“State of the Marine & Energy Market”

1. “State of the Marine & Energy Market” “A Global Insurer’s Perspective” Don HarrellSVP, LIU US

2. Market Trends Over supply of capital Overcapacity and high competition Lack of investment income Flat economics & aging infrastructure in the developed world Improving infrastructure & increasing values in the developing world Increasingly concentrated distribution channel New technology Musical chairs of talent

3. Emerging Issues • High exposures & accumulation risk • Chile Earthquake (2010), Thailand Flood(2011), Japan Earthquake / Tsunami (2011), Costa Concordia (2012), Superstorm Sandy (2012), US Floods & Droughts • Increasing claims trends – frequency and severity • Increasing: • Cost of litigation (e.g. GA/Salvage awards) • Environmental regulation • Sanction compliance (e.g. reputational risk) • Changing trading patterns (e.g. Arctic shipping lanes, Northern Sea routes, Panama Canal expansion, etc.) • Crew competence / Bridge management / Vessel maintenance / Port congestion

4. Challenging Macro Environment Depressed Economic Conditions Global trade is flat Lower maintenance budgets due to reduced earnings Ships under-utilized, go for repairs > increase in moral hazard/layups Lower freight rates > reduced asset values > increased CTLs Increasing trend to claim in recessionary environment Minimal investment return, higher credit risk and weakening currencies Market Cycle Defined as Less elastic, flatter and significantly longer

5. Offshore Energy Trends/Issues

6. Hull Underwriting Trends/Issues

7. Marine Liability Trends/Issues:

8. Cargo Underwriting Trends/Issues:

9. Risk Managers’ Perspective on Marine Insurance Market!

10. Risk Managers’ Key Issues The protracted scarcity of property insurance capacity for windstorm risks The lack of cost-effective contingent business interruption insurance to transfer supply chain exposures Problems over insurance coverage gaps and pricing methodologies Rising anxiety over reputational risk A professed need for more expansive, insurer-provided loss engineering services

11. E&P Risk Managers’ Trends & Solutions But the Capital Markets Solution Is Problematic “ These risk solutions have too much of a miss factor to be an effective risk solution for companies with a large diverse reserve portfolio - One Risk Manager ” Risk Managers to Assume More Risk Via • Higher self-insured retentions or the use of captives • Sell, abandon or decommission non-productive assets to reduce aggregations at risk of loss • Be more strategic with budgeted resources; and/or • Transfer exposures to the capital markets

12. Risk Managers’ Supply Chain Concerns “ We are beginning analysis of our supply chain exposures from a risk bearing standpoint. We’re also contractually laying off risks to other providers, and have increased our financial limits substantially in some lines (of insurance) by getting rid of insurance coverage in other lines, being more strategic with our capital resources. We’re taking much more of a `targeted’ approach to risk transfer. - Mr. HaylesHilcorp Energy ” Vulnerability of Companies’ Global Supply Chains to • Extreme weather events • Other natural or man-made disasters • Sole source supplier situation • Suppliers’ suppliers defaulting on contracts

13. Risk Managers’ Quotes “ “ I’d really like to see underwriters think `out of the box’ and create a more effective long-term warranty insurance product.” -Doug DowningCanal Barge We would find it extremely valuable to have the insurance industry learn more about what these government agencies do and are planning to do. This could even lead to a creative insurance program or some layer of coverage to help us defray the related (compliance) costs. - Ms. Pichè from Black Elk ” ”

14. Risk Managers’ Quotes “ “ You pay a bit for this, but the upside is that it helps you avoid significant volatility. … The improved visibility is worth it from a budgeting and expense allocation standpoint. - Michael AlvarezFirst Wind Energy To manage the cycle, we do three things—have healthy self-insured retentions, seek good results and seek a long-term relationship with our insurers, broker, vendors and even the outside firms that provide legal services. - Spencer Murphy, Canal Barge ” ”

15. Risk Managers Quotes “ “ To me, our underwriters are an extension of our risk management team. They’re here to help us improve our business, to help this company grow and prosper. They do this by assisting us to reduce losses and, where feasible, to contain them. - Matt Wallace Huntsman Corporation “You need to put a face on the person you’re dealing with. Price and capacity are important, but the responsiveness to claims is more important, and that is where a personal relationship comes into play. - Michael AlvarezFirst Wind Energy ” ”

16. “Eyeing an Uncertain Future” Current and intruding concerns Supply chain disengagement Disaster planning and recovery Sleepless nights Closer collaborations Coverage considerations The value of long-term relationships Added Value Services - Risk engineering