GOLD INSURANCE WINNER………Faced with the choice of paying significantly higher post-Katrina property insurance premiums or having its captive insurance company assume a much higher level of risk, Alcoa Inc.'s insurance risk management staff found a better option by looking beyond the usual suspects. The solution came from a class of insurers that weren't even considered for this coverage in the past: a handful of overseas carriers that the company had established relationships with through a series of acquisitions and unique transactions. Not only did these carriers help the $26.2 billion aluminum producer avoid spending $1.5 million in higher-than-expected premiums this year, but Alcoa expects to save more in years ahead by continuing to use these new partners for future insurance needs.

Alcoa has manufacturing operations in 43 countries and with more than $60 billion in insurable values at risk, the company requires a large amount of commercial property insurance capacity. Its difficulties began to mount last November, when the insurance risk management department struggled to complete its property insurance renewal process at the price targets set months earlier. What lay in between were the massive hurricane-related losses along the Gulf Coast in August and September that drove industry prices higher and limited coverage options. Although Alcoa had not experienced any large losses from the storms, property insurance prices had climbed so high that it was estimated the company would have to pay $1.5 million over its earlier estimates. Among the concerns was that if Alcoa accepted the higher premiums, it would set a costly precedent that would carry on for years to come. Worse yet, Alcoa's insurance broker informed the company that even at the new higher prices, the company's usual insurance companies were seeking to limit coverage for certain layers of the insurance program. Should the company's captive insurance company need to close the coverage gaps, it would expose Alcoa to far more risk than it was willing to assume.

Such a no-win situation drove the insurance team to pursue a non-traditional course. They decided to look beyond the normal insurance and reinsurance providers that had handled the bulk of its property coverage to a set of overseas companies that Alcoa had developed relationships with over the years, mainly for local market coverage. Although none of the four–Mapfre of Spain, Ingosstrakh of Russia, IRB Brazil Re and United Insurance Co. of the Cayman Islands–had the market presence of the largest global companies, Alcoa's insurance group determined they had the capital resources needed and that they met its financial security guidelines. In each case, providing global insurance for a U.S. company was considered unusual, and without their historical relationships with Alcoa, it would have been difficult to convince these companies to provide coverage. It was determined that each of the four was able to fill in the necessary gaps in Alcoa's property insurance renewal at the target price with no significant restrictions in coverage. "What this did for us is to open up our thinking to non-traditional options, things that may have made sense in the past, but where it wasn't clear the carriers were prepared to enter the global insurance market with us," says Brian Woodward, director of Alcoa's insurance risk management department. "There were a lot of new understandings, process, paperwork and logistics required of every carrier, and to the credit of every one of them, they did it."