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Interview

with Miguel Angel Camacho, Camacho y Asociados

01.09.2011 / Energyboardroom

Camacho & Asociados was founded over 20 years ago. How is the company positioned today and what services do you offer to the Mexican market?

We are experts in risk management for the offshore oil and gas industry and have been in this business for 22 years. When we first started, the offshore industry was very young with only a focus on government companies. At that time, PEMEX had pricing contracts which suddenly changed to turnkey contracts. Hence with this new type of contracts they asked their contractors to provide not only construction but also financial elements of the contract and PEMEX went from providing insurance for all types of its contracts to shifting responsibilities to the contractors. That way we had to look to the private sector to provide construction or builder risk insurance on pipeline and drilling projects for oil field development. The Cantarell field was still very young when this was going on and it was a huge opportunity for us so we became one of the first service companies providing this type of insurance. We were lucky because we made a lot of strategic connections with international brokerage firms, we grew and now we have several Tier One PEMEX contractors as part of our client base.

The Mexican oil and gas is clearly dominated by PEMEX. How does this influence your activities and strategies?

We have a close relationship with the people at PEMEX. They design contracts which sometimes do not fit with the reality of construction, in which case we have to provide strategic advice so that they can provide the right insurance program for each contract. We also work to make the contractors’ life easier by ensuring compliance with PEMEX requirements. We provide performance bonds, quality bonds, construction insurance, and other types of risk insurance that contractors need to work on-site.However, our primary focus is on risk management for offshore oil and gas. A small part of our portfolio is comprised of insurance for onshore LNG and LPG developments in northern Mexico.

What do you classify as the main hazards associated with risk management and insurance brokerage in the Mexican oil and gas sector?
Risk management is a key component for each contract. When there is a contract to sign, insurance brokers and us take part in the negotiation to suggest the type of coverage that should be included in contractors’ tenders. Insurance has become more expensive over the past 2-3 years and it now a key factor which draws more attention from companies.On the other hand, the design of the insurance program is very important which the risk management units at PEMEX and the National Commission on Hydrocarbons pay very close attention to. After the BP incident the commission ordered the delay of some deepwater projects. The impact was that insurance underwriters had to take a closer look at every detail of the structure of their programs. The Deepwater Horizon incident however, did not strongly hit the international insurance market because BP had a sound self-retention program for about $20 billion. The main issues that they encountered were with regards to leakage and pollution. The legal ramifications for pollution in Texas, Louisiana, and Mississippi were extremely high, amounting to nearly $7 billion in lawsuits. BP also suffered what we in industry refer to as a “systemic loss” because the fallout effects – depressed stock value, environmental degradation, 20,000 jobs lost because of a drilling moratorium, and $40 billion of lost revenues in the fishing and petrochemical industries – amounted to more than the infrastructure damage itself.

A $5 billion fund was recently announced for the victims of the Deepwater Horizon catastrophe. This only goes to show how important environmental hazards have become for the industry. How is this reflected in your service offerings?The recent fund applies to just US corporations. The original fund was created in May 2010 and amounted to $1 billion before increasing to $5 billion. The incident however has brought forward new research methods in oil containment to prevent these types of losses. PEMEX is trying to gather a similar fund and acquire all the know-how that follows the research. Supermajor companies such as ExxonMobil, BP, and Shell are also involved with their scientists and are looking for new ways for oil spill containment.

Meteorological predictions estimated that 2011 would be a busy year for the insurance industry because of hurricanes and rough weather patterns. How has the year been compared to original projections and what is the continued outlook?

In 2008 Hurricane Ike caused $4 billion in losses and damaged 92 platforms. To give a comparison, from 2004-2008 hurricanes damaged 176 platforms causing $12 billion in losses. 2009 through 2011 were nautical years in which the Gulf of Mexico was not badly hit. August of this year has been rather tame but we can expect September and early October to be a little harsher. Wind storm exposure is the type of coverage for hurricanes and there is a separate item for Gulf of Mexico wind storms which are typically higher than the rest of the world. Wind storms run the pattern from southern Africa to the Atlantic, through the Caribbean, and into the Gulf of Mexico. The bay of Campeche, where the Cantarell field is located, is in the southern part of the country. Mexico will commence deepwater drilling over the next several years. We will provide restrictions on wind storm coverage consisting of higher deductibles, higher premiums, and lower limits.Many natural disasters in 2011 have been insured by the international market. Earlier this year we saw flooding in Australia, an earthquake in New Zealand, and of course the tsunami and earthquake in Japan. We reviewed our claims forecast and noticed substantial catastrophic losses only three months into the year. Thankfully, however, it has not been too bad since March. But we are again facing the hurricane season and the focus is on at least one or two big events. La Niña and El Niño phenomena are a big part of hurricane exposure.

What fundamental changes has Camacho & Asociados gone through in response to magnified meteorological conditions since the company’s founding?

We have increased our know-how in new coverage areas. Whereas previously we did not pay too much attention to pollution, it is now one of our big focus areas. Worker compensation and general liability are also big and growing issues for us because of how carefully Mexican authorities review them. Many government entities get involved in a claim, such as the environment secretariat and the general justice when injuries occur. With this in mind contractors change their way of thinking. Ten or 15 years ago it was difficult for a Mexican contractor to buy insurance. But the ease in which an accident can occur such an oil rig explosion or a tugboat colliding into a platform have increasingly convinced contractors of the merits of mitigating accidents through insurance. Today the Mexican oil industry is one of the most educated in the world about insuring against risk.

Do you find that large established companies such as AXA and GNP are looking for a piece of this market but do not yet have an oil and gas or energy specialty?

That is not exactly true. Some companies do not have the business appetite of writing this type of insurance. They instead provide insurance for some other government exposure. Many companies do not write wind storm insurance or insure beach front hotels because of such direct exposure. Similarly, the oil industry is not one of their core business areas. GNP is moving out of this type of insurance. They used to write PEMEX’s insurance program five years ago but have since changed their business appetite towards private lines, life insurance, and major medical insurance programs which generate more profits. To write energy programs insurance companies need a strong reinsurance support. In order to place this type of Risks, we approach various underwriters from London and other companies whose main focus is placing energy insurance and who are confident in writing Mexican insurance including wind storms. We also approach some Mexican carriers who are interested in getting involved in energy risks and have the support of the international reinsurance market. The Lloyd’s market is our main provider of coverage for these types of risks. This is one of our many alliances with international brokers.

You founded this company and positioned it to where it currently stands today. What are your ambitions and where will we see Camacho & Asociados in five years?

We have grown significantly and our expertise has allowed us to be in a much better position than when we first started off. Today we provide coverage for a lot of contractors and there are not too many specialists like us in the market. The big insurance brokers and few local brokers like us understand the oil industry very well, are flexible on procedures, and have quick response times. Because we are not a huge corporation we do not have to go through lengthy internal procedures for approval. Many international brokers look for the local expertise of companies that have worked in Mexico for a long time. This business is about trust which we have more than 20 years experience in. We have a good image in the London market having worked with McDermott, Trico Marine, Diamond Offshore, and Global Industries. When a contract provides a program written by Camacho & Asociados, international players understand that it is the right coverage. We are continuously growing our infrastructure with more skilled people in energy and marine insurance.

On a personal note, what is the most rewarding part of working in an industry such as risk management?
Lately we have had issues with a client which necessitated rounds of meeting or else risk losing the account. One time when explaining the process to rectify the issue, the client cut me off and assured me that there is no need to explain because they knew our name and reputation. The client previously worked for TransOcean and knew us to be a trustworthy and professional company. Knowing our company credentials instilled confidence to continue working with us. We feel proud keeping a low profile and earning trust through good work. That is the most rewarding element of our job.

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