Perspective of a Buyer (and Occasional User) of Marine Insurance

1. Perspective of a Buyer(and Occasional User)of Marine Insurance September 17, 2007 Tim Woodard VP and Chief Risk Officer

2. Why Buy Insurance?

3. Overview • Brief McDermott Overview • McDermott’s Evolved View of Insurance • McDermott’s View of Relationships • Sensitive Marine Coverage Issues • The Skewed View of a Risk Manager

4. McDermott Segments – Franchise Names in Energy E&C Power Generation Systems Government Operations Offshore Construction J. Ray McDermott (J. Ray) BWX Technologies (BWXT) Babcock & Wilcox (B&W) Providing engineering, procurement, construction & installation services for the offshore oil and gas industry worldwide Power generation and environmental equipment - design, supply and construction; OEM & upgrades, parts & services Lifecycle management of highly enriched uranium, facilities & technologies primarily for the U.S. government Major operating subsidiaries only

5. Diversified Across Energy Spectrum Backlog Revenues Segment Income [1] $417.0 mln FY06 $4.1 bln FY06 $8.9 bln @ 6/30/07 Coal & Nuclear - commercial Oil and gas Nuclear - government [1] Segment income does not include $29.9 million of unallocated corporate expenses through December 31, 2006.

6. McDermott vs. Peers – FY06 Operating Income and Margin Operating Income Operating Margin (%) Source: Company filings. Ticker Key: Chicago Bridge & Iron (CBI), Fluor (FLR), Foster Wheeler (FWLT), Jacobs (JEC), KBR (KBR), McDermott (MDR), Shaw Group (SGR), Washington Group (WGII). Fiscal year-end dates were: 12/31/06 for Chicago Bridge & Iron, Fluor, Foster Wheeler, KBR, McDermott, Washington Group, 9/30/2006 for Jacobs, and 8/31/06 for Shaw Group.

7. Overview • Brief McDermott Overview • McDermott’s Evolved View of Insurance • McDermott’s View of Relationships • Sensitive Marine Coverage Issues • The Skewed View of a Risk Manager

8. The Role of Insurance Technically – In Risk Treatment Context Risk Identification Risk Financing Risk Analysis Review Design Risk Management Strategy Risk Avoidance Loss Control Transfer/insurance is just one arrow in the quiver Captives Transfer - Ins Finite ins, retros, etc Transfer - Contract Go bare Implement Strategy

9. Risk Categorization for Financing Severity Transfer/Finance via Insurance Avoid High Freq High Severity Low Freq High Severity Cost Effective Loss Control or Ignore Retain and Finance via Captive Low Freq Low Severity High Freq Low Severity Frequency

10. View of Insurance Americans have an abiding belief in their ability to control reality by purely material means... airline insurance replaces the fear of death with the comforting prospect of cash. Cecil Beaton Translation: “Its OK, we have insurance”

11. The Role of Insurance • McDermott’s Former (10+ years) view: • Quasi commodity – lots of “names” • Potential source of revenue – market tolerance for losses • Now: • Use only to finance true low frequency, high severity losses • The less you use it, the happier everyone is • Growing bias towards retaining risk • Down Low – avoid dollar swapping with insurers • Quota share – skin in game • Invest in loss control - not in insurers

12. Loss Control MII TRIR Current Rate of 0.98 Is 21% of 1996 rate

13. Loss Control - TRIR • MII 2007 YTD 0.98 • Top 25% • J Ray at 0.46 • is “Best in Class” OSHA Construction (> 1000 employees; 2005) TRIR Avg 5.2 McDermott (YTD 2006) Median 3.5 B&W 2.84 BWXT 1.24 Top 25% 1.00 JRM 0.46

14. Overview • Brief McDermott Overview • McDermott’s Evolved View of Insurance • McDermott’s View of Relationships • Sensitive Marine Coverage Issues • The Skewed View of a Risk Manager

15. Relationships Insurance is like marriage. You pay, pay, pay, and you never get anything back. Al Bundy, “Married with Children” McDermott would add: “We hope”

16. Relationships • Long term relationships • Smooth bumps in the road (no immediate and sudden payback needed) • Permit development and trust and sometimes even the benefit of the doubt • Need to be willing to put your money where your mouth is • We factor in the time value of money, anticipated litigation costs, etc. in placement decisions • Not always easy and there is a limit • Historic bias towards London for Marine and Excess Liability coverages

17. Relationships - Final Thought There are worse things in life than death. Have you ever spent an evening with an insurance [broker]? Woody Allen

18. Overview • Brief McDermott Overview • McDermott’s Evolved View of Insurance • McDermott’s View of Relationships • Sensitive Marine Coverage Issues • The Skewed View of a Risk Manager

19. Marine Coverage Issues • Wellcar – Section 2 Project Liability Cover and other policies based on it exclude watercraft liability and state they are excess to other coverages • Be sure to state who’s on first • Two coverages < one cover • Specific wording in contracts, project policies, and in our excess policy • Tempering the requirement to flow-down cover to subs

20. Marine Coverage Issues • Restricting third party access to our cover • Limit naming as additional assured “to the extent” of the indemnity we owe • Similarly limit waivers • Specialist Ops where subcontractors/other contractors are financing losses through a P&I cover • The woes of being an “other insured” with no rights to press your claim

21. Overview • Brief McDermott Overview • McDermott’s Evolved View of Insurance • Marine Coverage Issues Relationships • Sensitive Marine Coverage Issues • The Skewed View of a Risk Manager

22. Other Contractor People and Property • Part of “Company Group” or Third party? • If third party, do we have a mutual hold harmless agreement? • At law – no bid? • JRM People and Property • JRM takes its people and property • Backed by naming and waiving to relevant insurance policies • Work in Progress • JRM exposure? • Customer waiver and indemnity above this? • BAR? Rights? • Company People and Property • Co takes its people • JRM on hook for existing property?