The Role of OIL in the

Energy Industry’s Risk Management Landscape

Oslo, Norway

September 17th, 2013

Willis 2013 European Energy Conference

2013 2

The Evolution of Energy Mutuals

3 2013

The Energy Industry’s Mutual Landscape

Energy Insurance Mutuals

OIL 1972

sEnergy 2002-2011

TOPS 1993-1999

OCIL 1986

EIM 1986

AEGIS 1975

NEIL 1973

4 2013

Mutual Insurance Company

Text Book or Wikipedia Definition A Company owned by its policyholders that returns profits to the

shareholder/policyholder as dividends or reduced future premiums after payment of all claims.

Common Characteristics of Mutuals Ownership Mission Governance Homogeneity of Membership Sharing in losses Assessments or premium call features

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Why Have Mutuals Formed?

Established when commercial market coverage: Does not exist for a risk that is common to a group Ceases or fails to provide adequate coverages/limits Offers Terms & Conditions that are onerous Charges premiums that are at unacceptable levels compared to

risk/probability relationship

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“Mutual” Structure

Member/Shareholders, Board of Directors, Board Committees, Officers & Staff

Member/Shareholders are the Customers (Insureds.) Directors are generally elected from the Membership /

Shareholder Body Mission Statements

Mutual: Primary Objective - Provide insurance product needed by

the members Secondary Objective - Return excess capital to its members

Commercial Market: Provide a return on Shareholder capital employed in the

writing of insurance business

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Advantage of Mutuals

Industry ownership promotes fair treatment of Policyholders

Mutuals provide ‘hedge’ against a frequently volatile commercial insurance market

Members/Shareholders maintain active control of the coverages available to them

Highly cost-effective insurance facility Low cost provider as rates are based on pure loss cost.*** Most efficient vehicle for managing major risk transfer Lowest cost over the Long Term

Generates long-term benefits for Members/Shareholders Great net-working facility

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Advantage of Mutuals

Policy form tends to be broader than commercial market policies.

Trust among members and willingness to compromise on individual positions for the common good.

Insurance facility is tailored to the needs of the energy industry

Mutualization of losses assures recovery of losses

Highest form and reliability of coverage

Biggest Challenge: Natural Catastrophes

How do we insure them?

How do we calculate premium for them in a mutual setting?

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Oil Insurance Limited

10 2013

Who is OIL?

World’s Largest Energy Mutual OIL is an Energy Industry Mutual Insurance Company headquartered

in Hamilton, Bermuda

Formed by 16 major energy companies in 1972 after two incidents in the late 60’s that resulted in inadequate coverage / pricing

Today, OIL is a world leader in global energy insurance

56 Shareholders / Policyholders - medium to large public & private world-class energy companies headquartered around the world

46% of membership has been with OIL for over 20 years

11 2013

Who is OIL?

World’s Largest Energy Mutual – by the numbers $2.4 trillion in assets insured globally for 56 members

$300 million broad and stable “cornerstone” capacity

$7.4 billion in assets

$4.0 billion in shareholder’s equity

Over $12 billion in claims paid over 40 years

S&P A- rating (stable outlook)

Expense ratio = approx. 3-6 %

Not dependent upon reinsurance

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Organizational Structure

OIL does not have employees but is administered by Oil Management Services Ltd. (“OMSL”). OMSL also administers OIL’s companion company Oil Casualty Insurance Ltd.

OIL MANAGEMENT SERVICES LTD (OMSL)

OIL INVESTMENT CORP. LTD.

(OICL)

OIL CASUALTY INVESTMENT CORP.

LTD. (OCICL)

OIL INSURANCE LIMITED

OIL CASUALTY INSURANCE, LTD.

• Property Damage

• Control of Well

• 3rd Party Pollution

• Excess Liability

• Excess Property

• Property/Casualty Reinsurance

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Major Differences: OIL vs. OCIL

OIL OCIL MUTUAL INDUSTRY OWNED

Premium Calculation Formula driven Flexible, use of

underwriter discretion

Mutualization of Losses YES NO

Aggregation Limit YES NO

Follow Form capability NO YES

Ability to assess Membership YES NO

Member required to be Shareholder YES NO

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Current Members - 56

USA Alon USA Energy, Inc. Anadarko Petroleum Corporation Apache Corporation Arena Energy, LP Buckeye Partners, L.P. Chevron Corporation Chevron Phillips Chemical Company LLC CITGO Petroleum Corporation ConocoPhillips Company Drummond Company, Inc. DTE Energy Company Energy Transfer Partners, L.P. Hess Corporation LOOP LLC Marathon Oil Corporation Marathon Petroleum Corporation Murphy Oil Corporation Noble Energy, Inc. Occidental Petroleum Corporation Phillips 66 Company Sempra Energy Tesoro Corporation The Sinclair Companies The Williams Companies, Inc. Valero Energy Corporation Westlake Chemical Corporation

CANADA Canadian Natural Resources Limited Canadian Oil Sands Limited Cenovus Energy Inc Husky Energy Inc. Nexen Inc. NOVA Chemicals Corporation Paramount Resources Ltd. Suncor Energy Inc. Talisman Energy Inc.

EUROPE ARKEMA BASF SE BG Group plc CEPSA S.A. DONG Energy A/S Electricité de France (EDF) Eni S.p.A. Galp Energia SGPS, S.A. LyondellBasell Industries MOL Hungarian Oil & Gas OMV Aktiengesellschaft Repsol, S.A. Royal Vopak N.V. Statoil ASA TOTAL S.A. Yara International ASA

AUSTRALIA BHP Billiton Petroleum (Americas) Inc. Santos Ltd. Woodside Petroleum Limited

LATIN AMERICA / CARIBBEAN Hovensa L.L.C. Puerto Rico Electric Power Authority (PREPA)

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OIL’s Value Proposition / Mission

Membership Shareholders’ Equity Assets Gross Assets Insured

5/31/2013 53 $4.0 Billion $7.4 Billion $2.3 Trillion

1/1/1972 16 $160 Thousand $160 Thousand $48 Billion

+$13.8 Billion - $13.9 Billion +$ 5.5 Billion - $ .8 Billion +$ .4 Billion - $ .9 Billion $ 4.0 Billion

Inception To Date: Net Premiums Earned Net Losses & Loss Expense * Investment Income ** Dividends Paid ***

Preference Shares Operating, Financing & Other Costs * Includes IBNR/IBNE ** Net of Interest Expense *** Excluding Preference Share dividends paid

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Limit Structures

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Minimum OIL Purchase

60% Coverage from OIL

60% OF US $300M

OIL

40% COMMERCIAL

MARKET

OIL DEDUCTIBLE

OIL also allows either a 10%, 20%, 30% or 40% ‘internal quota share’ via Flat Retro or a combination of both.

$180M $120M

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OIL - “Primary” Basis

$180M $120M

OIL US $300M

COMMERCIAL MARKET EXCESS (IF REQUIRED)

OIL DEDUCTIBLE

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OIL - “Excess” Basis

$180M $120M

OIL US $300M

COMMERCIAL MARKET PLACEMENT

RETENTION

20 2013

OIL - “External Quota Share Basis”

$180M $120M

OIL US $300M

COMMERCIAL MARKET US $300M

OIL DEDUCTIBLE

US $600M

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OIL - “Ventilated or Split Limits”

$180M $120M

OIL US $250M*

OIL US $50M*

OIL DEDUCTIBLE

COMMERCIAL MARKET INSURERS / SELF INSUREDS

*Amounts can be variable

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OIL - “Wraparound”

$180M $120M

COMMERCIAL MARKET EXCESS DIC

DEDUCTIBLE BUY-DOWN

DEDUCTIBLE BI WAITING PERIOD

OIL US $300M

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OIL vs. Commercial Market

24 2013

OIL vs. Commercial Market

OIL Features: Membership is exclusive to energy companies

Members are all shareholders / policyholders and have vested interests

“Mutualized” sharing of losses

Straightforward annual renewal

Premiums are formula and performance based i.e. no underwriting

One policy form for all members per the OIL Shareholders’ Agreement

OIL uses gross assets from audited balance sheets while the market uses insured values

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OIL vs. Commercial Market

OIL Advantages: Provides hedge against a frequently volatile commercial insurance

market

One of the broadest policy forms currently available

Stability (capacity and terms & conditions)

Low expense ratio

Shareholder input: • Influence product capability/evolution and developments

Generates long-term benefits for shareholders

Networking opportunities

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OIL vs. Commercial Market

OIL Disadvantages (Advantages?): x Premium directly affected by other Member’s losses (Mutualization)

x No pricing differentiation from others who are similarly situated

x No ability to negotiate premium levels

x Not suitable for Insureds who regularly tender markets or with a short term opportunistic approach to insurance buying.

OIL Differences (Advantages?):

x No Business Interruption coverage

x No “low deductible” option, although buy downs are generally available in the commercial market.

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Thank You!