer: iTWO PCI will bring new thinking, new working methods and new technologies into building. Positioning such a product means questioning traditional models for cooperation and contracts. An investor in a building only receives insurance cover when the entire project

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has been jointly planned, at first virtually, by all parties involved up to the production planning, before physical implementation commences. The virtual planning has to be based on iTWO technology with a degree of detail that is still rarely found today. It will put a decisive end to planning in the construction phase, which has been the main cause of cost and time overruns in building work. What we now together have to convey to the construction industry and investors is a paradigm change for all parties involved in the project.

Munich Re Topics Risk Solutions 4/2015

Roman Boos: The most important thing initially was to have a good understanding of the product and the areas in which it can be used, namely construction projects and the construction industry, in order to find an appropriate solution. To do this, we involved experts from a wide range of areas. Experience in planning and execution in the construction industry was bundled, and experts from IT and risk management worked alongside specialists in insurance contracts and underwriting. The broad base of the project team proved to be the key to our success – we developed iTWO PCI within six months, and we would now like to test the product in a handful of pilot projects. However, the digitalisation of the construction industry is still in the starting blocks, and only a small number of companies are making use of it, and only in parts of their business. Our aim is to attract partners from the construction industry and investors to form a team to press ahead with implementation of the

MAJOR PROJECTS

iTWO PCI: What is covered?

progress can continually be matched with the virtual model. “By minimising risk and increasing transparency, we’re able to insure what was previously uninsurable,” says Boos.

iTWO Project Cost Insurance covers additional costs for:

The potential benefits of iTWO PCI are huge. With construction projects becoming increasingly larger and more complex, involving teams spread across the globe, accurate time and budget planning with traditional methods has become extremely difficult. Sauer says that iTWO’s virtual technology gives a clear, uniform project overview for all parties involved and can help cut costs by up to 30%. Project owners receive much greater investment security, while construction companies can increase their added value and the quality of their service offer. “In the future, there will only be policy amendments when the project owner wants to change something during the building process. This will eliminate one of the major causes of delays and cost overruns. Ultimately, project owners will receive more bang for their buck, and construction companies will earn more money,” says Sauer.

iTWO Project Cost Insurance does not cover:

new technology. If iTWO PCI is used successfully, we can develop the product further as appropriate. And we have received some encouragement from the authorities. The proposals in the final report of the commission set up by former German Transport Minister Ramsauer to look into reforming the way large projects are managed have a lot in common with our solution. Why is this so exciting for you personally? Michael Sauer: RIB’s objective is to promote digitalisation in the construction industry and transform it from a traditional to an “advanced” industry. My personal aim is to enable our clients to execute projects with model-based working methods and very high levels of productivity and efficiency, thus offering the investor the maximum protection against cost and time overruns. With Munich Re as a partner, we can also cover most of the remaining risks and complete projects in time and under cost.

−−Errors connected to the iTWO 5D technology (time, cost, etc.) −−Differences between planning and unexpected delays in construction −−Force majeure, e.g. extreme weather −−Difficulties with the construction company after expiration of completion guarantees and penalty clauses

−−General insurance exemptions such as war, terrorism, contamination −−Additional costs caused by subsequent changes made by the building owner −−Risks covered by other insurances, e.g. property damage, third-party liability −−Scope of work not defined in iTWO, e.g. foundation ground risks and availability

Roman Boos: What is exceptional and special for me about this project is the combination of people, visions, ideas and opportunities with application of the latest digital technology. Working with the most innovative, medium-sized software companies in Germany (WirtschaftsWoche ranking 2014) makes for an exciting atmosphere. I am hugely motivated by being able to contribute to the development from the outset and to create something new.

I still remember well our first workshop in Stuttgart. Both we and RIB put forward so many new ideas for making totally new perspectives possible. We have integrated this working atmosphere with its visions, energy and passion into this exceptional product.

Michael Sauer Member of Board RIB Software AG Finance, M&A, Marketing and Sales Germany [email protected]

Roman Boos Senior Underwriter Special Enterprise Solutions Munich Re [email protected]

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MAJOR PROJECTS Over-budget construction projects in comparison over budget

The Channel Tunnel

$21.1bn

Three Gorges Dam

$16.1bn

Boston´s Big Dig

$13.4bn

Berlin Brandenburg Airport**

$3.2bn

Great Belt Fixed Link

$1.8bn

Denver International Airport

$3.1bn

World Trade Center Transportation Hub**

$2.0bn

Montreal Olympic Stadium

$3.0bn

Budapest Metro Line 4

$1.6bn

Millenium Dome

$895m

Wembley Stadium

$776m

Elbphilharmonie**

$678m 0

Selected over-budget construction projects worldwide (in US dollars*)

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10 15 20 25 30 35 $bn

* converted to US dollars and adjusted for inflation ** still not completed

planned total Source: Forbes Statista December 2014

Since announcing the introduction of iTWO PCI earlier this year, Boos says investors and project owners, construction companies and also the German Federal Ministry of Transport and Digital Infrastructure have all offered extremely positive feedback. “Together with RIB Software, we’re currently talking to several project owners and investors, who are very interested in the support offered by the product and in supporting this new technology.”

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Munich Re Topics Risk Solutions 4/2015

Far more than just a financial safeguard against unplanned additional costs, Boos believes that widespread adoption could completely transform the ­construction sector. “The risk reduction means that projects will become more attractive for conservative investors, such as pension funds, leading to an increase in investment in the building sector.” The international economic gains are considerable, agrees Sauer. “I’m sure that it will lead to improved quality of life in urban areas, with better living spaces and ­superior infrastructure – all at affordable prices.”

MAJOR PROJECTS

Innovator in construction business – RIB Software AG The company creates, develops, and offers iTWO – new thinking, new working method and new technology – for construction projects across various industries worldwide. iTWO today is the world’s first Cloud/ license-based Big Data 5D BIM enterprise solution for construction companies, industrial companies, developers and investors. Since its inception in 1961, RIB Software AG has been a pioneer in construction innovation, exploring and bringing in new thinking, new working methods and new technology to enhance construction productivity, and transforming the construction industry into the most advanced and digitalised industry in the 21st century. RIB is headquartered in Stuttgart, Germany, and has been listed on the Prime Standard Frankfurt Stock Exchange since 2011. With about

700 talents located in over 30 offices worldwide, RIB serves 100,000 ­clients including construction contractors, sub-contractors, developers, owners, investors and governments, in the fields of building construction, infrastructure, the EPC sector and more.

>> M  ore information at http://www.rib-software.com

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RENEWABLE ENERGY

Risk management for energy storage systems What use is energy if it is not available when required? This dilemma applies particularly to renewable energy sources. The energy-storage sector is growing rapidly and is developing a wide array of new technologies. But with progress come risks: understanding and insuring them are key to viable sustainable energy systems.

Electricity is increasingly obtained from wind and solar power. But storing energy sustainably is costly and risk-prone.

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Munich Re Topics Risk Solutions 4/2015

RENEWABLE ENERGY Across Europe, governments are taking steps to increase the use of renewable energies and cut greenhouse gas emissions, especially CO2. There is a growing sense of urgency to conserve resources and protect the climate. Drivers of this trend include the European Union’s 2009 Renewable Energy Directive (2009/28/EC), which allows Member States to set their own objectives in line with the following 20-2020 targets to be met by 2020:

Fire destroys a wind farm on Hawaii

A smoke alarm was triggered at Hawaii’s Kahuku wind farm in the early hours of 1 August 2012. The blaze destroyed the building housing the facility’s batteries, causing US$ 30m in damage. Firefighters, fearing toxicity of the burning dry cell batteries, did not enter the building for seven hours.

−−20% reduction in greenhouse gases compared with 1990 levels −−Increase in share of energy from renewable sources to at least 20% of total EU energy consumption −−20% increase in energy efficiency This means that the individual countries can pursue strategies more suited to their particular geography and infrastructure by placing more emphasis on solar or wind energy, for example. Renewable energy installations are becoming more and more commonplace throughout Europe, and now contribute significantly to the overall energy mix. Yet all strategies face the same major challenge: most renewable sources are unable to deliver a constant and reliable energy supply – a critical necessity for all power grids – regardless of how smart they are. Today, more than ever, it is at least as important to find ways to efficiently store energy as it is to produce it. Varied risk scenarios The risks involved in energy storage vary widely between the different technologies. Maturity is a major determining factor in a system’s relative risk profile. Where there is limited experience – as in the case of flow batteries or molten salt thermal storage – a higher risk of failure or accident must be assumed. That said, many relatively new and emerging ­solutions use a large proportion of familiar and triedand-tested technologies. Here, risk can be assessed with the help of existing knowledge of power plants and energy distribution systems.

A significant source of risk is the software required to operate energy storage facilities. For maximum efficiency and profitability, programming must be aligned with a complex array of operating parameters. Sufficient capacity has to be available at peak consumption times and stored energy must be used as much as possible, while taking into account the technical requirements of the storage technology. Batteries, for example, suffer from over-depletion, resulting in a limited service life. As software is often a thirdparty add-on, it should always be carefully checked and monitored for misalignment with a given system’s needs. A further risk inherent in energy storage solutions, especially where elevated temperatures are involved, is fire. Thermal runaway, a vicious circle in which heat changes the conditions of a system and leads to a ­further increase in temperature, is a significant risk in many battery types. In a still unexplained 2012 incident, a fire broke out at a wind power facility in Hawaii, damaging its batteries (see separate text “Fire destroys a wind farm on Hawaii”).

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RENEWABLE ENERGY

Technologies to store energy Energy storage is a vast and constantly evolving field. Concepts can generally be divided into two approaches: electricity storage and thermal storage. Examples of areas currently being explored include thermochemical energy storage, synthetic natural gas and superconducting magnetic energy storage (SMES) (see Figure below). Many potentially promising solutions have already entered the trial phase. These range from high-temperature molten salt or low-temperature ice storage to flow battery systems. Alongside batteries, mature and commercial technologies include various forms of thermal energy storage and pumped storage hydropower (PSH). Pumped storage hydropower (PSH) Of the proven solutions, PSH or pumped hydro is among the most widespread. It uses the same technologies as those found in conventional hydroelectric power stations, including water turbines. Water is pumped uphill and stored in upper reservoirs using dam structures. When electricity is required, head gates are opened, allowing water to flow down tunnels (known as penstocks) and into water turbines connected to generators that supply electricity to the grid. The water is collected in a lower reservoir and subsequently pumped back up to the top reservoir using excess electricity when demand is low. PSH is not suitable for all topographies, but does have many advantages, such as the ability to provide electricity on demand and use up surplus energy. Not surpris-

ingly, it accounts for 99% of global electrical energy storage capacity. The technology is responsible for 41.3 gigawatts of electricity in the EU, which is equivalent to 34% of global capacity*. Plans are in place to use wind turbines and solar panels to generate the energy needed to pump water back up to the upper reservoir. Thermal storage A popular approach to energy storage is conversion into thermal energy. For example, one way to capture the sun’s vast supply of energy – alongside photovoltaic panels that generate electricity – is to use concentrated solar power technology to heat a thermal storage medium. In concentrated solar power (CSP) installations, mirrors are arranged to focus sunlight onto a small area containing a substance – typically oil – which is heated and stored in tanks. When required, the oil is passed through a heat exchanger to generate superheated steam and the process starts again. The superheated steam is used to generate

* Source: European Association for Storage of Energy (EASE) and European Energy Research Association (EERA) – European Energy Storage Technology Development Roadmap towards 2030 (March 2013).

Superconducting Magnetic Energy Storage (SMES) Superconducting Magnetic Energy Storage (SMES) exploits the phenomena that current will continue to flow in a superconductor after the applied voltage has been removed. The energy is stored in a magnetic field resulting from the flow of the direct current in a superconductor. Once charged,the current will not reduce and the magnetic field will remain indefinitely until discharge from coil is required.

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Munich Re Topics Risk Solutions 4/2015

RENEWABLE ENERGY electricity in a steam turbine and, following condensation, is pumped back through the heat exchanger for reuse. In view of the fact that oil can ignite at high temperatures, some CSP plants use salt as a non-hazardous alternative. It melts at 131°C and can be stored in its fluid state above 288°C for use in the same way as heated oil. As well as being non-flammable, molten salt offers the advantage of requiring less storage capacity compared with thermal oil systems. Compressed air Compressed air energy storage (CAES) has been in use since the 1970s. As the term indicates, CAES stores energy by compressing air in special tanks. The pressurised air is then used in gas turbines to generate electricity. In the simplest form, known as a diabatic system, the heat generated during the compression stage is not used. Adiabatic systems** follow the same principle, but recover heat from the air compression stage and store it using thermal oil or molten salt. When energy is required, the air is passed back through a heat exchanger, where its temperature is increased for combustion.

Batteries Battery technology has progressed faster than other energy storage concepts. A wide and growing array of different battery types are currently in use. The most efficient batteries can deliver most of the energy used to initially charge them, making them highly attractive, yet they are limited by size and capacity. Two main types of battery are available: self-contained, the batteries most people are familiar with, in which all of the components of the battery are sealed within an enclosure or a container; and the newer flow batteries, in which electrolyte is stored outside of the battery. Electromagnetic energy storage, flywheels Flywheels used for energy storage purposes generally comprise a rotating cylinder supported by magnetically levitated bearings, retained in a vacuum chamber to minimise any friction. The rotating cylinder is connected to a motor and a generator. The motor drives the flywheel until power is needed, at which time the motor reverses its function and acts as a generator driven by the flywheel.

** A  n adiabatic transition – from the ancient Greek privative (not) and diabaínein (able to be passed through) – is a thermodynamic process that occurs without transfer of heat between a thermodynamic system and its surroundings. Adiabatic is a synonym for “thermally insulated”.

Pumped storage hydropower (PSH) Pumped Hydroelectric Energy Storage (PSH) power requires rivers and natural differences in elevation. The water is stored in two reservoirs at different elevations, and then either released to flow through turbines that generate electricity when needed, or pumped from a lower elevation reservoir to a higher one. Typically, pumping is done using cheap electric power during periods of low demand.

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RENEWABLE ENERGY Based on a comprehensive overview of risks and professional loss control engineering, mature and emerging energy-storage technologies can be insured. The energy experts at HSB, a Munich Re company with almost 150 years of industrial insurance and inspection experience, offer covers such as contractors’ all risks and delay in start-up (DSU) for energy-storage facilities. The company is also exploring the development of performance guarantees, which it already provides to renewable-energy facilities such as solar arrays. HSB expects growth in renewables and energy-efficient solutions in homes, together with the wider “connected home” revolution, to create a need for specialised domestic insurance covers. Current household policies generally do not apply to technologies such as energy storage, but could be adapted using specific knowledge and expertise. Microgrids and island grids for communities and/or commercial buildings offer not only huge energy-savings potential but also the opportunity to feed locally generated energy back into the national grid. But, again, the potential comes with new risks that call for targeted covers to safeguard revenue streams. HSB has the expertise to model power outage risks and their impact, making smart grids and microgids insurable. As renewable energy supply increases and the need for storage technologies grows, insurability will be a key factor in securing financing to build facilities and meet demands. With its specialised energy and engineering risk knowledge, HSB is in a strong position to support the energy-storage sector in its development.

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Munich Re Topics Risk Solutions 4/2015

OUR EXPERTS Gareth Bendelow, Technical Director HSB Engineering Insurance [email protected]

Jim Whitmore, Loss Control Engineering Manager HSB Engineering Insurance [email protected]

John Roach, AVP Engineering and Standards Group HSB Group [email protected]

Are you looking for all-round support and in-depth knowledge?

Then why not visit connect.munichre, our online portal offering ­exclusive services for our clients? Quotation and risk-assessment tools optimise and speed up ­underwriting. Project rooms ensure fast and secure communications and data exchange. Our Learning Centre enables you to keep your know-how up to date. For further information and registration details, please contact your client manager or visit connect.munichre.com. NOT IF, BUT HOW

Munich Re Topics Risk Solutions 4/2015

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COLUMN

Economics from a risk perspective

Iran: Outstanding opportunities, huge hurdles Michael Menhart, Chief Economist at Munich Re [email protected]

After many years of tough negotiations and innumerable setbacks, the nuclear agreement between Iran and the Western powers was finally signed on 14 July. The economic sanctions imposed on Iran will now gradually be lifted: a major opportunity – for Iran itself, as well as for many international trading partners. The sanctions have hit Iran hard. The country is excluded from the inter­ national payments system SWIFT, and trade with the rest of the world is extremely restricted, as is the export of oil. Since the UN Security Council imposed the sanctions in 2006, Iranian economic output has increased annually by an average of just 2.3% – a disappointingly low figure for an economy at this stage of development. The population is struggling with annual rates of inflation near 20% (2014). Economic isolation has cut Iran off from the global finance markets; only a handful of countries still trade with Tehran. This has left the country in sore need of economic stimuli, but major economic hurdles must be cleared if it is to become a regional economic power again. The lifting of sanctions will not spare the country from painful reforms. For years, economic isolation has prevented technology transfer, lack of investment has lastingly weakened production potential, and corruption is stunting all dynamic economic development. The country must first regain the trust of international trade partners.

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At the outset at least, such partners will consider the overall political climate to be fragile and will shy away from major investment. At the same time, the dramatic fall in oil prices, to below US$ 50 at times last year, has dealt another blow to the Iranian economy. The national budget depends on oil exports. A break-even budget can only be achieved with an oil price of around US$ 130. Fiscal policy must therefore be placed on new and more robust footing – with moderate tax in­­ creases and a more efficient system of tax collection. Con­soli­dation of expenditure and reform of the financial system are also unavoid­able.

The road to Iran’s re-emergence as a regional economic power may be rocky, but worth the trouble. Even though the road is rocky, it will be worth pursuing for both Iran and the rest of the world, for the country’s economic potential is immense. With around 80 million inhabitants, Iran is already the second largest country in the MENA region today, after Egypt. A quarter of the total population is under 15 years of age; the pool of young people (who are often very well educated) is enormous. And Iran has a large, often commercially successful middle class. Absolute growth in economic output in Iran between now and 2020 will probably be the second highest in the region after Saudi Arabia.

Munich Re Topics Risk Solutions 4/2015

But the Iranians are not the only ones poised for an economic boom – many other national economies with high export rates are also waiting in the wings. The financial and insurance sector can also benefit from the tremendous amount of catching up the country has to do. With a premium volume of around US$ 9bn, Iran is already one of the biggest primary insurance markets in the MENA region. For the period up to 2025, premium income is expected to grow by an annual average of between 5% and 6% after adjustment for inflation, yielding a premium volume equivalent to US$ 19bn. That would be around the current size of the Polish insurance market. The latest political developments and Iran’s enormous economic potential give grounds for hope. But it is still too early for celebrations. It will take some time before the Iranian government can win back the trust of the international community, and the Iranian economy that of international investors. Accomplishing this will require more than just an agreement on Iran’s nuclear activities.

Preview 1/2016 Investments in infrastructure projects Major investments involve numerous risks factors. The new project risk rating developed by Munich Re and TÜV SÜD assists investors, project developers and banks in making decisions. The rating has in the meantime become an important component in MEAG’s due diligence process.

© 2015 Münchener RückversicherungsGesellschaft Königinstrasse 107 80802 München Germany Tel.: +49 89 38 91-0 Fax: +49 89 39 90 56 www.munichre.com Münchener RückversicherungsGesellschaft (Munich Reinsurance Company) is a reinsurance company organised under the laws of ­Germany. In some countries, including in the United States, Munich Reinsurance Company holds the status of an unauthorised reinsurer. Policies are underwritten by Munich Reinsurance Company or its affiliated insurance and reinsurance subsidiaries. Not all coverages are available in all jurisdictions. Any description in this document is for general information purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any product. Responsible for content Group Communications Editor Regine Kaiser Group Communications (address as above) Tel.: +49 89 38 91-27 70 Fax: +49 89 38 91-7 27 70 [email protected]

Picture credits Cover: dpa Picture Alliance/Brett Duke U2: Robert Brembeck p. 1: Lee Celano/Reuters/Corbis p. 2 (1): Hajime Ishizeki/Corbis p. 2 (2): Getty Images p. 3 (1): dpa Picture-Alliance/ Robert Hardin/Julian Elliott pp. 3 (2), 3 (3), 12, 13: Foto Meinen pp. 4, 5: dpa picture alliance/landov/ Michael Democker p. 6: Rick Wilking (Top), Lee Celano (Bottom)/Reuters/Corbis p. 9: Mark Bover p. 9: Patrick Quigley p. 10: Lewis E. Link p. 14: Getty Images p. 16: Shannon Stapleton/Reuters/ Corbis p. 17: Watkins Syndicate 457 p. 18 Illustration: Kevin Sprouls Inside back cover: shutterstock Editorial deadline 16 October 2015 Printed by Kastner & Callwey Jahnstrasse 5 85661 Forstinning Germany Corporate Insurance Partner CIP offers holistic insurance protection for industrial and corporate clients throughout the world. The portfolio includes coverage concepts for property, energy, engineering, casualty and ­special enterprise risks. www.munichre.com corporate-insurance-partner @munichre.com

Hartford Steam Boiler Leading monoliner and inspection company for engineering risks. Apart from engineering covers, its range also in­cludes specialty and engineering solutions, claims management and risk management services. www.hsb.com Tel.: +1 800 4 72-1866 [email protected] KA Köln.Assekuranz Agentur GmbH Internationally operating underwriting agency for industrial risks, specialising in marine and group accident insurance. www.koeln-assekuranz.com Tel.: +49 2 21 3 97 61-2 00 [email protected] Temple Insurance Company Temple Insurance Company underwrites large ­industrial and commercial risk management accounts. Our Technical and Special Risk Department provides property and casualty ­products directly through the Canadian broker network. www.templeinsurance.ca Toll free (North America): +1 877 364-28 51 Tel.: +1 416 364-28 51 Fax: +1 416 361-11 63 Watkins Syndicate 457 Lloyd’s biggest marine insurer with an extensive portfolio of solutions for accident and health, liability, cargo, marine and logistics, offshore energy, space flight, and yachts. The Watkins Syndicate operates its own department for terrorism risks. www.watkins-syndicate.co.uk Tel.: +44 20 78 86 39 00 [email protected]

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