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Six Trends Affecting the Energy Market

Robert Rokicki SVP, LIU Energy

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Introduction A Number of Recent Developments Affecting the Energy Market Have Significant Implications for Underwriting in This Segment

We’ll discuss six of the key developments, the implications, and how the insurance industry is addressing them

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Differential Pricing the “New Norm”

How Are You Managing • Coverage extension limits & deductibles

• Policy wording (valuation / definitions / conditions)

• Renewal meetings “what do we accomplish?”

• Claims resolution/consensus likely to be more arduous and overall account administrative work

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The above differentials should facilitate more attractive upfront deals, do they?

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Larger Events, More Often

Solutions • Actuarial reviews better defining category losses as: “frequency (attritional)”, “severity (shock)” and “natural catastrophe” to properly measure portfolio price adequacy

• Use supplemental risk engineering information to enable granular loss estimate analysis

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Will premium pool be sufficient to address myriad of loss exposures?

Proprietary and Confidential More and Larger Natural Catastrophe Events Globally

Complications • Reliance on industry tools that

are inexact (at best) • Account-level modeling programs

better suited for portfolio controls

Solutions • Improve design and use of modeling • Clarify policy wording at inception to

avoid post-loss disputes. Examples: – What is the definition/deductible of “Flood Zone A”? – What is the definition/deductible of “Storm Surge”?

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Time Element Coverage and Volatility 4

• Commodity price volatility increasing in many segments

• Sizeable time element exposures with unique policy conditions: – Gross earnings, gross profits, margin caps,

adjustment provisions, CBI, extra expense

Solutions • Improve prediction of future

exposure for more accurate Business Interruption Values

• Adjust complex claims on an “Actual Loss Sustained” basis

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• Sustained energy investment and expansion • Debottlenecking of existing assets to efficiently handle shale oil/gas

• Energy independence

USA Shale Oil/Gas Development

Rising margins

Increasing revenues

Increased policy limits

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Aging Equipment & Tech Advances

Technology Advances • Higher temperatures • Higher pressures • Greater throughput

Aging Equipment • Maintenance • Capital expenditures / spares • Turn around time

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Proprietary and Confidential Conclusion Trends

Drivers include larger and more frequent events, greater price volatility, aging equipment, technology advances, and increasing revenues

The energy segment is complex and needs to be properly understood on an account and portfolio basis to enable long term, stable relationships (“trade with experts”)

Energy risk exposures overall continue to rise

Proprietary and Confidential Conclusion Underwriting Solutions

Improve modeling, clarify policy wording at inception

Improve prediction of future exposure, adjust complex claims on Actual Loss Sustained basis

More precise actuarial review, with more granular loss estimates

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LIU Energy & Construction Property Segments

OGPC

Petrochemical Chemical Refineries

Midstream Gas Pharmaceutical

Terminals Pipelines

Power

Fossil Fuel Simple &

Combined Cycle Hydroelectric Wind / Solar Geothermal

Water & Waste Water

Heavy Industries

Molten Metals Mining & Mineral

Processing Pulp & Paper

Construction

Erection All Risk (Energy & Mfg) Contractors

All Risk (Four Wall / Buildings)

Civil Infrastructure Works

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