Construction and power insights newsletter compiled by Aon

1. Risk. Reinsurance. Human Resources.
Aon Risk Solutions
Global Broking Centre | Construction
ConstructionNewsletter
A Message from the Managing Director
In spite of the demise of Infrassure, an infrastructure specialist, and that of
Sciemus, a specialist carrier in power, the Construction market continues to be
characterised by marked softening, with abundant capacity available for all but
the most esoteric and catastrophe-exposed risks. This is great news for our
clients, who are able to place risks in a competitive market, enabling them to
concentrate on the development of infrastructure projects with an
increasingly international pedigree.
Conditions may also have been behind a number of significant people moves within the London
market, with four underwriters having left Torus for Tokio Marine and most of the construction
team leaving Zurich for Torus in recent months. Such moves are creating uncertainty, even if
capacity and rates have been unaffected.
The growth of regional hubs for construction and power meanwhile continues apace, with Dubai,
Miami and Singapore all developing strong local capacity spurred on by regional development.
London remains the centre for specialist capabilities, large-scale capacity and innovation, but the
GBC is working increasingly closely with our network colleagues to bring regional and global
expertise to our clients.
The GBC continues to develop innovative market solutions such as the use of surety bonds to
fund pension deficits, with further details outlined in this newsletter. Our team is also showing its
pedigree in public private partnership projects and renewable power. In offshore wind we
continue to dominate the market, representing the insurance needs of over 70% of global
offshore wind generation capacity. London continues to offer strong capacity for major Energy
and heavy civils projects where lead markets continue to be recognised as market leaders for
these classes.
With access to more than USD 3 billion of estimated maximum loss capacity for construction
projects and a team that brokered 1,800 policies in 2013, London continues to extend invaluable
expertise and capacity to clients and the wider Aon network worldwide. And in a sector
increasingly dominated my multinational projects, we continue to deliver efficiencies and
capabilities for Aon’s global client base.
We hope that the insights in this newsletter will provide further food for thought for our clients
and the network in Construction and Power.
James MacNeal
Managing Director of Construction and Power, GBC London
In this Issue
1 Message from James MacNeal
2 Tunnelling: getting the
expertise right
2 Construction in EMEA -
a joined up approach
2 US Casualty: the benefits of
collaboration
3 Multi-party projects: getting
the coverage right
3 PPP projects: London appetite
3 China and EMEA - bridging
the divide
4 Surety bonds: delivering
financing alternatives
4 Key Contacts
“With access to more than
USD 3 billion of estimated
maximum loss capacity for
construction projects and a
team that brokered 1,800
policies in 2013, London
continues to extend invaluable
expertise and capacity to
clients and the wider Aon
network worldwide.”

2. 2 Construction Newsletter
Tunnelling: getting the expertise right Construction in EMEA -
a joined up approach
With an increasing number of
Construction projects in the
EMEA region being developed
on a cross-border basis, the Aon
EMEA leadership team is
arranging a meeting of
Construction practice leaders
from across EMEA, Canada and
the US.
Attendees will discuss how to
deliver coordinated and
consistent capabilities to
Construction clients and
stakeholders, drawing on the
capabilities of the wider Aon
network. We encourage those
interested in learning more
about our ongoing regional
work to get in touch with Nic
Carreno or Robert Humphreys.
Nic Carreno
+44 (0)20 7086 2208
nicolas.carreno@aon.com
Robert Humphreys
+44 (0)20 7086 0653
robert.humphreys@aon.co.uk
It is now 20 years since the Heathrow Tunnel
Collapse, an event that triggered dramatic
changes in the relationship between the
insurance market and the construction
industry. The event was the largest single
civil engineering loss to the insurance
industry and highlighted the importance of
robust risk management and specialist
expertise.
Twenty years on, expertise is still very much
at the forefront of global tunnelling projects,
with international contracting firms now
competing for project work on a global
basis. Often they bring with them a
consolidation of expertise gathered from
wherever major civil engineering projects
are in highest demand. This approach is also
reflected in the insurance sector, with
insurers placing increasing emphasis on the
capabilities of tunnelling teams when it
comes to assessing their interest and the
pricing of coverage.
Fortunately, insurers continue to be
amenable to the broadest forms of insurance
coverage available for those projects that are
led by recognised teams. As a result,
corporate and individual CVs are an
important factor in insurers’ determination
of the desirability of insuring any major
tunnelling project.
The collective knowledge of these people
and organisations is paramount to
demonstrating an ability to manage the
multiple complications and challenges these
vast projects face.
Some employers are able to draw upon an
impressive track record of successful projects
that can lead to greater willingness to take
on construction risk, and as a broker we help
them to consider their options. Others will
aim to leverage past successes to achieve the
best possible outcomes in the market. What
is evident is that expertise in an increasingly
global construction sector is a now key
insurance commodity.
“Munich Re estimates that 41% of all
tunnelling losses by value are as a result of
design error.”
US Casualty: the benefits of collaboration
With numerous projects seeking the
expertise of the London and Bermuda
markets via Aon’s global Construction
Services Group in 2014, it is increasingly
apparent that the Global Broking Centres
(GBCs) continue to help clients access much
needed capacity and Construction
knowledge and expertise.
There has been a significant increase in
West Coast risks looking to London and
Bermuda for support, many with specific
insurance requirements that draw upon the
strengths of the London and Bermuda
markets.
Recognising these trends, the already
experienced West Coast team has been
bolstered by the transfer of Aon’s Senior
Broker Tony Owen from London to Los
Angeles. Tony has been instrumental in
offering clients with large flagship projects
the ability to access the GBCs.
Bespoke solutions for these often complex
projects include large catastrophic limits,
construction periods in excess of five years
and coverage enhancements generally not
available through domestic carriers.
Recent examples of clients accessing Aon’s
global Construction capability include our
work on the Los Angeles Metro Transport
Authority’s (LAMTA) Super Layer. This
difference in limits layer sits above five
separate LA metro line extensions (totalling
$5.28 billion in construction values) and
provides up to $500 million of limit.
The GBCs have been able to support many
West Coast projects, demonstrating that
teamwork and collaboration is at the heart
of everything we do, bringing to bear the
best capabilities Aon can offer from our
extensive global network.
The success of these flagship projects has
proved a catalyst for further project
submissions, and helps to highlight where
Aon can bring value to global clients
considering the risks their organisations face
and the way in which they manage them.

3. 3 Construction Newsletter
China and EMEA -
bridging the divide
The GBC now boasts a dedicated
China desk within Construction,
with a primary focus on Chinese
overseas projects in the EMEA
region. Aon is now able to draw
on the capabilities of our
colleague Fang Li, who has a
profound knowledge of Chinese
business culture, contractors’
insurance appetite and insurance
markets’ involvement in EMEA
projects. She works closely with
the Aon China team and will be
an invaluable addition for Aon
network clients involved with
Chinese overseas projects.
Fang recently attended the Aon
China Global Services (ACGS)
conference held in Beijing, during
which colleagues re-emphasised
the need for coordinated
teamwork when working on
complex Chinese overseas
projects. Fang will undoubtedly
play a key role in supporting
clients in EMEA.
Multi-party projects: getting the coverage right
PPP projects: London appetite
There has been a growing global trend in
recent years towards the use of public-
private partnership (PPP) initiatives to
design, finance, construct and operate
infrastructure projects such as roads, schools
and hospitals. There are many risk issues to
consider with such projects, but project
teams would certainly benefit from close
consideration of their operational insurance.
Typically, the insurable assets of such
projects were not previously insured or, if
they were, they would likely have had
substantial self-insured retentions.
This means insurers typically lack the full
claims experience needed to technically
underwrite such assets, limiting the number
of insurers prepared to offer terms and often
resulting in hard market conditions.
The UK witnessed exactly this phenomenon
around 15 years ago.
Fortunately, the UK market for operational
PPP has since matured, with London
displaying a strong appetite for writing such
business and an abundance of capacity. Key
to this change was greater understanding of
the risk protection required and ensuring
that this is built into the Authority
Requirements at an early stage.
Aon has played an integral part in helping
clients build appropriate risk management
protection for their PPP projects here in the
UK, with the London market presenting
considerable opportunities for insurance
buyers who are experiencing difficulties with
their local market’s understanding of
operational PPP project risk. We are working
with our colleagues in developing market-
leading PPP capabilities right across our
international network.
There has been a general reawakening in the building sector after
the prolonged drought that followed the financial crisis. Firms are
seeing appetite for new projects increase and despite the uptake in
claims severity in recent years, professional indemnity (PI) coverage
for design and consulting firms remains buoyant, with capacity
particularly strong in the US, London and Middle East markets.
However, with many large infrastructure projects involving multiple
parties, project owners taking on new proposals need to be aware of
the potential pitfalls associated with insured versus insured
exclusions present in most PI contracts.
Standard PI wording limits claims to those made against third parties
and excludes members of an owners’ own insured team, limiting the
potential for owners to claim should an internal claim arise. This
situation leaves owners exposed to the potential failings of their
project team.
Insurers are however wary about the implications of removing the
exclusion, citing the potential for collusion and manufactured claims.
Even if insurers do opt to delete the exclusion, Aon knows of instances
where the owner’s liability limit was eroded because a contractual
claim between a consultant and a contractor led to cost overruns.
Our suggestion for an enhanced solution for owners is to endorse
the policy with an Indemnity to Principals extension, coupled with a
waiver of the subrogation clause and a mitigation/rectification
extension. This places the owners’ interests’ front and centre, while
allowing them to continue to provide coverage right across the
project team.

4. Surety bonds: delivering financing alternatives
For power companies weighing up their funding
options, it may well be worth considering surety
bonds as a means of delivering alternative, off-
balance sheet credit. A number of players in the
space are already doing so and as Mark Holt,
Leader of Aon Risk Solutions Surety & Guarantee,
London explains, they are rapidly replacing bank
guarantees as the financing option of choice in the
power sector.
“Our team has already worked with a number of
companies in the power sector, who have used
surety bonds to back North Sea oil
decommissioning, waste to energy developments,
PFI performance, and deferment of tax liabilities to
allow for monthly excise payments,” said Holt.
Aon was also involved in the innovative application
of a surety facility for a FTSE 100 client, said Holt,
having recently closed a five year, GBP 400 million
transaction to offer surety bonds to its pension
scheme as part of its funding strategy and
recovery plan. This innovative use of surety bonds
was a market first and is believed to be the largest
surety syndication ever constructed in the UK.
Through the facility the sponsoring employer
opened up a new pool of competitively priced
capital, and the pension fund gained certainty of
future payments from a highly-rated syndicate of
insurers. With balance sheet management, working
capital and cash being key business considerations
in the current economic climate, we anticipate off-
balance sheet surety bonds being widely used for
pension deficit planning, explained Holt.
Surety bonds are designed to protect against
issues such as company insolvency or contractual
default, and are being used within the sector to
finance deductibles on compulsory insurance
policies, decommissioning liabilities, performance
defaults, pension deficits and tax liabilities.
About Aon
Aon plc (NYSE:AON) is the leading global provider of risk management, insurance and reinsurance brokerage, and
human resources solutions and outsourcing services. Through its more than 66,000 colleagues worldwide, Aon unites to
empower results for clients in over 120 countries via innovative and effective risk and people solutions and through
industry-leading global resources and technical expertise. Aon has been named repeatedly as the world’s best broker,
best insurance intermediary, best reinsurance intermediary, best captives manager, and best employee benefits
consulting firm by multiple industry sources. Visit aon.com for more information on Aon and aon.com/manchesterunited
to learn about Aon’s global partnership with Manchester United.
© Aon plc 2014. All rights reserved.
The information contained herein and the statements expressed are of a general nature and are not intended to address the circumstances of any particular
individual or entity. Although we endeavor to provide accurate and timely information and use sources we consider reliable, there can be no guarantee that such
information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate
professional advice after a thorough examination of the particular situation.
Aon UK Limited is authorised and regulated by the Financial Conduct Authority.
FP 8803
James MacNeal
Managing Director
+44 (0)20 7086 4353
james.macneal@aon.co.uk
Robert Humphreys
Chief Commercial Officer
+44 (0)79 6840 9686
robert.humphreys@aon.co.uk
Fang Li
Head of China Desk
+44 (0)207 086 0441
fang.li@aon.co.uk
Simon Simpson
Head of PFI & UK Construction
+44 (0)20 7086 2003
simon.simpson@aon.co.uk
Warren Beardall
Client Director, PFI
+44 (0)20 7086 4328
warren.beardall@aon.co.uk
Mark Holt
Head of Surety & Guarantee
+44 (0)20 7086 0576
mark.holt@aon.co.uk
Peter Rudd
Head of International Construction
+44 (0)20 7086 4332
peter.rudd@aon.co.uk
Galen Brislane
U.S. Casualty
+44 (0)207 086 3432
galen.brislane@aon.co.uk
Michael Earp
Professional Indemnity
+44 (0)207 086 4414
michael.earp@aon.co.uk
Key Contacts
“With balance sheet
management, working
capital and cash
being key business
considerations in the
current economic climate,
we anticipate off-balance
sheet surety bonds being
widely used for pension
deficit planning.”