B R I N G I N G F I G U R E S I N T O F O C U S Commodity Prices Spike following Major Disasters: ‘Accounting Issues for Consideration in BI Loss Measurement.’ Date: 30 / 01 / 2007 Prepared for: Opera, London Presented by: Markus Heiss*, MDD *Markus Heiss is a Partner at MDD London UK LLP - Mobile: 07730 985 822, Phone: 0207 265 0777; mheiss@mdd.net

Introduction Accounting Issues Legal Issues

Introduction Accounting Issues Legal Issues

Objective BI Do what the business would have done for the insured had the ‘loss’ not occurred

Adjustment Clause Policy Definition: “The Turnover / Gross Profit during the period in the 12 months immediately before the date of the damage” But Variation Clause: “…to which [Rate of Gross Profit, Standard Turnover and Annual Turnover] such adjustments shall be made as may be necessary to provide for the trend of the business either before or after the loss or which would have affected the business had the loss not occurred so that the figures thus adjusted shall represent as nearly as may be reasonably practicable the results which but for the loss would have been obtained during the period after the loss”

If price spikes occurred – 2 options for projection: Projection Dilemma If price spikes occurred – 2 options for projection: No Disaster Disaster

Commodity Prices and Disasters Commodities Timing Drivers Price elasticity and leverage

Daily Crude Prices – Timing

Commodity Price Drivers Market Circle Political Climate Financial Markets Market Supply & Demand Contractual Negotiation Competitor Domestic and International Issues Environmental Circumstances

Leverage Effect of Price Changes

Refinery Margin Evolution $ per Barrel

Segregation of Price Spike Impact on BI Cause Degree Separation Amounts can be put into their buckets

Segregation of Price Spike Impact on BI Insured Event Other ‘Market’ Reasons Caused by ‘Insured Peril per Policy’ Caused by ‘Physical Loss that Triggered Policy’

Impact of Price Changes for BI Measurement

Impact of Price Changes for BI Measurement

Impact of Price Changes for Refinery

Impact of Price Changes for Steel Mill

Impact of Price Changes for Power Generation

Timing Issues – Price Changes and Profitability Correlation Input and Output Timing Buyers or Sellers Market Market Transparency Pricing Mechanism

Hurricane Induced vs. Normal Commodity Market Price Changes

Accountants Assistance Can we Solve ?; Can we help ? Identify impact on BI measure Market price investigations Separation of loss sustained between market event / period and loss related increases Need to work with other experts / detailed evaluation market situation – determine market price drivers

Questions ? Date: 30 / 01 / 2007 Prepared for: Opera, London B R I N G I N G F I G U R E S I N T O F O C U S Questions ? Date: 30 / 01 / 2007 Prepared for: Opera, London Presented by: Markus Heiss*, MDD *Markus Heiss is a Partner at MDD London UK LLP - Mobile: 07730 985 822, Phone: 0207 265 0777; mheiss@mdd.net