Geopolitical Risks Assess the Ever-Changing Challenges Handouts/RIMS 16/EMR010/EMR010... ·...
Transcript of Geopolitical Risks Assess the Ever-Changing Challenges Handouts/RIMS 16/EMR010/EMR010... ·...
Geopolitical RisksAssess the Ever-Changing Challenges
(SESSION CODE EMR010)
Speakers:
• Eliane Rodrigues Abrantes, Global Risk Manager, Magnesita Refratários S.A.
• Paul Bassett, Managing Director Crisis Management, Arthur J. Gallagher Specialty
• Christof Bentele, Head of Global Crisis Management, Allianz Global Corporate & Specialty
Learning Objectives
At the end of this session, you will:
• Rate the top geopolitical risks that affect your organization’s operations
• Anticipate developments in geopolitical unrest
• Identify insurance industry solutions that help manage geopolitical risks
Europe
• The migrant crisis and terrorism threat present a compounded dilemma for the EU, as both topics are seen to feed into each other.
• The primary concern is that increased migration elevates the terrorism risk as militants are crossing into Europe with legitimate asylum seekers.
• As the 28 member states continue to debate ways in which to address the crisis, at ground level, nationalistic sentiment has reignited latent extremism in individual states, as evidenced by the growing and intensifying anti-immigrant sentiment within some EU states.
• Attacks in Paris and Brussels clearly show the growing terrorist threat in Europe
• There is a risk of disruption in states with pending EU membership. Russia has already done so in Ukraine and may increase agitation in Moldova and Georgia
• Concern about Russian military involvement on the side of Al-Assad
Europe
• Countries across the region have experienced large-scale and sustained periods of civil unrest in 2015. In addition to disruptive and violent protests linked directly to the economy, long-standing grievances such as corruption, state mismanagement, environmental concerns, political reform and indigenous rights have surfaced in numerous areas.
• In 2016, protest action is likely to continue in Brazil, Peru, Ecuador, Nicaragua, Mexico, Guatemala, Bolivia, Chile and Honduras
The Americas
• In Ecuador and Bolivia, attempts by the current regimes to extend the term limits of incumbent presidents will likely pass and could serve as the basis for greater political challenges from respective opposition groupings in 2016.
• The impact of these challenges is likely to accelerate should the economic downturn continue.
The Americas
• Number of traditional kidnapping cases is dropping
• Short-term express kidnappings to evolve into a longer-term kidnap for ransom incidents
• Mexico and Venezuela still hotspots in 2016, but Colombia and Brazil catching up due to economic downturn and political instability
The Americas
• Syrian conflict remains the key proxy battleground between Saudi Arabia and Iran, each side seeking to undermine each other
• Sectarian violence increasing and spreading
• Islamic State and the emergence of various IS affiliates or provinces across the region and the globe
MENA
Africa
• Constitutional amendments leading to civil unrest
• Fuelling political instability
• Leading to fertile ‘hunting ground’ for extremist or terrorist groups to recruit followers
Asia
• Islamic State contagion in Afghanistan and spill over to neighbouring states
• IS-linked groupings in South and South-East Asia
• Accelerated counter terrorism programmes and operations throughout region
• Non-traditional kidnappings on the rise in India, the Philippines, Thailand and Malaysia
More than 100 years of experience in refractory solutions and industrials minerals
Founded after the discovery
of a large magnesite reserve in Brumado
(Bahia state)
1939
FAMILY-RUN COMPANY PROFESSIONAL MANAGEMENT
REGIONAL COMPANIES REGIONAL COMPANIES GLOBAL COMPANY
Brumado and Contagem
beginoperations
1940’
Begins to export goods
1960’
First R&D center
Begins to provide Services
IPO at Bovespa
1970’
Introduces isostatics products
Introduction of
Electrofused based
products
1980’
Pioneered a Cost per
Performance Sales Model
(CPP)
Begins to produce
refractories for the cement industry
1990’ 2007
acquires the control
of Magnesita
2008
Acquisition
Magnesita becomes the
3rd largest refractory
player in the world
Listing
2012
Brumado expansion
Magnesita becomes
100% self-sufficient in high-grade magnesia
2013
Newstrategic
plan
Dalian plant (China)
acquisition
Reframec (Brazil)
acquisition
2014
Company moves towards a singleglobal
operation
GlobalRisk
Managementis
implemented
2015
Global SAP
Integration
2016
CorporateReorganization
Listing
History
Sales Offices and Sales Representative
Production Units
Mines
Headquarters
Sinterco Dolomite JV (BEL)
Talc Mine (Brumado - BRA)
Magnesite Mine(Brumado – BRA)
Contagem Production Unit (BRA)
York Production Unit (USA)
Hagen-Halden, Oberhausen and Kruft Production Units (DEU)
Dalian Production Unit (CHN)
San NicolásProduction Unit
Valenciennes and Flaumont Production
Units (FRA)
Taiwan JV Production Unit (CHN)
3rd largest refractory producer and the most vertically integrated player in the world
#1 in South America (with 65% market share in steel; 60% in cement)
#1 in dolomite products in North America and Western Europe
Revenues of US$ 1.1 billion in Set/15 LTM¹, with sales to more than 1,000 clients in ~100 countries
Largest and lowest-cost magnesite mine in the world, outside China, with the highest quality magnesite
Global player with 27 facilities in 8 countries representing an annual production capacity of 1.3 million tons
Magnesita at a Glance
19
Global player with a unique footprintLTM=Last Twelve Months
Refractory Industry Overview
Refractories are materials resistant to high
temperatures, consumed in industrial processes
Custom-made products developed according to client
specification (>10,000 SKU’s)
Crucial, but represents only ~3% of COGS in steel
manufacturing and less than 1% in cement
Refractories are consumables: ~10-15Kg per ton of
steel; ~0.6Kg per ton of cement
Raw material are minerals with high melting points.
The main are: magnesite, dolomite and alumina.
Refractories are crucial consumables for high temperatures manufacturing processes
20
Source: The Freedonia Group estimates 2013
~15%Non-ferrous (aluminum,
copper, nickel, silver, zinc)
~10%Other (pulp & paper,
petrochemical, ceramic, other)
Industry overview Main end Markets
~60%Steel
~15%Nonmetallic
(cement, glass, lime)
Types of Refractories
BricksMonolithic
Lin
ing
Ladle bottom
Pre
-cas
tab
le
Flo
w
con
tro
l Valves, slide gates
MiningRefractory
manufacturing
Unique Business Model
21
Cost advantage through vertical integration
Magnesite mine – Brumado, Brazil
Best magnesite mine in the world
One of the largest mines in the world
Dolomite mine – York, USA
Only refractory grade dolomite mine in
N.America
+45 years of reserves
80% vertical integration - highest in the industry
Magnesita is 100% self-sufficient in magnesite and dolomite
Other relevant mines
Dolomite – Belgium (JV);
Dolomite – China
Chromite, clays, pyrophyllite, kyanite – Brazil
Magnesita leverages its competitive advantages throughout the whole value chain
Services Full performance based solution
MiningRefractory
manufacturing
22
Competitive advantage through a distinctive service offering with focus on client performance
Magnesita leverages its competitive advantages throughout the whole value chain
Services Full performance based solution
Cost per performance “CPP”: A win-win model3 levels of service
Clients
Reduced downtime
Lower refractory
consumption
Lower energy and other
raw materials consumption
Higher productivity
Magnesita
Higher market share
Higher client loyalty
Lower competition
Longer contracts
Tech. Assistance
- High level technical training team
- Development of high performance products
- Tailor-made performance-based applied R&D
Other Services
- Installation
- Maintenance
- Recycling
- Engineering
CPP
- On-site technical support- Customized solutions- Enhancement of clients’ productivity
Focus on client performance
Unique Business Model
Vertically integrated low-cost producer
Continuous investments in R&D and technology
Specialized technical assistance
Logistic advantages derived from strategic locations
Captive CPP contracts with long-term alignment of
interests
Brand recognition and historical leadership
Long standing relationship with blue-chip customers
Sustained Leadership in Established Markets
South America
Dolomite products in
North America
Dolomite products in Western Europe
Magnesita’s Top blue-chip customers
~50% in stainless steel~25% in mini-mills
~25% in cement
Market share in established markets¹
~60% in stainless steel~15% in mini-mills
~65% in steel~60% in cement
¹Company estimates
23
Competitive advantages
Magnesita’s unmatched competitive advantages ensure its leadership in established markets
Attractive Opportunity in Selected Growth Markets
Pursue long term growth opportunities in select markets where we can deliver superior value
24
Estimated refractory market size¹ (in USD)
Integrated steel
mills:~USD700 mln
USASteel:~USD 430 mln
Eastern Europe + CIS (ex-Russia)
Addressable markets are ~4x to 5x larger than Magnesita’s established markets
Steel:~USD270
mln
Cement:~USD40
mln
Mexico
Steel:~USD130mlnCement:~USD80 mln
LatAm ex-Brazil
Steel:~USD 2.2 bln
Cement: ~USD280 mln
Asia + Oceania (ex-China & Japan)
Steel: ~USD 800 mln
Cement: USD80 mln
Middle East & Africa
~USD 200 mln
Global non-ferrousmarket
Government
Interference
Political Risk & PRI
Captives
[may include:
Expropriation
Political Violence
Currency Inconvertibility
Sovereign Default
& other specific perils]
Contract Frustration (for trade transactions)
Confiscation Insurance (mobile assets)
Investment Risk Insurance (fixed assets/ equity
interest & Lenders’ Form)
Security Risks
Political Violence (inc. Terrorism, War/Civil War, Riots,
Property Damage and Business Interruption)
Kidnap & Ransom
The insurance market can help investors, traders and financiers with bespoke insurance
solutions which support international trade and investment
Off-the-shelf and Bespoke Insurance Solutions
Off the Shelf Bespoke - Trends
Government Action/Inaction PRI products : may include:
Expropriation
Political Violence
Currency Inconvertibility
Sovereign Default
Arbitration Award Default
& other specific perils
Variations of Off the Shelf
Specific to sector
Specific to Stakeholders’ concerns
Specific to host country Systemic risks
Captives
Security Risk Kidnap & Ransom Terrorism & Political
Violence (war, civil war, insurrection riots,
strikes, civil commotion, terrorism, sabotage,
vandalism etc.)
Variations of Off the Shelf
Family Extensions
Key Man
Contagion Risk
Supply Chain Risks
Urban Violence
Balance Sheet Protection
P & L protection
BI & Contingent BI protection
Large Self Insured Retentions
Captives
Contract Risk Credit Insurance, Contract Frustration, Non-
Honoring Arbitration Award
Variations of Off the Shelf
Large Self Insured Retentions
Specific to Arbitration Laws & Venue
Home court advantage? Not always.
Off-the-shelf and Bespoke Insurance Solutions
We may be operating in one of the most volatile global risk environments seen in decades, but the Credit & Political Risk insurance market is expanding…
• Active public sector coupled with a growing commercial global market for class especially in Lloyd’s.
• The market is maturing post-financial crisis and new participants joined in 2014; increasing to over 50 specialist (re)insurers.
• The market’s reliability was robustly proven during the financial crisis.
• Soft market conditions set to continue as more capital enters the market.
• The number of enquiries from established users and new buyers increases as Political Risk Insurance (PRI) risks hit the headlines.
The CPS Market
• Approximately 50 private insurers in the market, largely London based, to write Political and Structured Credit Risk, able to accept risk on a stand-alone or subscription / syndicated basis.
• The market is now bigger than at any time before - theoretical capacity now in excess of USD 2bn for some risks.
Tenor
Potential Private Market Capacity
Contract Frustration (USDm)Comprehensive Credit
(USDm)Political Risks (USDm)
Up to 1 year approx. 2,239 approx. 1,877 approx. 2,370
1 to 3 years approx. 2,289 approx. 1,824 approx. 2,370
3 to 5 years approx. 2,263 approx. 1,470 approx. 2,350
5 to 7 years approx. 1,948 approx. 1,163 approx. 2,040
7 to 10 years approx. 1,462 approx. 502 approx. 1,625
10 to 15 years approx. 750 approx. 50 approx. 800
Growth of Market; Capacity
• Obtain consulting services that utilize their own analysis and robust technology.
• Focus on understanding risk. Obtain expertise in quantifying and qualifying political risk, political violence, cyber risk, kidnap and travel safety.
• Look for ground-breaking modelling and rating tools, consultants should help clients anticipate, prevent, respond and where necessary recover from a crisis.
Quantifying and Qualifying Risk
• Clients should use a system to alert employees both up and down communication cascades from C-Suite to local teams, or vice versa.
• Clients can also use a system’s communications logging tool to keep all relevant decision-makers informed and restrict access where appropriate. User groups can be set up in advance to restrict access where appropriate. Where applicable, employees should receive the system’s email and SMS alerts, or be able to ‘reply’ back to the system.
* Consultant should help migrate your existing Crisis Management plans onto technology, to create clear crisis workflows before an incident occurs.
Incident and Crisis Management
The role of the broker is not to sell insurance, but to add value to clients’ operations through our knowledge, in maximising efficiency and continually evolving new and innovative solutions to manage and distribute risk.
1. Analysis: standalone Analytics & Consultancy team can deliver on-demand support and solutions to help identify, understand and mitigate risks to contracts, assets and personnel.
2. Broking: transactional analysis and management of individual contracts or project requirements for credit and political risk insurance.
3. Claims and Recoveries: ensuring timely payment by insurers and that our clients’ commercial interests are best addressed in any recovery action.
Objective is to become a long-term, strategic partner; to understand, structure and distribute clients’ risks into the insurance market and to build client ‘brands’ in the market over time.
A Broker and Consultant’s Job
• To protect balance sheets when trading in high risk / high reward territories.
• To allow expansion of business into a spread of new emerging markets while offsetting the higher country risk with first class insurers.
• To obtain finance from banks, allowing the banks to leverage their participation on the back of Basel II/III compliant insurance covering political risk and non payment/default by the obligor.
• Allows Export Credit Agencies to continue to write large and complex risks.
• To reduce the overall cost of finance / funds using the insurance as security.
• Removal of entry barriers.
• Increase of confidence.
Why use Credit and Political Risks Insurance
• Protection of physical assets due to deteriorating security environment and political acts.
• Comprehensive, non-cancellable coverage as opposed to ‘add on’ within all risks policy.
• To meet lender requirements and secure financial backing for a project.
• Should a claim occur, a comprehensive PV program will cause less opportunity for underwriters to query a loss on account of definitions.
• We can arrange custom built Delay in Start-Up (DSU) / BI coverage for principals and banks for Construction projects.
Why use Political Violence Insurance
• Applicable to:• Any business with employees who travel internationally
• Tailored policy wording• Policies can be tailored to meet the needs of businesses or
individuals / families
• Named perils include• Kidnap (incl. Express Kidnap)
• Unlimited coverage for dedicated response consultants
• Extortion (incl. Product Extortion)
• Illegal detention
• Hijack
• Disappearance
• Hostage crisis
• Optional extensions include: emergency political repatriation, express threat, loss of earnings
• Tenor can be up to 5 years• Cover can also be trip or project specific
Kidnap & Ransom (K&R) Insurance
• Duty of Care / Corporate Governance- There is an increased obligation now for companies to address this issue.
• Protection against corporate reputational damage
• Risks in any country can change overnight and therefore a company has to be well equipped to respond to unforeseen security incidents. Pre-incident planning, country risk & resilience reviews as well as employee/ expat travel tracker can mitigate the impact of such risks.
• Increased criminal and ideological threat around the world- any representative of a company, be it director or employee, can become a target.
• Increased complexity of incidents around the world e.g. sanctions. We are equipped to deal with such complexities and have experience in handling sensitive issues such as these.
• Access to experienced response consultants paid for by Insurers who can assist and advise the company and victim’s family. The response team will remain on the case until they secure the safe and timely release of the victim.
• Between 10-20% of the annual premium can be contributed towards the services of the consultants or information services to assist in risk mitigation.
37
Why use K&R Insurance