1. February 2004 James D. Hurley, ACAS, MAAA Energy Insurance Mutual Overview of Ultimate Loss Projections

2. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 2 ENERGY INSURANCE MUTUAL Ultimate Loss Levels Process - Considerations Claims-made (sort of...) Low frequency/high severity Data - good news/bad news 1984 - 2003 experience period - (still) limited credibility Growth - complicates projections

3. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 3 ENERGY INSURANCE MUTUAL Ultimate Loss Levels Process: Construct a model of EIM exposure Focus on Member experience (lower attachment) Project “base” layer losses (frequency/severity) Apply size of loss relationship Adjust for reinsurance/emergence

4. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 4 ENERGY INSURANCE MUTUAL “Factoids” Total payments  $307 million (7 closed) Total reported  $557 million (19 reported) Historic Member Loss Experience (as adjusted) truncation varies from $0.6M to $1.7M expect 90 claims/year above truncation average trended claim above truncation  $9.25M Extended Reporting Coverage Issuance approximately 151 issued (vs. 138 last year) approximately 96 members (vs. 91 last year) 48% of the ERE’s are D&O

5. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 5 ENERGY INSURANCE MUTUAL Ultimate Loss Levels Model: Member experience  Accident year data, all claims > $500,000  Obtain year specific truncation point  Determine expected number of claims  Average claim cost - $9.25M Convert frequency/severity to claims-made Adjust for growth in membership Project base layer of losses by year Size of loss data - proportion of losses > EIM attachment Determine losses by layer above attachment Apply reinsurance

6. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 6 ENERGY INSURANCE MUTUAL Ultimate Loss Levels Example:2000 1. Projection Base a. Severity (000)$5,977 b. # of claims68.61 c. Truncation (000)$1,324 d. Excess of truncation (000)$319,242 2. Excess Factors a. Attachment (000)$45,000 b. $25,000 xs of a.0.096 c. $25,000 xs of b.0.069 d. $25,000 xs of c.0.054 e. $25,000 xs of d.0.045 f. $25,000 xs of e.0.038 3. Adjusted Excess Factor (retention, % purchasing)0.250 4. Reinsurance (per claim)$34,500 5. Indicated ultimate (000)$45,358 6. Yet to emerge0.441 7. Loss provision adjusted for emergence (000)$20,014 8. Adjustment for aggregate reinsurance$15,278 9. Net loss provision after aggregate reinsurance$4,736

7. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 7 ENERGY INSURANCE MUTUAL Ultimate Loss Levels IBNR YearsDirectNet 1986 – 12/2003$365,451$219,709 Triggered Tail16,785 Property12,2911,749 Total$394,527$238,243

8. S:\36510\04PC\Presentations\040223 Overview Ult Loss Proj.ppt 8 ENERGY INSURANCE MUTUAL Ultimate Loss Levels YearsDirectNet 1986 – 12/2003$365,451$219,709 Triggered Tail16,785 Property12,2911,749 Total IBNR$394,527$238,243 Case Reserves – Casualty266,34699,234 Case Reserves – Property15,8621,403 Total$676,735$338,880 Booked$688,114$341,909

9. February 2004 James D. Hurley, ACAS, MAAA Energy Insurance Mutual Overview of Ultimate Loss Projections