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AgendaAgenda
Review of topicsReview of topics Class structure Class structure
INTERACTINTERACT Take-awaysTake-aways Industry factsIndustry facts Little funLittle fun
Our Valuable TeachersOur Valuable Teachers Steve EnglandSteve England – AIG, Resident Vice President – AIG, Resident Vice President Mitch HarlessMitch Harless – AIG, Vice President Global Energy Claims – AIG, Vice President Global Energy Claims Donna Pettersen McGinnisDonna Pettersen McGinnis – Consultant for D&O at – Consultant for D&O at
DynegyDynegy Cindy ChapmanCindy Chapman – Apache, Corporate Risk Manager – Apache, Corporate Risk Manager Robert D. StaufferRobert D. Stauffer – President , OIL – President , OIL O.J. SanchezO.J. Sanchez – Principal,Decision Strategies – Principal,Decision Strategies James HughesJames Hughes – Director of Corporate Risk Management – Director of Corporate Risk Management
ConocoPhillips ConocoPhillips James FergusonJames Ferguson – Assoc. Gen Council and Director of Risk – Assoc. Gen Council and Director of Risk
Management, Halliburton Management, Halliburton Ted GobillotTed Gobillot – Assoc. General Council, Rowan – Assoc. General Council, Rowan Bob HixonBob Hixon – Managing Director, John L. Wortham & Son – Managing Director, John L. Wortham & Son
Class StructureClass Structure
How did we learn from this class?How did we learn from this class?Real-life experience of lecturers Real-life experience of lecturers Interaction through Q&AInteraction through Q&AConstant commitment through written Constant commitment through written
assignmentsassignmentsReinforcement of knowledge through Reinforcement of knowledge through
presentations presentations Practice of team workingPractice of team working
How else could we have How else could we have learned?learned?
No way! This was the best way!No way! This was the best way! No way! This was the best way! No way! This was the best way!
No way! This was the best way! No way! This was the best way!
No way! This was the best way! No way! This was the best way! No way! This was the best way! No way! This was the best way!
No way! This was the best way! No way! This was the best way! No way! This was the best way! No way! This was the best way! No way! This was the best way! No way! This was the best way!
No way! This was the best No way! This was the best way!way!
Any other ideas? Any other ideas?
Take-AwaysTake-Aways
What did we learn from the class?What did we learn from the class?Concepts from the energy industryConcepts from the energy industry
Fundamentals in the oil and gas sectorFundamentals in the oil and gas sectorCyclicality of commodity pricesCyclicality of commodity pricesThe magnitude of the operations The magnitude of the operations
Notions of risk and how to insure and Notions of risk and how to insure and manage that riskmanage that riskImpact of natural catastrophic eventsImpact of natural catastrophic eventsRisk management is both an art and a Risk management is both an art and a
sciencescience
CyclicalityCyclicality
Gasoline PricesGasoline Prices
Source: U.S. Bureau of Labor Statistics
Earth by NightEarth by Night
Source: NASA (Nov 2000)Source: NASA (Nov 2000)
Earth by NightEarth by Night
Insured Loss & Claim Count Insured Loss & Claim Count for Major Storms of 2005*for Major Storms of 2005*
$1.1
$38.1
$8.4$5.0
104
381
955
1,752
$0.000$5.000
$10.000$15.000$20.000
$25.000$30.000$35.000
$40.000$45.000
Dennis Rita Wilma Katrina
Size of Industry Loss ($ Billions)
Ins
ure
d L
os
s ($
Bill
ion
s)
02004006008001,0001,2001,4001,6001,8002,000
Cla
ims
(th
ou
sa
nd
s)
Insured Loss Claims
*Property and business interruption losses only. Excludes offshore energy & marine losses.
Source: ISO/PCS as of February 8, 2006; Insurance Information Institute.
Hurricanes Katrina, Rita, Wilma & Dennis produced a record 3.2
million claims
Outlook for 2006 US Hurricane Outlook for 2006 US Hurricane SeasonSeason
AveragAverage*e*
2005*2005***
20062006FF
Named StormsNamed Storms 9.69.6 2626 1717
Named Storm DaysNamed Storm Days 49.149.1 115.5115.5 8585
HurricanesHurricanes 5.95.9 1414 99
Hurricane DaysHurricane Days 24.524.5 47.547.5 4545
Intense HurricanesIntense Hurricanes 2.32.3 77 55
Intense Hurricane DaysIntense Hurricane Days 2.32.3 77 55
Net Tropical Cyclone Net Tropical Cyclone ActivityActivity
100%100% 263%263% 195%195%
*Average over the period 1950-2000.**As of December 4, 2005.Source: Dr. William Gray, Colorado State University, December 6, 2005.
Top 10 Most Costly Top 10 Most Costly Hurricanes in US History, Hurricanes in US History,
(Insured Losses, $2005)(Insured Losses, $2005)
$3.5 $3.8 $4.8 $5.0$6.6 $7.4 $7.7 $8.4
$21.6
$40.0
$0
$5
$10
$15
$20
$25
$30
$35
$40
$45
Georges(1998)
Jeanne(2004)
Frances(2004)
Rita (2005)
Hugo(1989)
Ivan (2004)
Charley(2004)
Wilma(2005)
Andrew(1992)
Katrina(2005)
$ B
illi
ons
Sources: ISO/PCS; Insurance Information Institute.
Seven of the 10 most expensive hurricanes in US history
occurred in the 14 months from Aug. 2004 – Oct. 2005:
Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne
Global Insured CAT Losses,Global Insured CAT Losses, 1970– 1970–20052005
(Property and Business Interruption)(Property and Business Interruption)
$0
$10
$20
$30
$40
$50
$60
$70
$80
19
70
19
71
19
72
19
73
19
74
19
75
19
76
19
77
19
78
19
79
19
80
19
81
19
82
19
83
19
84
19
85
19
86
19
87
19
88
19
89
19
90
19
91
19
92
19
93
19
94
19
95
19
96
19
97
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
Natural catastrophesMan-made disasters
Source: Swiss Re, sigma No. 1/2005 & 2/2006.
Billion USD, at 2004 prices
There has been a huge increase in the insured
value of global CAT losses in recent years
Record $78 billion in insured natural CAT
losses in 2005, compared to $5B in man-made disasters
Types of RisksTypes of Risks
Financial riskFinancial risk Credit riskCredit risk
Interest rate riskInterest rate risk Legal riskLegal risk
Liquidity riskLiquidity risk Market risk Market risk
Reinvestment risk Reinvestment risk
Steps in Managing Risk Steps in Managing Risk Establishing the contextEstablishing the context IdentifyingIdentifying AssessingAssessing Treating Treating
Transfer Transfer Avoidance Avoidance Reduction (Mitigation) Reduction (Mitigation) Acceptance (Retention)Acceptance (Retention)
Creating the planCreating the plan Implementing Implementing Reviewing and evaluatingReviewing and evaluating
Types of InsuranceTypes of Insurance
Health insuranceHealth insurance Life insuranceLife insurance Property insurance Property insurance Casualty insuranceCasualty insurance Credit insurance Credit insurance Reinsurance Reinsurance Self insurance Self insurance Travel insurance Travel insurance
Property and Business Interruption Property and Business Interruption LossesLosses
Rank Date Location EventInsured loss
in U.S. 1 Aug. 24 U.S., Gulf of Mexico, Bahamas, North Atlantic Hurricane Katrina; floods, damage to levees and oil rigs $45,000
2 Sep. 20 U.S., Gulf of Mexico, Cuba Hurricane Rita; floods, damage to oil rigs 10,000
3 Oct. 16 U.S., Mexico, Jamaica, Haiti, Cuba Hurricane Wilma; torrential rain, floods 10,000
4 Jan. 8 Denmark, Sweden, U.K., et al. Winter storm Erwin; floods 1,887
5 Aug. 19 Switzerland, Germany, Austria, et al. Rain, floods and landslides 1,864
6 Jul. 6 U.S., Cuba, Haiti, Jamaica, et al. Hurricane Dennis; damage to agriculture 1,115
7 Jul. 9 India Floods and landslides; damage to warehouses 844
8 Mar. 25 U.S. Thunderstorms with heavy rain and hail 655
9 Jan. 11 U.K., Ireland Storm Gero with winds up to 200 km/h 510
10 Aug. 30 Japan, South Korea, et al. Typhoon Nabi/No. 14; rain, floods, landslides 498
THE 10 MOST COSTLY WORLD INSURANCE LOSSES IN 2005 ($ millions)
Rank Date Country EventInsured loss in 2005 U.S.
1Aug. 24, 2005 U.S., Gulf of Mexico, Bahamas, North Atlantic Hurricane Katrina; floods. damage to levees and oil rigs $45,000
2Aug. 23, 1992 U.S., Bahamas Hurricane Andrew 22,274
3Sep. 11, 2001 U.S. Terrorist attacks on WTC, Pentagon, other buildings 20,716
4Jan. 17, 1994 U.S. Northridge earthquake (magnitude 6.6) 18,450
5Sep. 2, 2004 U.S., Caribbean: Barbados, et al. Hurricane Ivan; damage to oil rigs 11,684
6Sep. 20, 2005 U.S., Gulf of Mexico, Cuba Hurricane Rita; floods, damage to oil rigs 10,000
7Oct. 15, 2005 U.S., Mexico, Jamaica, Haiti et al. Hurricane Wilma; torrential rain, floods 10,000
8Aug. 11, 2004 U.S., Caribbean: Cuba, Jamaica, et al. Hurricane Charley 8,272
9Sep. 27, 1991 Japan Typhoon Mireille/No. 19 8,097
10Jan. 25, 1990 France, U.K., Belgium, Netherlands, et al. Winterstorm Daria 6,864
THE TEN MOST COSTLY WORLD INSURANCE LOSSES, 1970-2005 ($ millions)
Did You Know?Did You Know?
History of transferring of riskHistory of transferring of risk Smoking is bad! – risk and insuranceSmoking is bad! – risk and insurance K&R insuranceK&R insurance Celebrities insured:Celebrities insured:
Bruce SpringsteenBruce Springsteen Marlene DietrichMarlene Dietrich Fred AstaireFred Astaire Tina TurnerTina Turner Dolly PartonDolly Parton
Famous QuotesFamous Quotes
You don’t need to pray to God any You don’t need to pray to God any more when there are storms in the more when there are storms in the sky, but you do have to be insured. sky, but you do have to be insured. (Bertold Brecht – german poet) (Bertold Brecht – german poet)
For almost seventy years the life For almost seventy years the life insurance industry has been a smug insurance industry has been a smug sacred cow feeding the public a sacred cow feeding the public a steady line of sacred bull. (NYTimes – steady line of sacred bull. (NYTimes – Ralph Nader – 1974) Ralph Nader – 1974)
JokesJokes
The cowboy was trying to buy an insurance The cowboy was trying to buy an insurance policy. The insurance agent was going down the policy. The insurance agent was going down the list of standard questions.list of standard questions.
"Ever have an accident?""Ever have an accident?" "Nope, nary a one.“"Nope, nary a one.“ "None? You've never had any accidents…""None? You've never had any accidents…" "Nope. Ain't never had one. Never.""Nope. Ain't never had one. Never." "That's hard to believe. No accidents at all?“"That's hard to believe. No accidents at all?“ "Well, rattler bit me one time.“"Well, rattler bit me one time.“ "Wouldn't you consider that an accident?“"Wouldn't you consider that an accident?“ "Hell no. Damned varmint bit me on purpose.""Hell no. Damned varmint bit me on purpose."
Class ContestClass Contest
THE ENDTHE END