Ocean Marine Overview and Catastrophe Modeling Issues

1. Steven G. Searle, FCAS SVP Instrat Ocean MarineOverview and Catastrophe Modeling Issues

2. 2000 – 2005 US Cat Losses

3. 2005 Hurricane LossesImpact on Marine and Offshore Energy • Offshore Energy • Katrina • RMS estimates between $2bn and $5bn • Eqecat expects a loss ranging from $5bn to $8bn • Rita • RMS estimates between $1bn and $2bn • Yacht • Katrina • Insurance losses range from $300M to $400M. (Boat Owners Association of The United States- Oct 12, 2005) • Hurricane Katrina also destroyed an estimated 75% of the marinas along 150 miles of the Gulf Coast

4. Ocean Marine • Agenda • Marine Overview • Marine Results • Marine Catastrophe Modeling Developments

5. Ocean Marine • Agenda • Marine Overview • Marine Results • Marine Catastrophe Modeling Developments

6. Ocean Marine • Lines of Business • Cargo • Hull (blue-water, brown-water) • Commercial Protection and Indemnity (P&I) • Liability • Yacht (including P&I) • Offshore Energy

7. Ocean Marine Split by LOBCY Direct Written Premiums Source: AIMU 2005 Calendar Year Operating Ratios

8. Ocean Marine • Agenda • Marine Overview • Marine Results • Marine Catastrophe Modeling Developments

9. Calendar Year Ocean Marine ResultsDirect Business Source: AM Best Aggregates and Averages

10. Calendar Year Ocean Marine ResultsNet Business Source: AM Best Aggregates and Averages

11. Calendar Year US Marine ResultsDirect Written Premiums ($B) and Net Combined RatioCompanies reporting to the American Institute of Marine Underwriters Source: AIMU 2005 Calendar Year Operating Ratios

12. US Calendar Year Net Combined RatiosLOB detailCompanies reporting to the American Institute of Marine Underwriters Source – AIMU 2005 Calendar Year Operating Ratios

13. US Calendar Year Net Combined RatiosLOB detail (cont.)Companies reporting to the American Institute of Marine Underwriters Source – AIMU 2005 Calendar Year Operating Ratios

14. US Calendar Year Net Combined RatiosLOB detail (cont.)Companies reporting to the American Institute of Marine Underwriters Source – AIMU 2005 Calendar Year Operating Ratios

15. Ocean Marine • Agenda • Marine Overview • Results • Marine Catastrophe Modeling Developments

16. Catastrophe Modeling Vendors Applied Insurance Research (AIR), EQECAT or Risk Management Solutions (RMS) • valuable knowledge inputs to identify, understand and manage risk

17. Modeled Perils • hurricane • wind • loss amplification/demand surge • storm surge • earthquake • shake • fire following • sprinkler leakage • loss amplification/demand surge • other wind • winter storm • terrorism • flood (Europe) • pandemics

18. Modeled Lines of Business • Personal lines property • Commercial lines property • Industrial property • Builders Risk • Auto Physical Damage • Workers Compensation • Lives at risk – Accident and Health • Marine (partially*) Marine lines • Fixed Properties (marinas) - handle well • Contents (warehouse cargo) - can handle with adjustments • Oil Rigs - modeling capabilities available • Mobile Property (cargo, floaters) - capabilities exist but are limited • Yachts - capabilities in the RMS May 2006 release • Commercial Hull (?)

19. Modeled Coverage Parts • Fixed Property • completed structures • structures under construction (e.g. shipbuilders risk) • machinery & equipment • piers / wharves • offshore platforms • Personal Property • contents • stock • electronic Data Processing equipment • Mobile Property • cargo • floaters including contractors equipment (though generally difficult to include) • personal yachts • Time Element

20. The Four Catastrophe Model Modules Module 2 Event Database Module 1 Data Preparation Module 3 Damage Calculation Module 4 Loss Calculation

21. Model Applications - Loss Potential “Occurrence" Return Period Losses A.M. Best Benchmarks • U.S. Hurricane • U.S. Earthquake

22. Yacht Modeling Capabilities X RMS RiskLink May 2006 release

23. RMS Construction Classification Update RiskLink version 6.0 (May, 2006) • Seven New RMS Yacht Classes (length and power) • Boats, inside a Building (Marina) - Precast Reinforced Concrete with Concrete Roof (RMS Code 54) • Boats, Moored, Less than 26 ft, Motor - (RMS Code 55) • Boats, Moored, Less than 26 ft, Sail – (RMS Code 56) • Boats, Moored, 26-60 ft, Motor - (RMS Code 57) • Boats, Moored, 26-60 ft, Sail (RMS Code 58) • Boats, Moored, Greater 60 ft, Motor (RMS Code 59) • Boats, Moored, Greater 60 ft, Sail (RMS Code 60)

24. Offshore Energy Modeling/Databases • RMS currently has offshore modeling capabilities • Version 6.0 Changes • new construction classes • new year built ranges • new occupancy classes • includes Contingent Business Interruption, Operators Extra Expense • new loss amplification factors specific to offshore platforms • EQE to release offshore energy model • ERAS - database program used by many energy clients for capturing exposure information by platform • Exposure management only, no damage estimates or simulations of events.

25. Outlook • Role of Actuaries and Catastrophe Modelers continues to grow in the Marine renewal process. • Models will continue to be valuable as one of many information inputs… • but extremely dangerous if used as the only information input • Models have improved risk quantification significantly… • but can mislead if users do not understand shortcomings • Applications can create significant marketplace advantages… • but inappropriate applications can create hidden dangers • Models continue the tradition of innovation and progress… • but models are “not" perfect and need to improve

26. Questions