Proprietary and Confidential University of Houston Energy Case Study Steven P. Weiss, CPCU, AMIM, NAMS-CMS Vice President, Marine Engineering, Latin America and Project Cargo

Proprietary and Confidential What are we going to do? What is Risk Management What is risk financing What is the insurance industry and how does that play with Risk Management How do the insurance players all interact Who are the major players Take a submission from cradle to grave

Proprietary and Confidential What is Risk Management The identification, analysis, assessment, control, and avoidance, minimization, or elimination of unacceptable risks. An organization may use risk Assumption, risk avoidance, risk retention, risk transfer, or any other strategy or combination of strategies in proper management of future events. Enterprise risk management is a process, effected by an entity’s board of directors, management and other personnel, applied in strategy setting and across the enterprise, designed to identify potential events that may affect the entity, and manage risk to be within its risk appetite, to provide reasonable assurance regarding the achievement of entity objectives.

Proprietary and Confidential How is this done? There are five steps –The identification and analyses of loss exposures –Examination of the feasibility of Alternative Risk management Techniques –Selection of the best risk management techniques –Implementation of the techniques –Continual monitoring of the program

Proprietary and Confidential The identification and analyses of loss exposures What are the exposures? –First Party –Third Party –Financial –Employee

Proprietary and Confidential The identification and analyses of loss exposures (cont) First Party –Own Property

Proprietary and Confidential The identification and analyses of loss exposures (cont) Third Party –Contractual –Personal Injury –Property Damage (others)

Proprietary and Confidential The identification and analyses of loss exposures (cont) Financial –Business Interruption –Delay in Start Up –Self Insured Retentions –Deductible

Proprietary and Confidential The identification and analyses of loss exposures (cont) Employee –Workers Comp –Jones Act –Longshore and Harbor Workers

Proprietary and Confidential Examine feasibility of Alternative Risk Management Techniques Contracts to transfer risk Training of Employees Engineering solutions Exit lines of business Contractors Insurance

Proprietary and Confidential Selection of the best Risk management techniques In the present situation, what works best? –Probably some combination of the above

Proprietary and Confidential Implementation of the techniques Get the contracts signed Engineer and install the solutions Exit/sell lines of Business Find the proper contractors Purchase the Insurance

Proprietary and Confidential Risk Financing What is Risk Financing Where do you get it? –Deductibles/Self Insured Retentions –Mutual Agreements –Cash flow –Insurance

Proprietary and Confidential Insurance Flow Insured Broker/ Agent Wholesale Broker Underwriter Reinsurer Reinsurance Broker

Proprietary and Confidential Assured/Insured The Assured/Insured is the purchaser of the insurance Normally through Broker or Agent Pays Commission or fee for services to Broker Pays premium to Underwriter

Proprietary and Confidential Broker/Agent One who for commission or fee, brings parties together and assists in negotiating contracts between them Representative of the Assured Receives Fee for service from Assured or commission from Underwriter –Broker works for the Insured –Agent can be the Insurance Company agent Many are very well trained and knowledgeable Also know as the Retail Broker/Agent

Proprietary and Confidential Wholesale Broker Intermediary between retail Broker/Agent and Underwriters if the B/A does not have the proper market Normally commission paid by Underwriter Represents the Insured sort of as well as the retail broker

Proprietary and Confidential Underwriter Reviews the risk as presented by the broker If the risk is within appetite then assumes the risk for the loss of life, property or finances of another Pays commission to the Broker if agreed up front Pays Claims is covered by the Insurance Contract Often for Commercial Insurers has staff Risk Engineering/Loss Control to increase the qquality of the risk if necessary

Proprietary and Confidential Reinsurance Broker One who for commission or fee, brings parties together and assists in negotiating contracts between them Places insurance for insurance companies Normally commission paid by reinsurer Allows the Insurance Company to have a greater capacity (treaty) or for the Insurance Company to share the risk of an aspect of the risk they are not keen on or to increase their capacity for a particular risk (facultative)

Proprietary and Confidential Reinsurer Insurers who insure other Insurance companies Pay commission to Reinsurance Broker Often pay override to the ceding insurer Allows insurance companies to manager and spread their risk Many insurance companies also do Reinsurance and vice versa

Proprietary and Confidential Insurance Industry Insured Broker/Agent Insurance Company Reinsurance Company Insurance Company Broker/Agent

Proprietary and Confidential TOP TEN GLOBAL PROPERTY/CASUALTY INSURANCE COMPANIES BY REVENUES, 2010 (1) ($ millions) RankCompanyRevenues (2)Country 1Berkshire Hathaway$136,185U.S. 2Allianz127,379Germany 3 American International Group 104,417U.S. 4Munich Re Group76,220Germany 5Zurich Financial Services67,850Switzerland 6 State Farm Insurance Cos. 63,177U.S. 7 MS&AD Insurance Group Holdings 39,754Japan 8Tokio Marine Holdings 38,396Japan 9 Liberty Mutual Insurance Group 33,193U.S. 10 People's Insurance Co. of China 32,579China (1) Based on an analysis of companies in the Global Fortune 500. Includes stock and mutual companies. (2) Revenues include premium and annuity income, investment income and capital gains or losses, but excludes deposits; includes consolidated subsidiaries, excludes excise taxes. Source: Fortune./Insurance Information institute

Proprietary and Confidential TOP TEN US WRITERS OF PROPERTY/CASUALTY INSURANCE BY DIRECT PREMIUMS WRITTEN, 2011 ($000) RankGroup Direct premiums written (1) Market share (2) 1 American International Group $19,670,2038.0% 2 Travelers Companies Inc. 15,072, Liberty Mutual 14,799, Zurich Insurance Group Ltd. (3) 9,548, ACE Ltd. 8,089, CNA Financial Corp. 7,551, Hartford Financial Services 7,169, Chubb Corp. 7,105, Nationwide Mutual Group 5,084, Allianz SE 4,738, (1) Before reinsurance transactions. (2) Based on U.S. total including territories. Source: SNL Financial LC./Insurance Information Institute

Proprietary and Confidential PERCENT CHANGE FROM PRIOR YEAR, NET PREMIUMS WRITTEN, P/C INSURANCE, (1) From Insurance Information Institute

Proprietary and Confidential The path of a submission Choosing a Broker Preparation Of a submission Market Presentation Submission of Quotes Binding of a Project Life Completion Genesis of a Project

Proprietary and Confidential Issues for 2013 Numbers presented are all 2011 – numbers are not yet available for 2012 The largest insured marine loss ever occurred January 2012 –Costa Concordia Over 500,000,000 hull Over 600,000,000 P and I (indemnity and removal) Outcome of Super Storm Sandy –Some rate stabilization Pricing and Terms in many lines of business not supporting the losses

Proprietary and Confidential Here is what we discussed What is Risk Management What is risk financing What is the insurance industry and how does that play with Risk Management How do the insurance players all interact Who are the major players Take a submission from cradle to grave

Proprietary and Confidential Other Resources

Proprietary and Confidential Financial Highlights Liberty Liberty Mutual 2011 Worldwide Revenue of $34.7 Billion up from $33.2 Billion in 2010 Statutory Surplus - $17.9B (6% increase) Total Assets – Over US$117.1 billion World-class Fortune 100 (# 82) financial standing 1.AM Best – A (Excellent) 2.Moody’s – A2 (Good) 3.Standard & Poor’s – A- (Strong) - stable

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