SARIMS BREAKFAST NOVEM NOVEMBER BER 6, 2014 6, 2014 DOWNSTREAM - PowerPoint PPT Presentation

ENE ENERGY MA RGY MARKET UP RKET UPDATE DATE SARIM’S BREAKFAST NOVEM NOVEMBER BER 6, 2014 6, 2014

DOWNSTREAM PROPE DOWNSTREAM PROPERTY RTY

DOWNSTREAM CAPACITY USDm 5,000 4,500 4,000 3,500 3,000 2,500 2,000 1,500 1,000 500 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 International Estimated “realistic” market capacities North America Downstream market capacity is back up again - this time to its highest level for over 15 years Source: Willis 2

MAJOR DOWNSTREAM MARKET LOSSES 2013/14 Year Type Cause Location Country PD USD BI USD Total USD 2013 Refinery Fire no explosion Buenos Aires Argentina 300,000,000 700,000,000 1,000,000,000 2014 Petrochemical Fire no explosion Texas USA 85,000,000 555,000,000 640,000,000 2013 Petrochemical Fire no explosion Louisiana USA 110,000,000 400,000,000 510,000,000 2013 Refinery Fire no explosion Illinois USA 90,000,000 325,000,000 415,000,000 2013 Refinery Fire + explosion/VCE Saskatchewan Canada 75,337,000 219,136,000 294,473,000 2013 Chemical Windstorm Leyte Philippines 220,000,000 220,000,000 2013 Refinery Fire no explosion Sohar Oman 25,000,000 189,000,000 214,000,000 2013 Pipeline Subsidence/landslide Gujarat India 10,000,000 200,000,000 210,000,000 2014 Tank farm/terminal Fire + explosion/VCE Mendoza Argentina 180,000,000 180,000,000 2014 Refinery Faulty work/op error Porvoo Finland 47,000,000 122,000,000 169,000,000 2014 Refinery Fire no explosion Rayong Thailand 40,000,000 120,000,000 160,000,000 2013 Refinery Fire + explosion/VCE Merseyside UK 26,000,000 130,000,000 156,000,000 2014 Petrochemical Mechanicalfailure Alberta Canada 25,000,000 85,000,000 110,000,000 2013 Gas plant Explosion no fire Map Ta Phut Thailand 13,000,000 90,000,000 103,000,000 2014 Refinery Fire no explosion Punjab India 100,000,000 100,000,000 2014 Chemical Faulty work/op error Alberta Canada 22,333,500 72,360,540 94,694,040 2013 Refinery Fire + explosion/VCE Merseyside UK 13,800,000 75,233,600 89,033,600 2014 Petrochemical Fire + explosion/VCE Stavropol Krai Russia 83,000,000 83,000,000 2013 Chemical Mechanicalfailure Sohar Oman 20,500,000 53,000,000 73,500,000 2013 Gas plant Fire + explosion/VCE West Virginia USA 31,000,000 41,000,000 72,000,000 2014 Refinery Fire no explosion Lysekil Sweden 3,445,000 65,460,000 68,905,000 2013 Refinery Fire + explosion/VCE Andhra Pradesh India 5,000,000 60,000,000 65,000,000 2014 Petrochemical Fire no explosion Eastern Province Saudi Arabia 25,000,000 40,000,000 65,000,000 2013 Petrochemical Fire no explosion Eastern Province Saudi Arabia 25,000,000 40,000,000 65,000,000 2014 Refinery Mechanicalfailure Lysekil Sweden 775,000 50,475,000 51,250,000 2013 Petrochemical Fire no explosion Bahia State Brazil 25,400,000 25,500,000 50,900,000 2013 Chemical Mechanicalfailure Texas USA 45,000,000 5,000,000 50,000,000 2013 Refinery Fire + explosion/VCE Wyoming USA 50,000,000 50,000,000 2013 Petrochemical Mechanicalfailure Yanbu Saudi Arabia 5,000,000 45,000,000 50,000,000 But how much of these losses has been paid by the market? Source: Willis Energy Loss Database as at October 14 2014 (figures include both insured and uninsured losses) 3

A PROFITABLE PORTFOLIO? WELD Downstream Energy losses 1990 – 2014 (excess of USD 1m) USDbn USDbn versus estimated global Downstream premium income 10 10 9 9 8 8 7 7 6 6 5 5 4 4 3 3 2 2 1 1 0 0 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 Losses excess USD1m Estimated Worldwide Premium (USD) Recent losses have alarmed the Downstream market but overall composite market results are good Source: Willis/Willis Energy Loss Database as at October 14 2014 (figures include both insured and uninsured losses) 4

THE OUTLOOK FOR 2015 Estimated Average Rate Index Downstream Capacity versus Rating Levels, 1993 – 2014 USDm (1992=100) (Excluding Gulf of Mexico Windstorm) 6,000 120 5,000 100 4,000 80 3,000 60 2,000 40 1,000 20 ? ? 0 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Onshore Capacities Average Composite Percentage of 1992 rates Is there any escape from the laws of supply and demand? Source: Willis 5

UPS UPSTREA TREAM M PROP PROPERTY ERTY

UPSTREAM CAPACITY USDm 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Estimated maximum realistic capacity Capacity for Upstream business continues on its relentless upwards trajectory Source: Willis 7

MAJOR UPSTREAM MARKET LOSSES 2013/14 Year Type Cause Country Land / Offshore PD USD OEE USD BI USD Total USD 2013 Platform Mechanicalfailure Norway Offshore 80,280,000 300,000,000 380,280,000 2013 Rig Legpunchthrough Angola Offshore 247,300,000 247,300,000 2013 Platform Faulty work/op error China Offshore 237,000,000 237,000,000 2013 Rig Blowout Mexico Land 50,000,000 150,000,000 200,000,000 2013 Rig Blowout USA Offshore 64,000,000 81,844,000 145,844,000 2013 Platform Impact Angola Offshore 120,000,000 120,000,000 2013 Well Blowout Indonesia Offshore 105,000,000 105,000,000 2014 Rig Blowout Mexico Offshore 100,000,000 4,500,000 104,500,000 2013 Rig Faulty work/op error South Korea Offshore 100,000,000 100,000,000 2013 Well Blowout Russia Offshore 57,000,000 40,000,000 97,000,000 2014 Platform Pilingoperations Mexico Offshore 95,147,421 95,147,421 2014 Platform Subsidence/landslide Indonesia Offshore 89,000,000 89,000,000 2013 Rig Mechanicalfailure Brazil Offshore 4,500,000 70,700,000 75,200,000 2013 Well Heavyweather UK Offshore 65,000,000 65,000,000 2013 Rig Blowout Indonesia Offshore 65,000,000 65,000,000 2014 Pipeline Anchor/jacking/trawl Norway Offshore 63,000,000 63,000,000 2013 Rig Mechanicalfailure Brazil Offshore 60,000,000 60,000,000 2013 MOPU Corrosion Ivory Coast Offshore 50,000,000 50,000,000 2013 Pipeline Anchor/jacking/trawl China Offshore 50,000,000 50,000,000 2014 Well Blowout USA Land 50,000,000 50,000,000 The recent loss record has remained remarkably benign by historical standards Source: Willis Energy Loss Database as at October 14 2014 (figures include both insured and uninsured losses) 8

A PROFITABLE PORTFOLIO? USDbn USDbn Upstream losses in excess of USD1 million, 2000-2014 (adjusted for inflation) 20 20 18 18 16 16 14 14 12 12 10 10 8 8 6 6 4 4 2 2 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 Upstream losses excess USD1m Estimated Worldwide Offshore Premium (USD) Losses may be down – but so is premium income Source: Willis/Willis Energy Loss Database as at October 14 2014 (figures include both insured and uninsured losses) 9

THE OUTLOOK FOR 2015 Upstream Capacity versus Rating Levels, 1993 – 2014 Estimated Average Rate Index USDm (Excluding Gulf of Mexico Windstorm) (1992=100) 7,000 120 6,000 100 5,000 80 4,000 Predicted New Market Floor 2013 60 ? 3,000 40 2,000 Old Market Floor 20 1,000 0 0 93 94 95 96 97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 Upstream Capacities Average Composite Percentage of 1992 rates The last time the market faced this sort of competitive pressure was back in 1997 10

ISSUES FACING THE PROPERTY MARKET TODAY  Portfolio still generally profitable, despite falling rating levels  Loss record still basically benign in comparison to hurricane-affected years (2004, 2005, 2008)  Capacity:  Outgoing: Arch pulled out of Canada (-$75M)  Incoming: Aspen +$50M, AWAC, +$40M, Ironshore +$30M, BH…….  OIL increasing their limit from $300M occ/$900M agg to $400M occ/$1.2B agg  Discipline:  Insurers still having to underwrite the risk and justify their decisions to their management  Retentions holding steady, as are policy forms  However, no sign of any market floor – nothing materialising that could act as a brake on softening process at this stage  Buyers left with a decision:  Stick with trusted insurer partners? What is the value of a relationship?  Move to more competitive markets? Short term vs long term buying patterns 11

CASUA CASUALTY LTY

THEORETICAL VS ACTUAL CAPACITY Theoretical Capacity Realistic Realistic $ 2.8 billion Onshore Capacity Onshore/Offshore Capacity $1.4 billion Onshore/Offshore $ 800 million – Follow form $ 1.0 billion Capacity $ 500 m NB: Supply and Demand conditions operate: The greater the limit required, the greater the pressure on price, as the most economic capacity used up first. 13

PROPERTY: A NIGHT AT THE THEATRE …  Short Tail  Dynamic  High Drama  Volatile Rating  High cost 14

LIABILITY: A QUIET NIGHT IN FRONT OF THE TV?  Long tail  Less volatile  More considered  Lower Cost 15

WHEN IT GOES WRONG MACONDO OIL WELL BLOWOUT Loss Date: 20 April 2010  11 people died  17 people were injured  2.4 - 4.2 million barrels est. of oil spilled POTENTIAL LOSS AMOUNT Property Value of Rig : USD 0.56 bln Potential Liability: USD 42.7 bln est. 16