Post Europe: Nordic construction

With their economies recovering well from recession, Sweden, in particular (4.4%), followed by Finland (2.4%) and Denmark (2%) close behind are showing good signs of economic growth while Norway's economy, although broadly flat since 2007 has demonstrated resilience in never dropping more than -1.5% even at the height of the downturn.

The governments in the Nordic area do not have the large spending deficits to contend with that others in Europe have had to address and the resulting environment is one in which construction is recovering in the housing and commercial real estate markets, stability has returned and vacancy rates are falling, and in transport and infrastructure, energy and utilities markets will remain strong. In addition, the region's well known commitment to green energy is being mirrored in a rising demand for refurbished commercial properties in response to stricter emission requirements.

Market strength
Further evidence of the market's strength has emerged in recent news demonstrating demand for services going forward in 2011. For example, NCC - one of the region's largest construction companies - has posted consistent profits throughout the recession and despite a second consecutive harsh winter, said in a stock market announcement on 13 April its order book is healthy. Similarly, plant contractors and key services such as tower crane hire are viewing opportunities to grow in the region with confidence.

Brokers play an essential role in connecting the demands of all these interested parties throughout the construction process, from concept, through design, financing, building and operation, and it has become clear that Nordic businesses respond well to the type of experience and local knowledge that do not come easily.

"Further evidence of the market's strength has emerged".

Localism
In this region being able to speak the same language as the contractors and the owners from a technical, engineering, financial, risk and legal perspective is absolutely essential and although it is a major commitment, it is beneficial to have a strong local construction expertise in the region, working in collaboration with colleagues in London and other international markets.

There are good relationships between the London insurance market and the Nordic regions, coupled with the fact the cultures gel nicely from a business and social perspective, but it has become evident that the presence of experienced construction practitioners on the ground will differentiate a broker's service offering over competitors.

Strong lenders
Nordic lenders are strong, with non-Nordic capital rarely needed for Nordic projects. This has a significant influence over the documentation that is issued and the contractual characteristics of the industry; Nordic banks and public institutions will very often communicate in local languages and as such it has become a question of understanding and detail.

A further practical example of this is the New Karolinska Solna hospital project; the first public private partnership hospital project in Sweden, with a SEK15bn (£1.5bn) construction value where Jardine Lloyd Thompson was the placing broker. On this complex project requiring coverage for design, finance, build and the provision of facilities management, not only were the parties in need of protection for an extremely complex construction all risks and public liability package, but this had to be placed with the influence of an entirely new structure of financing, which is largely untested in the Nordic region.

"Non-Nordic capital is rarely needed for Nordic projects".

Public private partnerships
Following its success, it is very much the hope of industry practitioners that the Karolinska project will lead to an expansion of PPP but securing appropriate insurances in the absence of any previous loss history data for Nordic PPP works represents a major challenge.

For insurers, the requirement is to acknowledge the needs of an equity provider or a lender as well as a public institution, while appreciating the long-term nature of the risk. Secondly, while underwriters will historically have focused on the construction aspect and been comfortable with it, in a PPP context there can be concessions lasting decades with insurances required for the full length of time that asset is commissioned for.

Leap of faith
Spool back to 1994 when the UK's affair with PPP began and insurers had to take a leap of faith that hospitals, roads and so on would be insurable as an operational asset. The key with Karolinska and its likely successors has been to expatriate and translate this data to the Nordics, and provide the reassurances that both local and international insurers need.
The Nordic region is continually evolving and becoming more sophisticated from a construction and an insurance point of view.

Therefore, the key to working successfully in these countries which were fabled for their competitiveness by the World Economic Forum at Davos, as recently as January this year, is to do so in a collaborative way. Although highly self-sufficient, construction in the Nordics is not about acting alone or insuring projects quickly before making an exit; these are business people seeking long-term partnerships and a commitment to innovate.

Asa Berglund is head of sales Nordic construction and engineering in Jardine Lloyd Thompson Sweden and David Braybrook is head of JLT specialty's European contractors team in London.