Reinsuring nuclear risk

Earlier this week, the UK became the first in Europe to invest in the next generation of nuclear fuel, with the government awarding £196 million to Urenco to build a uranium enrichment facility.

With the spotlight firmly on nuclear power, Re-Insurance Business spoke with Tomasz Libront (pictured), CEO of the Polish reinsurance broker Smartt Re which specialises in covering difficult-to-insure risks in key sectors including nuclear, conventional and renewable energy. Offering an overview of the Polish insurance market today, he noted that it has the capacity to insure the risk of nuclear power plants under construction up to a maximum of €700 million gross.

“It is still difficult to determine the needs of the domestic nuclear sector, but with the scale of planned investments, the Polish market will need much more capacity,” he said. “How much? It all depends on the insurance strategy adopted and agreements with foreign reinsurers.

“It can be assumed that the insurance capacity needed will be determined by the value of the probable maximum loss (PML) – which is difficult to estimate accurately at such an early stage of investment, but certainly exceeds the current capacity of the Polish insurance market by several times.”

Examining what can be done to encourage greater investment and capacity into the sector, Libront emphasised the importance of having a comprehensive, long-term strategy in place. With that in mind, he said, he believes that the role of reinsurance and insurance players in the Polish market is not only to provide insurance and reinsurance capacity but also to work together to ensure that they play an important role in the current energy transition.

“Our motto at Smartt Re is to be like a compass in the difficult world of reinsurance,” he said. “So, we enable the collaboration and integrate all the stakeholders. For example, our April’s Nuclear Insurance Day conference brought together the perspectives and experiences of the worlds of reinsurance, insurance, nuclear industry, and public administration from Poland and abroad in the search for sources of resilience and financial security for the Polish nuclear power sector.”

Preparing the market to play a critical role in reinsuring nuclear risk

Smartt Re’s path to nuclear power has taken it through the world of conventional power, he said, through coal and gas, through renewable power – solar and wind – to non-carbon nuclear. He noted that it has not been an easy journey and there have been many difficulties with conventional energy insurance and reinsurance since the Paris Agreement was signed in 2015.

With a better understanding of where the Polish economy is going in terms of the energy transition, he said, he was sure it would be easier to get the right coverage. However, now the capacity is limited and where there is the appetite for such risk, the prices are skyrocketing.

“Obviously, we are aware of the importance of ESG policies in our lives, the need to gradually move away from fossil fuels, the need to diversify energy sources and to take advantage of the opportunity of nuclear power,” he said. “Building an insurance strategy is important so that the Polish market becomes a strong partner for foreign insurers and reinsurers whose insurance capacity it will use.

“For our partners, the strategy means a good understanding of Poland’s energy transition path and the development of Poland’s nuclear power industry, the conditions, risks, and opportunities. Finally, the insurance strategy guarantees the nuclear industry optimal protection and good conditions for cooperation with the insurance market.”

Supporting the evolution of a national nuclear pool

Having the right strategy in place is also about starting to work on the shape and organisation of a national nuclear pool or other national association of insurers, he said, which will take over the management of insurance risks once the plants are up and running and nuclear fuel is in the reactors. Smartt Re has thrown its weight behind the support of the development of just such a national nuclear pool.

Exploring what shape such an organisation might take, he revealed that this depends on the decisions of the insurance market itself and that various solutions are already in place worldwide. Smartt Re is supporting a scenario where there is one nuclear pool operating in Poland, he said, especially considering that discussions on this have already started.

Libront highlighted that TUW PZUW, the mutual arm of PZU the biggest insurer in Poland, has signed an agreement of cooperation with the British Nuclear Risk Insurers. But since around the world, such associations of insurers and reinsurers work together to be solidarily responsible for insured risks, he said, Smartt Re’s role as a specialised reinsurance broker is to leverage its international reach and relation to facilitate networking, know-how adoption and knowledge exchange.

This is especially relevant given that other nuclear pools want to also be involved already at the planning stage of the construction of a nuclear power plant in Poland, with a so-called “watching line”. He explained that this is a small share that allows them to observe from the front row the progress of the construction of the nuclear power plant, in the insurance of which they will have a decisive share once it is operational.

Tapping the full potential of international collaboration

On the power of international collaboration in supporting the future of nuclear energy, Libront noted that, as the industry develops, not only are the largest government investments to be insured, but also those supported by the private sector, micro-reactors, all companies, subcontractors, services and infrastructure.

“That’s not only construction and erection, but also third-party liability,” he said. “And all these entities will have to deal with the issue of adequate insurance coverage. Intra- and inter-sectoral cooperation, both domestically and in the European arena, is therefore necessary for the financial security of these strategic investments for Poland.

“We can draw on various international experiences and it is good to see that various parties, including the nuclear power industry and the public administration, are already involved in discussions about potential solutions initiated by the insurance industry.”