University of Houston Energy Case Study

2. University of HoustonEnergy Case Study Steven P. Weiss, CPCU, AMIM, NAMS-CMS Vice President, Marine Engineering and Project Cargo

3. What are we going to do? • What is Risk Management • What is risk financing • What is the insurance industry and how does that play with Risk Management • How do the insurance players all interact • Who are the major players • Take a submission from cradle to grave

4. What is Risk Management • The identification, control and management of risks/hazards within an environment to ensure that they are always at a tolerable or negligible level

5. How is this done? • There are five steps • The identification and analyses of loss exposures • Examination of the feasibility of Alternative Risk management Techniques • Selection of the best Risk management techniques • Implementation of the techniques • Continual monitoring of the program

6. The identification and analyses of loss exposures • What are the exposures? • First Party • Third Party • Financial • Employee

7. The identification and analyses of loss exposures (cont) • First Party • Own Property

8. The identification and analyses of loss exposures (cont) • Third Party • Contractual • Personal Injury • Property Damage (others)

9. The identification and analyses of loss exposures (cont) • Financial • Business Interruption • Delay in Start Up • Self Insured Retentions • Deductible

10. The identification and analyses of loss exposures (cont) • Employee • Workers Comp • Jones Act • Longshore and Harbor Workers

11. Examine feasibility of Alternative Risk Management Techniques • Contracts to transfer risk • Training of Employees • Engineering solutions • Exit lines of business • Contractors • Insurance

12. Selection of the best Risk management techniques • In my situation, what works best? • Probably some combination of the above

13. Implementation of the techniques • Get the contracts signed • Engineer and install the solutions • Exit/sell lines of Business • Find the proper contractors • Purchase the Insurance

14. Risk Financing • What is Risk Financing • Where do you get it? • Deductibles/Self Insured Retentions • Mutual Agreements • Cash flow • Insurance

15. Insurance Flow Assured Broker/Agent Wholesale Broker Underwriter Reinsurance Broker Reinsurer

16. Assured/Insured • The Assured is the purchaser of the insurance • Normally through Broker or Agent • Pays Commission or fee for services to Broker • Pays premium to Underwriter

17. Broker/Agent • One who for commission or fee, brings parties together and assists in negotiating contracts between them • Representative of the Assured • Receives Fee for service from Assured or commission from Underwriter • Many are very well trained and knowledgeable • Also know as the Retail Broker/Agent

18. Wholesale Broker • Intermediary between retail Broker/Agent and Underwriters if the B/A does not have the proper market • Normally commission paid by Underwriter • Represents the Insured sort of as well as the retail broker

19. Underwriter • Reviews the risk as presented by the broker • If the risk is within appetite then assumes the risk for the loss of life, property or finances of another • Pays commission to the Broker if agreed up front

20. Reinsurance Broker • One who for commission or fee, brings parties together and assists in negotiating contracts between them • Places insurance for insurance companies • Normally commission paid by reinsurer

21. Reinsurer • Insures who insure other Insurance companies • Pay commission to Reinsurance Broker • Often pay override to the ceding insurer

22. Insurance Industry

23. Top Global P&C Companies2009 • Rank Company Revenues Country • 1 Allianz $125,999 Germany • 2 Berkshire Hathaway 112,493 U.S. • 3 AIG 103,189 U.S. • 4 Munich Re Group 74,764 Germany • 5 Zurich Financial Svcs 70,272 Switzerland • 6 State Farm Insurance 61,480 U.S. • 7 Tokio Marine Holdings  38,458 Japan • 8 Allstate 32,013 U.S. • 9 Liberty Mutual 31,094 U.S. • 10 Swiss Reinsurance 30,745 Switzerland Source: Company Filings

24. Top U.S. P&C Companies - 2009 • Rank Company Revenues • Berkshire Hathaway 112,493 • AIG 103,189 • State Farm 61,480 • Allstate 32,013 • Liberty Mutual 31,094 • Hartford 24,701 • Auto owners insurance 5,017 Source: Fortune magazine Note: LMG includes a full year of Safeco

25. The path of a submission

26. Here is what we discussed • What is Risk Management • What is risk financing • What is the insurance industry and how does that play with Risk Management • How do the insurance players all interact • Who are the major players • Take a submission from cradle to grave

27. Other Resources • http://www.iii.org/ • http://www.aicpcu.org/ • http://www.libertymutual.com

28. Financial Highlights LIU • LIU 2009 Premium – over $3.5B • Liberty Mutual 2009 Worldwide Revenue of $31.1 Billion up from $28.9 Billion in 2008 • Statutory Surplus - $14.B (28.0% increase) • Total Assets – Over US$109 billion • World-class Fortune 100 (# 71) financial standing • AM Best – A (Excellent) • Moody’s – A2 (Good) • Standard & Poor’s – A- (Strong)

29. Do you • Have any questions?