The OIL Group of Companies www.oil.bm www.ocil.bm “Tools for Risk Transfer” Presentation to University of Houston April 5, 2012
The Evolution of Energy Mutuals TOPS 1993-99 sEnergy OIL 2002-2011 1972 Traditional AEGIS OCIL Insurance 1975 1986 Market NEIL EIM 1980 1986 2 2 4/5/2012
Insurance Crisis # 1 Why was OIL Formed in 1971? • Inability of petroleum companies to purchase all-risk property damage coverage at realistic rates and capacity. – Incident – 1967 Explosion and Fire at Cities Service Oil Co. refinery in Lake Charles , Louisiana. • Unwillingness of the commercial insurance industry to sell third party pollution liability to petroleum companies at any price. – Incident – 1969 Union Oil Co. oil spill in Santa Barbara Channel, California. • Realization on the part of 16 oil companies that the combined capital & surplus of the petroleum industry greatly exceeded that of the insurance industry. 3 4/5/2012
Insurance Crisis # 2 (1985-86) Oil Casualty Insurance, Ltd. (OCIL) • Energy industry-owned company insuring • Excess General Liability • D&O Liability (now discontinued) • Assumed Reinsurance (Energy Industry Risks) • Formed in 1986 by 14 interested members of OIL. • Lack of D&O capacity was key driver in OCIL’s formation. • Today – 99 Shareholders and Policyholders headquartered around the world with total gross assets in excess of $3.5 Trillion. 4 4/5/2012
…and again in 1993 TOPS (Total Loss Only Platform Structures) • Petroleum industry-owned company providing high- level Excess Property Damage coverage for large production structures located in the North Sea. • Established in response to commercial insurance market’s overpricing of coverage specifically related to such structures. • Formed in 1993 by 16 petroleum companies headquartered in Europe and North America. • No losses in entire history of operations. • Liquidated in 1999 when rational pricing returned to the commercial market. 5 4/5/2012
…and once again in 2002! sEnergy Insurance Limited (sEnergy) • Energy industry-owned company providing • Business Interruption • Property Damage (excess of OIL) • Lack of affordable, long-term and stable commercial market capacity was key driver in sEnergy’s formation. • Formed in 2002 by 12 energy companies. • sEnergy operated with an “OIL-like” Rating & Premium Plan. • Closed down in 2011. 6 4/5/2012
OIL INSURANCE LIMITED A Case Study….
The OIL Group of Companies • Two energy industry mutual insurance companies: • Headquartered in Hamilton, Bermuda. • Established when commercial market: – Ceased to provide adequate coverages/limits. – Priced high risk energy operations at unacceptable levels. • The two companies have a total combined membership of 121 different Shareholders/Policyholders who are world-class energy companies headquartered around the world. 8 4/5/2012
Why Mutualize? • Industry ownership ensures fair treatment of Policyholders. • Being a mutual or member owned provide ‘hedge’ against a frequently volatile commercial insurance market. • Shareholders maintain active control of the coverages available to them. • Highly cost-effective catastrophe insurance facility. • Generates long-term benefits for Policyholders. 9 4/5/2012
Why “Bermuda”? • Bermuda is one of the three largest insurance markets in the world (London and New York being the others.) • More than 1,600 international insurers and 1,200 captive insurers are registered in Bermuda. • Favorable tax/regulatory/legal environment. • Highly developed markets in all lines of insurance coverage. • Sophisticated on-Island business infrastructure. 10 4/5/2012
The OIL Group of Companies “Mutual/Member Owned” Structure • Basic structure similar to any other corporations:- Shareholders, Board of Directors, Board Committees, Officers & Staff. • Major differences: Shareholders are the Customers (Insureds.) Directors are elected from the Shareholder Body. • The Investment companies are directed by a separate Board of Directors, which includes senior financial officers from major Shareholder companies. • In case of OIL, no “Underwriting” per se - each Policyholder treated equitably; premiums are formula-based—”Post lost funding”. 11 4/5/2012
Corporate Governance SHAREHOLDERS Elects Board Annually (Annual Meeting) BOARD OF Chairman Nominates DIRECTORS Committee members (3-5) Meetings per year) and Board Approves Executive Governance Audit Compensation Committee Committee Committee Committee OMSL All Officers and Support STAFF reside MANAGEMENT in Management Company 12 4/5/2012
The OIL Group of Companies Operational Structure Oil Management Services Ltd. OIL OCIL (52 Members) (99 Members)* Oil Casualty Oil Investment Investment Corp. Ltd. Corp. Ltd. (OCICL) (OICL) sEnergy Asset Excess General Liability Property Damage Barbados Ltd. Well Control, Pollution *99 Members at April 1, 2012. 13 4/5/2012
OIL: An Alternative Insurance Solution • Today, OIL continues to be a very real and attractive option to many insurance buyers in the energy industry. • OIL’s $300 Million limit is one of the largest net line capacity insurers currently available to the energy industry. • OIL does not buy reinsurance so it is not subject to annual changes in conditions or restrictions on terms offered – in this way full terrorism coverage continued to be offered after September 11 th . • Any rate increase in OIL is due to increased losses by the membership - not internal or external pressures - and hence is transparent. 14 4/5/2012
Who are OIL’s 52 Members? • Big Companies, such as: ConocoPhillips TOTAL Chevron • Small Companies, such as: Tesoro Petroleum LOOP LLC Murphy Oil Lyondell Chemical • Electric Utility/Power Generation Companies, such as: Electricity de France (EDF), DTE Energy • Other members of varying sizes and business focus within the broadly-based Energy Industry. 15 4/5/2012
Current OIL Members Oil Insurance Limited –MEMBERS 2012 MOL Hungarian Oil and Gas Company* Murphy Oil Corporation Apache Corporation Nexen Inc.* Arkema* Noble Energy, Inc. BASF SE* Nova Chemicals Corporation* BG Group plc* Occidental Petroleum Corporation* OMV Aktiengesellschaft* BHP Billiton Petroleum (americas) Inc. Paramount Resources Buckeye Partners, L.P. Puerto Rico Electric Power Authority Canadian Natural Resources Ltd* Repsol YPF, S.A.* CEPSA* Royal Vopak N.V.* Chevron Corporation Santos Ltd.* Sempra Energy Chevron Phillips Chemical Company LLC Sinclair Companies (The) CITGO Petroleum Corporation* Southern Union Company ConocoPhillips* Statoil ASA * DONG Energy A/S* Suncor Energy Inc. Drummond Company Inc. Sunoco, Inc. Talisman Energy Inc.* DTE Energy Company Tesoro Petroleum Corporation EDF Group* TOTAL* El Paso* Valero Energy Corporation* ENI S.p.a.* Westlake Chemical Corporation Galp Energia S.A.* Williams Companies, Inc. (The) Woodside Petroleum Limited.* Hess Corporation* Yara International ASA* Hovensa LLC Husky Energy Inc. LOOP LLC. Lyondell Chemical Company* 52 Shareholders Marathon Oil Company Marathon Petroleum Corporation * Shareholder and/or Named Insured is a Captive or wholly owned subsidiary 16 4/5/2012
Membership “Count”* 100 87 90 84 83 82 78 80 70 61 60 56 56 60 54 52 50 40 30 20 10 0 * Year-end member count, net year on year change. 17 4/5/2012
2012 Membership Count by Industry Segment 2% 2% 6% 18 4/5/2012
OIL Member Headquarter Location Globally diversified membership with an increasing interest from non-US companies. 19 4/5/2012
OIL: Risks Insured Eight Business Sector Coverages 1. Physical damage to first party property. 2. Well Control, including Restoration and Redrilling. 3. Third party Pollution Liability, (non-gradual). 4. Limits = $300 million per occurrence, no annual aggregate. 5. Single Event Limit = $900 Million. 6. Deductibles = $10 Million minimum, increasing in $5 million increments. Winstorm Coverages: Onshore and offshore (ANWS only) Coverage Grants same as 1, 2, and 3 above. Limits= $150 Million p/o $250 million per occurrence Single Event Limit = $750 Million. Coverage is automatic for exposed assets, but member can effectively opt out of the coverage. 4/5/2012 20
OIL Rating & Premium Plan Eight Business Sector Coverages only • Formula basis – no traditional “underwriting.” • Premiums paid by Policyholders is a function of their Gross Assets. • Gross Assets = Gross value (historic cost) of property, plant & equipment before deprecation, depletion, and amortization, plus inventories, materials, and supplies. • Gross Assets are then adjusted for operational risk and coverage profile (i.e., sector and deductible weightings) = Weighted Gross Assets. 21 4/5/2012
Sector Weighting for Risk • Policyholders’ Gross Assets are adjusted to recognize differences in operational risk between Business Sectors: – Offshore E&P -- Pharmaceuticals – Onshore E&P -- Mining – Pipelines -- Other – Electric Utilities – Refining & Marketing/Chemicals – ANWS-Onshore – ANWS-Offshore • Weighted Gross Assets are used to calculate individual Policyholders premiums. 22 4/5/2012
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