Sydney Opera House is a famous landmark. Its construction was started in 1958 and scheduled to be completed in 1963. It was finally completed in 1973.

Time overrun: 200%.

Original Estimate of the cost was Australian Dollar 7 million. Actual cost when finally constructed : Australian Dollar 102 million.

Cost Overrun: 1400%.

Time overruns and cost overruns are normal in projects-especially in the developing world.

Engineering treaties usually have a 7-year limitation -Project period plus maintenance period put together.

If a project, initially with project period of 4 years plus 2 years maintenance is ceded to treaty and more than one year extension is required. then, it might turn a nightmare for the cedant. Cannot cede to treaty and very difficult to get facultative support at that stage.

Hence, planning for possible time overruns and cost overruns has to be part of any decision to cede to a treaty.

Finally, one question: Should a treaty for project insurance be:

a) Risk Attaching basis with cleancut
b) Risk Attaching basis on runoff
c) Loss Occurring basis.

Blog by Atmaram Cheruvu