the energy insurance marketplace. a north american perspective

The Energy Insurance Marketplace.A North American perspective.

MODERATOR

Mel Causer, Vice President AIG Oil Rig

PANELISTS

Frank Costa, President AIG Oil Rig

Pete Conors, President & CEO Zurich Global Energy

Bob Smith, Sr. Vice President Commonwealth Insurance

Ricardo Garcia, Vice President XL Insurance

The Energy Insurance Marketplace.A North American Perspective.

Attributes of a perfect market found in the Energy

Insurance Marketplace include:

A large number of buyers and sellers.

Limited regulation.

Ease of market entry and exit.

Well educated consumers.

Significant Oil Company MergersSignificant Oil Company Mergers

Pre-MergerBP

Arco

Amoco

Union Texas Petroleum

Exxon

Mobil

Total

Fina

Elf Aquitane

Post-Merger

BP Amoco

Exxon Mobil

Total Fina Elf

Significant Oil Company Mergers (cont.d)Significant Oil Company Mergers (cont.d)

Pre-MergerSaga

Statoil

Repsol

UPF

Amerada Hess

Triton

Conoco

Phillip

Post-Merger

Statoil

Repsol

Amerada Hess

ConocoPhillips


Pre-MergerChevron

Texaco

Kerr McGee

ORYX

Burlington Resources

Canadian Hunter

Pan Canadian Petroleum

Alberta Energy Corp.

Post-Merger

Chevron Texaco

Kerr McGee

Burlington Resources

Encana


Pre-MergerAnadarko

Union Pacific Resources

El Paso

Coastal

Shell

Enterprise

Dominion Energy

Louis Dreyfus Natural Gas

Post-Merger

Anadarko

El Paso

Shell

Dominion Energy


Pre-Merger

Ocean Energy

Pennzoil

Devon

Andex

Mitchell Energy

Santa Fe Snyder

Post-Merger

Devon

Offshore Energy Physical Damage: Offshore Energy Physical Damage: Loss Ratio DevelopmentLoss Ratio Development

-53

-104

-150-154

-166

-68

-133

-151-166

-44

-194 -194

-28 -36

-2

-200

-150

-100

-50

0

1998 1999 2000 2001 2002

1 year2 years3 years4 years5 years

*

**

% loss Ratio

NB:Loss ratio is expresses before underwriting expenses*9 months as of October 2002

Source: Lloyd’s

*

Energy Control of Well: loss ratio Energy Control of Well: loss ratio developmentdevelopment

-67

-176

-221-228 -228

-121

-197

-244 -233

-44

-203 -197

-30-58

-14

-250

-200

-150

-100

-50

0

1998 1999 2000 2001 2002

1 year2 years3 years4 years5 years

*

*

*

% loss Ratio

NB:Loss ratio is expresses before underwriting expenses*9 months as of October 2002

Source: Lloyd’s

*

*


Differences between the market recovery of the late 1980s

and mid-1990s and the recovery phase which we have just

come through.

In-depth due diligence in the underwriting process by

underwriters needing to understand their clients

businesses, exposures and interdependency risks.

Focus on aggregation risk of earthquake, flood,

windstorm and terrorism and

Sophisticated evaluation of the client’s retentions,

towards the goal of proper pricing of the risk.


Focusing on the fundamentals:

Eliminate cash flow underwriting.

Assure reserve adequacy.

Increase net retentions as appropriate.

Assure accounting transparency.

Revisit investment practices and

Enhance management information systems.


OFFSHORE INDUSTRY TRENDS

Deepwater

Floating Production


STATE OF THE MARKET

Rate Increases Have Abated

Reinsurance Market Firm

Legacy Issues a Factor

J. Peter ConnorsJ. Peter ConnorsPresident and CEOPresident and CEOZurich Global EnergyZurich Global Energy

$2.3bn

Offshore Property Capacity 2002

$2.49bn

Offshore Property Capacity 2003

$1.25bn

Offshore Property Capacity in Use 2003

Number of Offshore Energy Insurers Worldwide

40

50

60

70

80

90

100

110

120

1996 1997 1998 1999 2000 2001 2002 2003

0

1000

2000

3000

4000

5000

6000

1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 20030

20

40

60

80

100

120

Offshore Capacities Onshore CapacitiesOffshore Estimated Capacities Onshore Estimated CapacitiesPercentage of 1992 rates

Market Trends - Capacity/Rate

bil

lio

ns

1.5bn1.5bn

1.0bn1.0bn

0.75bn0.75bn

0.80b0.80bnn

Offshore Global Premium Levels

1.2b1.2bnn

0

0.2

0.4

0.6

0.8

1.0

1.2

1.4

1.6

1.8

93 94 95 96 97 98 99 '00 '01

1.3bn1.3bn1.2bn1.2bn

0.80bn0.80bn

0.81b0.81bnn

'02

1.5b1.5bnn

Aggregate Losses per annum versus premiumLosses xs $1m

1,435

656 653 642

778

1,119

1,670

1,1791,235

1,401

0

200

400

600

8001000

1200

1400

1600

1800

92 93 94 95 96 97 98 99 '00 '01

mill

ion

sm

illio

ns

1142

'02

Premium

Offshore Construction Claims 1992-2002Excess of US$1M

$435

$122

$248$263 $287 $279

$668

$479 $457

$275

$0

$100

$200

$300

$400

$500

$600

$700

Mil

lio

ns

Amount $435 $122 $248 $263 $287 $279 $668 $479 $457 $268

No of Incidents 33 29 30 39 54 64 87 76 53 50

1992 1993 1994 1995 1996 1997 1998 1999 2000 2001

Total: US$ 3,738,000,000Average: $6,871,323

2002

$232

36

$247

$0

$100

$200

$300

$400

$500

$600

$700

19941992 1993 1995 1996 1997 1998 1999 2000 2001

Mil

lio

ns

$435

$122

$248$263 $287 $279

$668

$479 $457

$275 $247

2002

Offshore Construction Claims 1992-2002Estimated Annual Premium Volume

– History will repeat itself if you do nothing to prevent it.– Customers do not want to do business with losers.– Capital is King…Too much is a waste of resources

and too little will limit opportunities.– If the hard market stops short for P & C companies, it

will end badly for some insurers.– If all you have to offer is pricing, your customers will

soon be mine.

“GOOD LUCK”

CONCLUSIONS

Commonwealth Insurance Company

HOUSTON MARINE INSURANCE SEMINAR

State of the Energy Market - A “Domestic” View

Monday, September 22, 2003

Presented by Robert R. SmithPresented by Robert R. Smith

Sr. Vice President,Sr. Vice President, Energy & InternationalEnergy & International

Corporate Corporate InformationInformation

Commonwealth Insurance Company was incorporated by an act of the Canadian Parliament on July 17, 1947 and has operated as a federally registered insurer since April, 1950.

In April of this year, the ownership of Commonwealth and three sister, Canadian insurance companies was transferred to Northbridge Financial Corporation, a Canadian holding company. An Initial Public Offering of Northbridge shares was completed in June.

At year-end 2002, the Northbridge Companies had Written Premiums of $1.78 billion. The group’s Shareholders’ Equity stands at $686 million.

• Approx.. US $182 Million Capital and Surplus (CDN$255 Million);

• 89.45% Combined Ratio in 2002;

• 89.3% Combined Ratio in 1st half 2003;

• The company is eligible to write insurance on an excess and surplus lines basis in 44 U.S. states plus the District of Columbia.

Corporate Information cont...Corporate Information cont...

Commonwealth Capital & SurplusCommonwealth Capital & Surplus

255 mm

160 mm

104 mm

76 mm

40 mm

10 mm <1 mmTODAY

5 Years Ago

10 Years Ago

15 Years Ago

20 Years Ago

25 Years Ago

30 Years Ago

Composition E&I Offshore/Marine Composition E&I Offshore/Marine BookBook

Premium Income: 50 million

30%

25%

15%15%

5%10%

Platforms

Rigs Onshore

Rigs Offshore

OEE

Construction

Miscellaneous

LocationLocation

Premium Income: 50 million

20%

50% (35%)

30% (7%)

USA (Gulf of Mexico) Rest of World (North Sea) Canada

65%

35%

Offshore Onshore

Commonwealth Insurance CompanyCommonwealth Insurance Company

595 Burrard Street, Suite 1500

Box 49115, Bentall Tower Three

Vancouver, B.C., V7X 1G4

Telephone: (604) 683-5511 Facsimile: (604) 683-8968

www.commonw.com

Commonwealth Insurance CompanyCommonwealth Insurance Company

595 Burrard Street, Suite 1500

Box 49115, Bentall Tower Three

Vancouver, B.C., V7X 1G4

Telephone: (604) 683-5511 Facsimile: (604) 683-8968

www.commonw.com

http://www.commonw.com/

http://www.commonw.com/

the energy insurance marketplace. a north american perspective

Documents

energy control

north american perspective

loss ratio development

loss rationb

market recovery

perfect market

bnoffshore property

underwriting process