Willis Places Innovative Australian Weather Transaction

Willis Group Holdings, a global risk adviser, insurance and reinsurance broker, has designed and placed an innovative derivative-based risk transfer solution to protect Roy Hill Holdings Pty Ltd, an emerging global mining, rail and port venture, against the threat of cyclones and heavy rainfall delaying the construction of what will be the largest single-site iron ore mining operation in Australia.

The transaction, which was completed ahead of the 2013 cyclone season, is backed by Endurance Global Weather, a leading global provider of weather risk management solutions and a subsidiary of Endurance Specialty Holdings Limited.

Under the coverage, Roy Hill is protected from the financial impact of a named cyclone passing through a specified geographic area which encompasses the company’s 55 million tonne per annum mining, rail and port project currently under construction in the Pilbara region of Western Australia. The unique “cat-in-a-circle” solution, structured and executed by Willis’s Global Weather Risk Practice, provides Roy Hill with event coverage based on the duration that a cyclone spends in the indemnification zone and the amount of cyclone-related rainfall across three Australian Bureau of Meteorology weather stations.

The transaction, which has a total limit of AUD56million, spans two cyclone seasons and responds to these objectively defined cyclone and rainfall events occurring during the period of construction leading up to the mine becoming operational in 2015. The index-based cover differs from regular indemnity cover in that there is no requirement for the insured to prove any loss or damage to assets from the cyclone.

The indemnity is based purely upon the performance of the pre-agreed cyclone and rainfall indices.

Commenting on the solution, Barry Fitzgerald, chief executive officer of Roy Hill, said: “We are pleased that our insurance partners have been able to develop such a highly-tailored product to provide prudent risk management outcomes for the critical development phase of our project.”

Steve Hearn, deputy chief executive officer of Willis Group, said: “Traditional construction and property policies will cover the damage caused by a cyclone, but not the financial impact of project delays and additional wages where there is no damage to the insured assets. This bespoke solution was designed to cover this traditionally uninsurable risk, which Roy Hill identified as a particular concern.

“Willis leveraged its sophisticated analytical capability to model the probability and impact of cyclones and heavy rainfall in this region of Australia, enabling Willis to structure and execute a solution led by Endurance which responds to Roy Hill’s highly specific requirements.”

John Charman, chairman and chief executive officer of Endurance Specialty Holdings Ltd, commented: “This transformational risk solution is representative of our strong relationship with Willis globally as well as Endurance’s commitment to creating strategic partnerships in the emerging Asia Pacific region. Working closely with Willis, we were able to combine our Global Weather team’s analytic expertise with our long-term capacity and strong balance sheet to execute an innovative structure specific to Roy Hill’s complex and unique risk exposures.”

Source: Willis Group Holdings