1. 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: , Phone: ;

2. Introduction
Accounting Issues
Legal Issues

3. Introduction
Accounting Issues
Legal Issues

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

5. 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”

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

7. Commodity Prices and Disasters
Commodities
Timing
Drivers
Price elasticity and leverage

8. Daily Crude Prices – Timing

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

10. Leverage Effect of Price Changes

11. Refinery Margin Evolution
$ per Barrel

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

14. 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’

15. Impact of Price Changes for BI Measurement

16. Impact of Price Changes for BI Measurement

17. Impact of Price Changes for Refinery

18. Impact of Price Changes for Steel Mill

19. Impact of Price Changes for Power Generation

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

22. Hurricane Induced vs. Normal Commodity Market Price Changes

23. 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

24. 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: , Phone: ;