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1 Bauer College of Business
Thursday, March 25, 2010 Julie Jackson / Sheila Lum / Laura DeLeon Risk Management & Insurance Targa Resources, Inc.

2 Agenda Introductions / Background Overview of Targa’s Business
Overview of ‘Lloyds of London’ Market Onshore Property Market Offshore Property Market Break Sheila Lum / Laura DeLeon D&O Liability Market Excess Liability Market Questions

3 Overview of Targa’s Business

4 History of Growth Acquired Dynegy Midstream Services ($2,452 MM)
Drop Down of Downstream Assets ($530 MM) Acquired Assets from ConocoPhillips ($247 MM) MLP IPO of North Texas Assets ($956 MM) Formed Targa Resources First Drop Down ($705 MM) Bridgeline Acquired ($100 MM) Sold ($117 MM) April 2003 April 2004 Dec 2004 Aug 2005 Oct 2005 Feb 2007 Oct 2007 Sep 2009 Successfully executing strategy to build a leading midstream energy company

5 Overview of Targa’s Business
Natural Gas Gathering and Processing NGL Logistics and Marketing Targa is a leading provider of midstream natural gas and NGL services in the US

6 Overview of Targa Family Assets
Overall Leading gas gatherer and processor Leading NGL logistics and marketing business Targa Resources, Inc. (TRI) $3.4 billion of assets $4.5 billion of revenue Targa Resources Partners LP (NGLS) $2.2 billion of assets $4.1 billion of revenue Natural Gas Gathering and Processing Division 11,000 miles of natural gas pipelines 800 miles of NGL pipelines Gathering system encompassing 21,900 square miles Own interest in or operate 22 natural gas processing plants Contracts predominantly percent of gas and liquids or percent of liquids NGL Logistics and Marketing Division Gross capacity to fractionate approximately 380 MBbl/d of NGLs through interests in 3 fractionators, with approximately 900 MBbl of above ground storage and 65 MMBbl of below ground storage Approximately 17 operating terminals, 21 pressurized NGL barges, 70 transport tractors, 100 tank trailers and 855 managed railcars Predominantly fee-based business _________________________ Note: All financial data as of December 31, 2009

7 The Downstream Business – Majority Fee-Based
Logistics Assets Fractionation Storage and Terminalling Transportation and Distribution Majority under fee-based arrangements 3 facilities with ~380 MBbl/d maximum gross capacity Long-and short-term storage and terminalling services and throughput capability to affiliates and third party customers for a fee Storage wells with ~65 MMBbl of capacity and 17 terminal facilities; 800 miles of pipeline support fractionation, storage and terminalling Fee-based transportation services to refineries and petrochemical companies throughout the U.S. Approximately 855 railcars leased and managed, 70 owned and leased transport tractors, 100 tank trailers, and 21 pressurized NGL barges Primarily a physical settlement business which earns a margin from purchasing and selling NGL products from producers under contract Also earn margins by purchasing and reselling NGL products in the spot and forward physical markets 2008 sales of 245 MBbl/d Refinery Services Generally retain a portion of the resale price of NGL sales or receive a fixed minimum fee per gallon Earn fees for locating and supplying NGL feedstocks to the refineries based on a percentage of the cost or a minimum fee per gallon Wholesale propane marketing Sell propane on a fixed or posted price at delivery and, in some circumstances, earn a margin on a net-back basis NGL Distribution and Marketing Wholesale Marketing 7

8 Targa Corporate Structure
Warburg Pincus LLC Merrill Lynch Management 6.5% Indirect Ownership Interest * 73.6% Indirect Ownership Interest * 19.9% Indirect Ownership Interest * Targa Resources Investments Inc. 100% Indirect Ownership Targa Resources, Inc. TRI (Only) Natural Gas Gathering and Processing Permian Basin of West Texas Southeast New Mexico and Louisiana Gulf Coast Targa Resources GP LLC 1,387,360 General Partner Units Incentive Distribution Rights 28.91% Limited Partner Interest 20,055,846 Common Units Targa Resources Partners LP (“NGLS” or “Partnership”) Public Unitholders 47,924,750 Common Units 69.09% Limited Partner Interest 2.0% General Partner Interest Natural Gas Gathering and Processing North Texas Louisiana San Angelo, Texas The Downstream Business Logistics Assets NGL Distribution and Marketing Wholesale Marketing * Ownership percentages are presented on a fully-diluted basis 8

9 Targa Resources, Inc. Summary Highlights

10 Overview of Lloyd’s of London

11 History “From its first beginnings in Edward Lloyd’s Coffee House in 1688, Lloyd’s has been a pioneer in insurance. Starting with its roots in marine insurance, Lloyd’s has grown over 300 years to become the world’s leading market for specialist insurance.”

12 A Market of ‘Syndicates’ ….
Owned by its members and unlisted, Lloyd’s is actually a marketplace rather than a company, describing itself as “a society of members which underwrite insurance (each for their own account) as members of syndicates.” Syndicate comes from the French word syndicat which means trade union (syndic meaning administrator), from the Latin word syndicus which in turn comes from the Greek word σύνδικος (syndikos) which means caretaker of an issue, compare to ombudsman or representative. A group of individuals or companies formed to transact some specific business, or to promote a common interest; a self-coordinating group.

13 From Coffee House…to Lloyd’s Present Time
1689 Ships and goods insured by wealthy individuals acting on a personal basis. Lloyd’s Coffee House: First recorded February 1689 s Development of the concept of “Lloyd’s member”: an official title for the business man who participate in practice of selling insurance within the Lloyd’s Market. 1904 – 1960s Introduction of automobile, aircraft, and space equipment liability insurance. 1996 Reconstruction and Renewal – Asbestos and Pollution Claims Corporate members introduced. Equitas reinsures liabilities from 1992 and prior years. 2001 Lloyd’s regulated by the FSA (UK Financial Services Authority ) 2002 - Governance structure amended - Lloyds Franchise Board The Franchise Board sets the franchise strategy, and is responsible for risk management and profitability targets across the market. It lays down guidelines for all syndicates and operates a business planning and monitoring process to safeguard high standards of underwriting and risk management, thereby improving sustainable profitability and enhancing the financial strength of the market. In a bid to ensure that past mistakes are not repeated, Lloyd's decided back in July 2002 to make big changes to the way it was run. The most fundamental change was to start treating Lloyd's like a franchise and syndicates like franchisees. The idea behind this was to formalise the concept of Lloyd's as a brand that could be damaged by bad results. This would give the market greater power to kick out poorly performing syndicates.

14 Interesting Insurance Policies Issued
One of the most famous … the $3.2 million policy for Tina Turner’s Legs… Or how about the legs of David Beckham… …or the voice of Bruce Springsteen!! Just about ANYTHING …. can be insured by the Lloyd’s Market!!

15 Internal View of Current Lloyd’s Building

16 important announcements – one stroke for bad news and two for good.
The Lutine Bell The Lutine Bell, weighing 106 pounds and measuring 18 inches in diameter, is synonymous with the name of Lloyd’s. Traditionally it has been rung to herald important announcements – one stroke for bad news and two for good. The Lutine Bell is currently located in the center of the Market in the Lloyd’s building. Due to a crack that has developed on the main section of the bell, it is now only rung to commemorate large disasters such as the collapse of the Twin Towers and the death of Royal Family Members.

17 Image of the Titanic ‘Slip’

18 Quick Quiz!!! In what year did the Lutine Bell ring once (for bad news) related to the Titanic? (A) 1910 (B) 1911 (C) 1912 (D) 1914

19 A Possible Lloyd’s of New York?
Want to establish International Insurance Exchange modeled on Lloyd’s Initial “Study” phase Attempted ~ 30 years ago Richard Ward, Lloyd’s Chief Executive comments: “It’s a challenging time to be setting up an insurance entity, considering the downward pressure on rates and oversupply in the market, far too early to say if Lloyd’s would participate in the ultimate project, whatever form it might take.” “Lloyd’s is at the center of the insurance market and London is the preeminent city for insurance. There’s no other place like it. The strength of London is the “cluster effect” ,000 people working in insurance around the Lloyd’s building.” “Lloyd’s generated an investment return of £1.8 billion in 2009, but was unlikely to repeat that performance in the current climate. Further, results were bolstered by the release of reserves from prior years, he said, something that cannot be counted on in 2010”. Potential Competition from Wall Street Reported by: David Jolly, New York Times, Thursday, March 25, 2010

20 Overall Market Observations

21 First Decade of New Millennium in Review
2000 Y2K – scare Presidential election decided by “hanging Chads” Non-event for insurance market 2001 - 2002 9/11 Enron melt down IPOD is launched $22.8 billion insurance disaster US Terrorism Coverage becomes a challenge D & O market ‘hardens’ and highlights need for Side “A” Only coverage 2003 Launch of Iraqi War Space Shuttle Columbia tragedy Rates start reducing from 2001 peaks 2004 Hurricane Ivan 12/26 Tsunami strikes Indonesia Super Bowl Wardrobe Malfunction Face Book launched Martha Stewart to prison $8.1 Billion insured loss and underwriters start trying to limit OEE coverage following Named Windstorm Courtesy of R. Blades, John L. Wortham & Son, LLP

22 First Decade of New Millennium in Review
2005 Hurricane Katrina Hurricane Rita London Transit Bombings YouTube launched ! Most expensive Insurance disaster of all time - $45.3 Billion Oil Insurance Limited (OIL) loss exceeds $1 Billion CSL limit for all members for the first time $6.2 Billion insured loss OIL exceeds $1 Billion CSL again 2006 Rates up post-2005 Hurricanes Pluto no longer a planet Twitter launched US Population reaches 300 Million Underwriters earn a record profit of $31.7 Billion. Only 2nd year of underwriting profit since 1978! Courtesy of R. Blades, John L. Wortham & Son, LLP

23 First Decade of New Millennium in Review
2007 Another benign year for CAT losses Baseball Steroids scandal highlighted in Mitchell report Apple Iphone launched Underwriters earned a 19.3 billion profit; however cumulative underwriting deficit from 1975 to 2008 is still $442 Billion 2008 $700 Billion US Government bailout as result of financial crises Hurricane Ike strikes Houston Michael Phelps won 8 Gold Medals Elliot Spitzer resigns as NY governor Largest insurance “Capital event” of last 20 years as surplus was impacted 16.2% at one point $12.5 Billion insured losses 2009 Fewest Atlantic/GOM hurricanes since 1997 Bernard Madoff - $50 billion ponzi scheme Miracle on Hudson - U.S. Air HIN1 - Swine Flu declared a global Pandemic US insurers net income rose to $16.2 billion through 3rd quarter 2009 Lloyds underwriters earn a record profit of $5.81 Billion Courtesy of R. Blades, John L. Wortham & Son, LLP

24 Factors Impacting Insurance Markets – Late 2008
Excluding hurricanes, the average property claim size increased from $6.3 million in 2002 to $22.2 million in 2007. Financial storm caused significant impact on the insurance market due to loss of investment income. Underwriters’ balance sheets have been negatively impacted, causing insurers to reduce available capacity. New capital was not flowing into the market in a similar fashion following other catastrophes and/or hard markets. The full effect of the government’s “bail out” of AIG still being determined as senior AIG underwriters change firms and AIG endeavors to maintain market share on certain lines of coverage – branding change of name to Chartis. Underwriters who relied on investment income to offset underwriting losses strove to achieve a true profit on underwriting.

25 Insurer Solvency Concerns – 2009 a ‘key year’
The decline in the financial markets impacted the country’s insurance underwriters. As some of these insurance companies faced liquidity challenges (or even potential insolvency,) it was imperative that risk managers monitor and evaluate the viability of the carriers that participate in their insurance programs. Financial products – Credit Derivative Swaps / Mortgage Backed Securities Those insurers involved in these ‘products’ got caught up in the downward spiral AIG, Swiss Re, Hartford, XL and others – Largest Insurers AIG deemed ‘Too Big to Fail’ – U.S. Govt ‘Bail Out’ under TARP Targa Insurer minimum A.M. Best Rating: A- VII Monitor insurance programs Long-tail vs. short-tail risk programs D&O Policies Primary coverage vs. high excess coverage What are the alternatives? Cost? Coverage? Have a ‘back-up’ plan

26 Brief Market Observations - 2009
Rates increased for CAT exposures following: Hurricane Ike in 2008 which was 4th largest insurance event in history Economic downturn impacting balance sheets Underwriters were concerned about replenishing capital following CAT loss Underwriters strived to obtain an underwriting profit Named Windstorm capacity severely contracted especially offshore Numerous assureds reduced or eliminated Offshore Named Windstorm limit Underwriters’ profits are up: Benign hurricane season Investment returns improve Courtesy of R. Blades, John L. Wortham & Son, LLP

27 Brief Market Observations - 2010
“Tug of war” over the right rate, retention and Named Windstorm limit will continue! All assureds are looking to reduce premium / cost of risk Underwriters are under pressure from management and reinsurers to “hold the line” or provide only a nominal reduction Assured and brokers are striving for significant rate reduction in order to return to pre-Hurricane IKE rates or better! Will underwriters make Offshore named windstorm coverage more attractive to assureds? What is the most advantageous time to enter the market? Surplus has increased / investments improving New Entrants Courtesy of R. Blades, John L. Wortham & Son, LLP

28 Loss Deterioration Over Time

29 Energy Losses vs. Total Premium Income

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34 Onshore Energy Market

35 Targa Key Gulf Coast Facility Locations
Facilities along coast built in 60’s era – offshore gas production Sustained multiple severe hurricanes since constructed Damage as far back as Camille in ’69 as a Category 5 storm was not as severe as Katrina in ’05 as a Category 3/4 storm

36 Venice Main Office Post-Katrina’s Visit

37 Venice Main Office Post-Katrina’s Visit

38 Today…. All plants along coast damaged by storms now have new Modular buildings Office, MCC, I&E, anything with instrumentation/electrical components Elevated over 17 feet above Mean Sea Level (MSL) at bottom of frame Designed to withstand 150 MPH wind speed 38

39 Some Loss Statistics… Insured Catastrophe (Cat) losses in 2008 exceeded all Cat losses in 2006 and 2007 combined. In the U.S. large claim activity included: Midwest floods - $725MM Wildfires in Southern California - $500MM Various property and business interruption energy, steel and mining occurrences 1,600 tornados (through September, 2008) compared to about 1,000 annually in a normal year Hurricane Ike projected between $13 billion to $21 billion 16 named windstorms occurred in 2008 (4th highest since 1944) making it the 10th year out of the last 14 to have above normal storm activity. 2010 not looking too good 1Q10 insured Cat losses - Haitian & Chilean Earthquakes Already at $7 - $10 billion

40 Example of ‘Subscription’ Market Property Program
A “PATCHWORK QUILT” Onshore Property Program Physical Damage / Business Interruption Excludes Named Windstorm Includes $12.5MM Offshore Contingent B.I. Coverage Various Deductibles, including Wind of 2% with $1MM min. and $10MM max.

41 Pro-Forma View of Renewal Structure
…..EVEN MORE “PATCHWORK” Onshore Property Program Physical Damage / Business Interruption Excludes Named Windstorm May include $10MM Offshore Contingent B.I. Coverage With potentially 25-50% Self-Insured Various Deductibles, including Wind of 2% with $1MM min. and $10MM max. Potentially self-insure $10MM Per Occurrence Retention for Windstorm Potentially Un-aggregated Windstorm (Provides full coverage for Each and Every Storm) Potentially Annual Aggregate Windstorm (Any Loss Erodes Coverage Limit)

42 Targa Onshore Property Program - April 16, 2009-2010
Targa’s 4/09 Renewal Structure – Very Painful!! Targa Onshore Property Program - April 16, $400MM Layer M $300MM xs $100MM London Order 11.5% Layer N $300MM xs $100MM Domestic Order 71% Layer P $200MM xs $200MM Brit/Jubilee Order 7.5% Layer L Swiss Re Order 10% (Including Offshore CBI) Including Windstorm to $100MM Layer O $100MM xs $100MM Glacier Re Order 7.5% $100MM Layer B $50MM xs $50MM MAP Order 7.5% Layer C $50MM xs $50MM AEGIS NJ Order 20% Layer D $50MM xs $50MM Allianz/ AIG/ Validus Order 18.5% Layer H $25MM xs $75MM Argenta/Glacier/AES Order 20% Layer I 100MMM Excluding Named Windstorm (Risk Only) Catlin/Omega Order 12% Layer S $100MM Lexington Bermuda Order 12% Layer J $75MM xs $25MM Barbican Order 5% Windstorm Only Layer W $25MM xs $75MM NWS Only Berkley Order 7% Layer G $25MM xs $50MM Ironshore Order 12.5% Layer Q $25MM xs $50MM AES Order 4.5% (Excl. NWS) Layer R $25MM xs $50MM Jubilee Order 3% Layer T $25MM xs $50MM NWS Only Advent Order 11.5% Layer K $10MM CBI Separate Limit Amlin Order 7.5% Layer A $50MM Ascot et al Order 51%(42% CBI) Layer F (1) $25MM xs $25MM Max Re & Montpelier Order 15% Layer F (2) $25MM xs $25MM NWS Only Catlin/Omega Order 7% Underwriters had the leverage Tail wagging the dog Very Expensive ‘Hanging Chads’ of windstorm coverage on the side $25MM Layer E $25MM (includes CBI for Ironshore) Amlin & Ironshore Order 15% Layer V $12.5MM xs $12.5MM Montpelier Order 5.333% NWS Only Layer U $15MM xs $10MM Chaucer Order 6.667% NWS Only Base Retentions: $1MM PD; except $10MM Named Windstorm & Storm Surge Earthquake 2% $1MM min/ $10MM max – BI 45 days All Losses (60 days for 2nd and Subsequent Storms) Note: AEGIS $50MM xs $50MM requires 60 day waiting period for all Windstorm losses Offshore CBI Sublimit of $10MM – Only 79% complete. Two layers not complete as respects NWS coverage: a. Primary $10MM: 88% (Self-Insuring 12%) b. $2.5MM xs $10MM: 94.67% (Self-Insuring 5.33%)

43 Current Renewal Structure – Much Better!!
Sample View : Fewer ‘Layers’ – Larger % Lines by Insurers 400m Layer E 355m xs 45m (pipelines s/l 75m) Liberty – 10% TOTAL – 10% Layer G 325m xs 75m (pipelines s/l 75m) Aegis – 5% Argenta – 7.50% TOTAL – 12.50% Layer H 400m Swiss Re – 10% TOTAL – 10% Full ‘Quota-Share’ Layer C 300m xs 100m Ascot – 10% TOTAL – 10% ‘Risk’ Only TOTAL – 42.50% TO GO – 57.50% 100m Layer B 55m xs 45m (55m NWS e&e) MAP – 7.50%; Hardy – 3%; WRB – 3%; Ironshore – 10%; Torus – 3.50%; Montpelier Re – 7.50% TOTAL – 34.50% TOTAL – 67% TO GO – 33% (25m NWS e&e) 75m (55m NWS e&e) Layer F Primary 75m (75m NWS e&e) Lexington Bda – 10% (sub approval) Ironshore – 20% Hiscox – 3% (3% NWS ded) TOTAL – 33% TOTAL – 87.50% TO GO – 12.50% 45m Layer A Primary 45m (incl Premium Protection) (45m NWS e&e) Ascot – 10%; Aegis – 5%; Apollo – 5%; Heritage – 5%; Markel – 1.50%; Cathedral – 5%; Beazley – 10%; Kiln – 2.50%; Torus – 3.50%; QBP – 1%; HCC – 5% TOTAL – 53.50% (100m NWS e&e) TOTAL – 96.50% TO GO – 3.50% Deductibles

44 Hurricane Hardening / Elevation Loss Mitigation

45 Offshore Energy Market

46 Storm Severity Damage Analysis
Source: Watkins Syndicate Excerpt: Willis Energy Market Review – March 2009

47 Hurricane Losses Difficult to Predict
Excerpt: Willis Energy Market Review – March 2009

48 Some Additional Loss Statistics…
A record number of 6 consecutive storms hit the U.S. in 2008 (Dolly through Ike). 9 out of 11 most expensive hurricanes have occurred since 2004 per Insurance Information Institute (III). Hurricane Ike loss amount far exceeded underwriters’ forecast based on their models, which were updated post 2005 hurricanes Even though it was only a category 2 hurricane, the radius of hurricane force winds was 115 miles or 10 miles wider than Hurricane Katrina which was a category 3 at landfall, but also had category 4 surge. Risk Management Solutions (RMS) originally estimated Ike losses to be $7 billion to $12 billion, which was revised to $13 billion to $21 billion Lloyd’s has updated their Realistic Disaster Scenario (RDS) for offshore Gulf of Mexico named windstorm that include extending the wind field for the “dirty side” of a hurricane Underwriters have no choice but to assume an ‘Ike’ type storm will hit at least every 3 out of 5 years to make a profit (some may assume annually)

49 Offshore Market Issues Last Year – Early 2009
Reinsurance underwriters are re-evaluating how much catastrophe protection to offer to direct underwriters: Seek to differentiate between those direct underwriters who change their approach to coastal and/or offshore exposures Some Reinsurers are exiting this class of business End of the year treaty renewals are still being finalized and are expected to be up between 30% - 40% Note: Chief Executive of Munich Re promised reinsurance rates “will now rise painfully”. Certain underwriters will not be able to renew their reinsurance at acceptable levels and may elect to withdraw from GOM business or write a much smaller net line. Certain onshore underwriters are contemplating the non-renewal of midstream accounts as they represent a disproportional amount of their hurricane claims. Reinsurers and direct underwriters will tighten up Operator’s Extra Expense extensions of coverage (extended redrill, making well safe, resulting P&A expenses) which represent a large portion of the Ike offshore claims. Underwriters are going to require a higher ‘Rate on Line’ (premium to limit provided) for both offshore and coastal exposures.

50 Targa’s 2009 Offshore Property Renewal
In a nutshell – IT WAS UGLY ….. VERY UGLY!!! In our face to face meetings in London, every Offshore Underwriter had the same message….. ”I am saving what little capacity I have for my existing insureds for renewal.” “Of my existing insureds, I am dropping those that I don’t have a ‘relationship’ with.” “If I lose money again this year, my capital will not continue to support me.” “I am basically having to write my capacity on a NET basis – Reinsurance too expensive and too high of a retention.” “Buy it, don’t buy it – I’m indifferent.” Damages from Ike offshore show that very large losses can occur $40mm+ Property Damage loss from Ike on neighboring pipeline Past losses not an indication of the future (mutually exclusive) Common sense asks …. “Where’s the value over the long-term????” $12MM per Occurrence Retention -- ~ 3% of Scheduled Offshore Values ~ $7MM Annual Premium $20MM Limits Year over year….. Targa’s options / decision: Purchase the commercial market insurance Consider alternative options to the commercial property insurance market Relied on other commercial options and take the risk (self-insure)

51 2010 Offshore Property Expectations
Market is ‘softening’ more than anybody thought even at end of 2009 Rate on Line is down to ~ 15 – 20% (vs. 25 – 30% last year) Underwriters know they need to sell their purchased Windstorm capacity Targa will consider after Onshore Property renewal completed

52 Sheila Lum Risk Analyst

53 What it means to be a CPCU…
“CPCU” or Chartered Property Casualty Underwriter An insurance professional who has earned the CPCU designation CPCU’s are considered the ‘standard setters’ of the insurance industry In order to achieve this prestigious designation, insurance professionals must meet certain requirements in the following areas: Education: CPCUs pass national exams on topics including insurance law, accounting, risk management, and ethics. CPCUs continually update their base of insurance expertise by participating in technical and professional development workshops and seminars. Ethics: CPCUs promise to abide by a Code of Professional Ethics, placing their clients’ needs before their own. Experience: CPCUs must meet an experience requirement of 2 years to become a CPCU and have proven insurance expertise and knowledge.

54 CPCU Courses The following courses are required to earn the CPCU designation: Five (5) “Foundation” courses: CPCU 510  Foundations of Risk Management, Insurance, and Professionalism CPCU 520  Insurance Operations, Regulation, and Statutory Accounting CPCU 530  The Legal Environment of Insurance CPCU 540  Finance for Risk Management and Insurance Professionals CPCU 560  Financial Services Institutions Three courses in either the “Commercial” or “Personal” concentration: Commercial Concentration CPCU 551  Commercial Property Risk Management and Insurance CPCU 552  Commercial Liability Risk Management and Insurance CPCU 553  Survey of Personal Risk Management, Insurance, and Financial Planning Personal Concentration CPCU 555  Personal Risk Management and Property-Liability Insurance CPCU 556  Personal Financial Planning CPCU 557  Survey of Commercial Risk Management and Insurance

55 Types of Commercial Insurance
Onshore Property Offshore Property Builders Risk General Liability Excess Liability Fiduciary Liability Directors & Officers Liability Crime Terrorism Hull & Machinery Ocean Cargo Protection & Indemnity Hull War Risks P&I Non-Owned Aircraft Commercial Auto Workers’ Compensation & Employers Liability Surety Bonds The obligatory credit strength page Targa has the key components of a strong credit Operational scale Geographical diversification Basin diversification Strong cash flows Commodity price risk mitigation And an operational and structural platform designed to facilitate continued deleveraging and flexibility

56 Insurance Coverage Descriptions
Onshore Property – covers 1st party damage to or loss of buildings, personal property, business income caused by fire, lightning, smoke, water damage and other perils not specifically excluded under the policy. Offshore Property - covers damage to offshore assets such as platforms or pipelines. Builders Risk – covers a building and labor in the course of construction, including building materials and supplies while on or away from the building site.

57 Insurance Coverage Descriptions (cont.)
General Liability - covers 3rd party liability loss exposures, including its premises, operations and products. Excess Liability - provides additional liability limits for claims that are covered by specified underlying coverage such as general liability, automobile, and professional liability policies. Fiduciary Liability – covers the fiduciaries of an employee benefit plan against liability claims alleging breach of duties or errors in judgment and other wrongful acts involving their discretionary judgment.

58 Insurance Coverage Descriptions (cont.)
Directors & Officers Liability – covers a corporation’s directors and officers against their alleged wrongful acts and provides reimbursement to the corporation for any sum paid to indemnify directors and officers. Can also cover the company itself if entity coverage is purchased. Crime - covers loss of property through criminal activity -- from employee dishonesty to burglary and robbery, computer fraud, and forgery. Terrorism – covers property owners for their potential losses and liabilities that might occur due to terrorists activities, domestic and/or foreign.

59 Insurance Coverage Descriptions (cont.)
Hull & Machinery - covers physical damage to vessels, including their machinery and fuel, but not their cargo. Ocean Cargo – covers loss to cargo onboard vessel. Protection & Indemnity – covers shipowners against various liability claims due to operating the insured vessel. P&I War Risks – covers liability due to acts of war and war-like operations specifically described in the policy.

60 Insurance Coverage Descriptions (cont.)
Non-Owned Aircraft – covers 3rd party liability for bodily injury and property damage arising out of the use of a non-owned aircraft. Business Auto – covers bodily injury and property damage if an insured vehicle is involved in an accident. Workers’ Compensation & Employers Liability – provides coverage for benefits the insured employer is obligated to pay under workers compensations laws and also covers the employer if an injured employee sues for negligence in protecting the worker.

61 Insurance Coverage Descriptions (cont.)
Surety Bond- is a guaranty from one party (the Surety) that a second party (the principal) will fulfill their obligations to third party (the Obligee) Principal: the one performing the work or fulfilling the obligation Obligee: the one for whom the principal is obligated to perform Surety: the company that is making the guarantee on behalf of the principal to the Obligee Differences between Surety Bonds and Insurance Surety Bonds have three (3) parties to the contract The principal is liable to the surety for losses paid by the surety In theory, the surety should not sustain losses on surety contracts Bankruptcy of the Principal is the key risk to the Surety company The coverage period is indefinite

62 Laura DeLeon Risk Analyst

63 Nature of Risk

64 Classes of Risk

65 Basic Risk

66 Certificate of Insurance – ‘Fronted GL Policy’

67 Certificate of Insurance – ‘Self-Insured’ GL

68 Recent Auto Accident – Targa Truck

69 Third-Party Driver at Fault
Truck that caused the accident

70 Targa’s Truck – A Total Loss

71 Alternatives to Commercial Insurance

72 ‘Cat’ Bonds Utilizes the Capital Markets via Institutional Investors
Can cover any ‘Cat’ perils specified Can be for 1 – 3 year term Typically set as a ‘parametric trigger’ Minimum wind speed trigger (e.g., Category 3 Hurricane or higher) Eye of storm must pass within a set ‘box’ or ‘circle’ to trigger payout Unlike traditional insurance, proof of damage sustained is not required Bonds can cost out at a ‘rate on line’ of 20%+ of limit purchased Very expensive to put together Risk to purchaser – extensive damage but bond not triggered Example: Hurricane Ike Ike’s wind speed was a Category 2, although storm surge was a Category 4 Significant damage – Onshore and Offshore If Category 3 wind speed had been a required trigger – would not have paid out Would have spent probably $6MM in premium and still had ??? $$ in potentially uninsured damage and business interruption

73 ACE ‘StormTracker’ Option
Targa Resources: Storm tracker map showing 50 mile and 100 mile radius

74 OIL Insurance Ltd – an Oil & Gas Property Mutual
Form of ‘mutualization’ for Property Risks Limit purchased – up to $250MM Attachment point – minimum of $20MM Provides $750MM Aggregate to All Insureds Provides Property Damage Coverage Only Coverage very restrictive – not as broad as London markets Only covers repairs to ‘mechanical completion’ Does not cover ‘expediting expenses’ Various other restrictions

75 Marsh – Berkshire Hathaway ‘Triple C’ Product
Another Form of Mutualization for Property Risks Similar to OIL Insurance Company Limit purchased – up to $100MM Attachment point – minimum of $25MM 5 Year Minimum Time Horizon Provides $500MM Annual Aggregate to All Insureds 20% Retrospective Penalty Premium Up front costs to join the ‘group’ Key questions: Who will I be in the ‘pool’ with? How much of the available $500MM Annual Aggregate received if losses? Any additional ‘capital contribution costs’ to join? Product got ‘scrapped’ in mid ‘09 due to lack of interest

76 Directors & Officers Liability Market

77 A D&O Underwriter’s ‘Worst Nightmare’…..

78 D&O Liability – Summary of Coverages
Side – A Coverage Provides coverage for Insured Individuals IF the Organization is UNABLE to provide Indemnification Indemnity is typically provided for under the organizations By-Laws Most common trigger of Side-A is ‘Bankruptcy’ of the Organization Side – B Coverage Provides coverage for Insured Individuals when the Organization is ABLE to provide Indemnification Insurer reimburses the Organization for costs it expends to defend and indemnify the D’s & O’s Most common coverage part utilized Side – C Coverage (aka ‘Entity’ Coverage) For Publicly Traded Companies: Provides coverage for the Organization itself for Securities Claims Only For Private and Non-Profit Companies: Provides coverage, with some limitation, to the Organization itself

79 Key D&O Underwriting Factors – Examples…
Stock Analysis Stock Chart Analysis – 2 year ‘look-back’ Does stock perform in line with ‘peers’? Have there been any large volume ‘drops’ or ‘jumps’ in the stock over the past year? Reason? Does the company give ‘earnings guidance’? Current valuation in comparison to historic and peers Price/Earnings Ratio Price to Book Value EBITDA Multiple If stock dropped, we there ‘Insider Selling’ before the stock drop? Financial Analysis Does company have necessary ‘Cash on Hand’ and ‘Free Cash Flow’ Meet Debt / Other Corporate Obligations over next 3 years? Cash flow – steady or volatile? Use of cash flow? Amount available - Existing Credit Facility Trending of Revenues / Gross Margins / Net Income – Outlook Corporate Governance Make-up of Board / Management Team – Independence & Quality Any related Third-Party Transactions? Management Salary in line with Competitors? CEO / CFO have prior public experience? Any recent changes to Senior Management or the Board of Directors?

80 Targa NGLS v. Peer MLP’s – 2 year ‘look-back’

81 Targa’s D&O Renewal Expectations
Many insurer’s Combined Ratios (losses plus expenses) are well below 100%, so still making a profit Several new ‘entrants’ adding capacity to the market, which drives competition and keeps rates steady AEGIS (industry mutual) provides ‘primary’ coverage on TRPLP tower – initially talking about increases, but expectation is to get reductions. So far still no Financial Industry (FI) impacts crossing over into Energy Book Targa expectations are minimum 10% reduction!!!

82 Excess Liability Market

83 Targa’s Excess Liability Renewal – 2009 was Tough!!
Targa’s first $15mm and $100mm xs $35mm -- Industry Mutuals AEGIS Energy Insurance Mutual Significant industry liability losses in 2007/2008 CA Wildfires (through entire coverage tower of CA Utility) Significant loss of investment income – lost ~ 1/5th of Policyholder Surplus Much of those investment losses have been recovered Some have not -- pulled out of equities and into ‘safer’ investments = lower recovery 2009 Renewal was very difficult in October 2009 Kept coverage with AEGIS – no General Aggregate key reason Reduced limit for ‘midstream’ accounts by ~60% – from $35mm to $15mm Increased retentions from $1 – 3mm to $3 – 5mm ‘Per Occurrence’ Propane Claim Issues (industry, not Targa specific) Annual Aggregate Limit for Wildfires Increased premium costs > 40% even with significant reduction in limits Filled in new $20mm ‘gap’ with Aspen Syndicate (Lloyds) - ~$800k NEW Spend Required

84 U.S. Excess Liability Market – Then to Now…
…A year ago, all the key indicators were in place that the market would continue to ‘harden’ into 2010…. Decline in most insurers’ Policyholder Surplus Collapse in Liquidity Excess Capital Disappeared Catastrophic Investment Losses Increased Costs in Reinsurance Several reasons why this market is actually moving into a ‘soft’ market… Cat losses not a severe as prior years Fewer insurers experienced combined ratios > 100% Reinsurance costs did not rise as much as anticipated Many ‘buyers’ exposures were lower (revenues, throughput) due to economy Better than expected investment returns Additional capacity entered the market on top of an existing over-abundance of capacity Insurers want to maintain market share creates downward pressure on prices Willis Energy Market Review 2010

85 Targa’s Excess Liability Renewal – 2010 Expectations
AEGIS may impose a General Aggregate on the $15mm limit – key issue Key competitors may be lower on premium Goal is to achieve 5 – 10% overall reduction A lot depends on AEGIS’ position Reductions likely in upper layers (excess of $100mm)

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