Energy Insurance The Road Ahead

Dominick Hoare

The Loss/Profit Equation

• Inherent Business Dilemma• Demands of Capital• Stable Profit Environment• Sustainable Business Concept

Current Environment

• Volatility• Premium Increases• Severe Loss Frequency• Long Term Uncertainty

Toulouse

Toulouse

Toulouse

Toulouse

Toulouse

Toulouse

P36

P36

P36

P36

P36

P36

P36

P36

P36

P36

P36

P36

Gulf of Mexico Blowout

Gulf of Mexico Blowout

Gulf of Mexico Blowout

Gulf of Mexico Blowout

Gulf of Mexico Blowout

Willis Loss Database

Years No. of Incidents Total US$ Loss

1991 - 1996 1417 16,881,924,551

1997 – 2001 1808 19,323,966,884

All Years 3225 36,205,891,439

Lloyd’s Energy Statistics

0%

50%

100%

150%

200%

250%

1996 1997 1998 1999 2000

Offshore Physical Damage - Incurred Loss Ratio

Lloyd’s Energy Statistics

0%

50%

100%

150%

200%

250%

1996 1997 1998 1999 2000

Control of Well - Incurred Loss Ratio

Lloyd’s Energy Statistics

0%

50%

100%

150%

200%

250%

300%

350%

400%

1996 1997 1998 1999 2000

Onshore Physical Damage - Incurred Loss Ratio

Lloyd’s Energy Statistics

0%

20%

40%

60%

80%

100%

120%

140%

160%

180%

200%

1996 1997 1998 1999 2000

Energy Liability - Incurred Loss Ratio

Lloyd’s Energy Statistics

0%

50%

100%

150%

200%

250%

1996 1997 1998 1999 2000

All Classes - Incurred Loss Ratio

Lloyd’s Peer Group

100

140

180

220

260

Com

bine

d R

atio

Rating Index

0%

20%

40%

60%

80%

100%

120%

140%

160%

1993 1994 1995 1996 1997 1998 1999 2000 2001

Equity Markets

9/11

P36 - March

Toulouse - September

Situation

• Capital Intolerance• Flawed Business Model• Short Term Solutions vs. Long Term

Business

Solution

• Mutual and Constructive• Reduce Volatility• Renewed Confidence• Stable Capital

Fundamental Restructuring of Business

• Return on Capital• Higher and Consistent Premium Levels• Transparent Risk Transfer

Insured's Charter

• Higher Quality Product• New Standard Levels• Commitment and Continuity

Lloyd’s

• Flexible and Innovative Product• Expertise and Professionalism• Unique Talent Pool

Lloyd’s

• Chairman’s Strategy Group/Franchise Concept

• Proactive and Supportive• Entrepreneurial Spirit• Strong Corporate Governance

Lloyd’s

• 9/11• Trading Continuity• Funding Obligations• 2000 Gross Income – £ 10.2bn• 2001 Gross Income – £ 11.6bn• 2002 Gross Income – £ 12.8bn

Regulatory Environment

• Risk Focused Management• LMP Reforms• Product Centered• Market Leadership from Lloyd’s

Re-Definition of Insurance Business Model

• Structural Change – Mutually Driven• Product of Highest Quality and Integrity• Sustainable and Profitable• Is Failure an Option?

Energy Insurance The Road Ahead

Dominick Hoare