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Exhibit 1 - Agenda Information SheetCity of Denton _____________________________________________________________________________________ AGENDA INFORMATION SHEET DEPARTMENT: Procurement & Compliance ACM: David Gaines DATE: May 18, 2021 SUBJECT Consider adoption of an ordinance of the City of Denton, a Texas home-rule municipal corporation, providing for, authorizing, and approving the purchase of property, boiler, machinery, and business interruption insurance coverage for the Denton Energy Center (DEC), through the City’s broker of record, Lockton Companies, LLC; and providing an effective date (File 7659 – awarded to Associated Electric & Gas Insurance Services Limited (AEGIS), for a three (3) year not-to-exceed amount of $1,811,000.00). INFORMATION/BACKGROUND The City of Denton purchases property, boiler, and machinery insurance coverage to protect assets totaling approximately $480,000,000 in buildings, machinery, contents, and equipment. This insurance policy covers the Denton Energy Center (DEC) buildings and facilities from the standard exposures such as fire, windstorm, hail, tornado, etc. In addition, the policy provides insurance coverage for loss due to mechanical or electric breakdown of covered equipment (boiler & machinery coverage), and coverage for loss of income suffered as a result of not being able to use the property due to a covered cause of loss (business interruption). Power generation risks are seeing hard market conditions across the board as capital continues to leave the segment due to poor loss experience. Insurer submission flow is at an all-time high due to changes in market conditions. Differing terms and pricing across the program by each market is common and lender compliance requirements remain challenging. Many generating assets funded with tax equity or debt with onerous insurance requirements may now require waivers. The renewable energy market is experiencing increased volatility after years of profitability issues for the carriers who dominate this space. Many have elected to cease writing property insurance for this sector entirely. Renewable energy owners have seen rate increases ranging 20% or higher depending on exposure, loss history, and engineering quality of the risk. There is also pressure to increase deductibles and restrict coverage, especially around natural catastrophe exposures like Winter Storm Uri in February 2021. Due to Winter Storm Uri, the markets have been yielding an average increase of 17.5% for renewals on accounts that did not have claims due to the Winter storm and considerably higher increases for those accounts like the City of Denton that submitted claims due to storm damage. Given the complexities of this insurance product solicitation as described above, the City utilized the services of our sole broker of record, Lockton Companies, LLC. (Lockton), to assist us in procuring this coverage without going through the Request for Proposal (RFP) process. City Hall 215 E. McKinney Street Denton, Texas www.cityofdenton.com Over the past several months, Lockton has been actively engaged in working with the carriers writing commercial property insurance, boiler, machinery, and business interruption coverage for public entity electric power generation facilities in the Texas market. This has involved ongoing communication between the City, the plant manager at the DEC, and the underwriters at the various insurance companies and an information-gathering meeting with an incumbent carrier (SwissRe). Lockton received one (1) proposal from the incumbent carrier panel and one (1) proposal from a new carrier (AEGIS). Exhibit 1 details the components of the proposals received. The current coverage is shared between a panel of four (4) carriers (Swiss Re, AIG, Starr Tech, and Lloyd’s), where each company shares both the premium and any potential losses based on the percentage of the risk that the respective carrier covers. The current incumbents’ proposal included a blended rate increase of over 27% due to the impacts of Winter Storm Uri on the market and uncertainty regarding a claim against the current policy, despite estimates showing storm damage repairs will likely be under the current deductible. The new carrier, AEGIS, submitted a proposal for 100% coverage on their policy terms, so no other carrier would be needed to share the coverage. The AEGIS quote provides a significant premium savings of more than $100,000 below the proposal submitted by the incumbent panel. AEGIS is a leading mutual insurance company that provides liability and property coverage, as well as related risk management services, to the energy industry. The company’s premium revenues are $1.8 billion, total assets are more than $7.9 billion, and has an A.M. Best rating of A (Excellent) with a stable outlook. It is the opinion of staff and Lockton that the AEGIS proposal represents the best overall value for the City. RECOMMENDATION Award a contract with Lockton Companies, LLC, for the purchase of property, boiler, machinery, and business interruption insurance coverage for the Denton Energy Center (DEC), in the amount of $490,000 for the first year, with a total three (3) year not-to-exceed amount of $1,811,000. PRINCIPAL PLACE OF BUSINESS Lockton Companies, LLC Kansas City, MO ESTIMATED SCHEDULE OF PROJECT This is a three (3) year contract. FISCAL INFORMATION Funding for property insurance for the DEC is available in the Risk Retention Fund. Additional capacity has been built into the not-to-exceed amounts to allow for increases in property values and anticipated premium increases and fees year over year. This amount will be reimbursed to the Risk Retention Fund by Denton Municipal Electric. EXHIBITS Exhibit 1: Agenda Information Sheet Exhibit 2: DEC Property Insurance Proposal - AEGIS Exhibit 3: Property Insurance Comparison Exhibit 4: Broker Recommendation Letter Exhibit 5: LLC Members Exhibit 6: Ordinance Respectfully submitted: Lori Hewell, 940-349-7100 Purchasing Manager For information concerning this acquisition, contact: Deby Skawinski, 940-349-7810. Legal point of contact: Marcella Lunn at 940-349-8333.