A Global View of Today’s Insurance Issues: Macondo

1. A Global View of Today’s Insurance Issues: Macondo Stephen Catlin Chief ExecutiveCatlin Group Limited September 20, 2010

2. 1993 Lloyd’s was in the middle of a serious financial crisis Unlimited liability Names supplied 100% of Lloyd’s capacity Introduction of ‘corporate capital’ ‘NewCo’ proposed to solve Lloyd’s ‘old year’ problems Hundreds of relatively small Lloyd’s syndicates (including Catlin) 2010 Lloyd’s has never been stronger financially Unlimited liability Names supply less than 5% of Lloyd’s capacity Corporate capital well-established Equitas successful and sold to Berkshire Hathaway 80 Lloyd’s syndicates (and the Catlin Syndicate is the largest) Looking Back 17 Years • Spoke at the Houston Marine Insurance Seminar in 1993 • Much has changed in 17 years

3. 1993 “Lloyd’s remains the dominant force in the energy insurance market.” A major question over how energy companies will be able to meet financial responsibility requirements following a pollution incident 2010 “Lloyd’s remains the dominant force in the energy insurance market.” A major question over how energy companies will be able to meet financial responsibility requirements following a pollution incident However, Some Things Have Not Changed

4. Our Concerns Also Have Not Changed Reprinted from September 27, 1993 Underwriter bullish on Lloyd’s Market has capacity to excel in energy business: Catlin • “Another question addressed a topic that weighed heavily on attendees’ minds: The Oil Pollution Act of 1990, which expands pollution liability and requires responsible parties to show evidence of financial responsibility to the US Coast Guard.”

5. Agenda • The Macondo Disaster • The importance of the US oil and gas industry • Measuring the impact of Macondo • How can insurersrespond? • What the future holdspost-Macondo?

6. The Importance of the US Oil/Gas Industry • US share of worldwide oil production 2009: 8.5% • US share of worldwide oil consumption 2009: 21.7% • Direct contribution to US GDP (2007): $450 billion • Deepwater Gulf of Mexico operations were largest contributor to global oil supply growth in 2009 • Deepwater production will be major driver of offshore activities • Future offshore expansion beyond Gulf of Mexico • Renewable energy sources now supply only a fraction of the world’s power capacity Source: BP Statistical Review 2009; PricewaterhouseCoopers 2009

7. US Crude Oil Production Trends • Prior to Macondo, US crude oil production was forecast to rise • What will happen now? ? Source: US Energy Information Administration

8. Impact of Macondo • 11 people lost their lives • A six-month drilling moratorium estimated to cost 23,000 jobs1 • 9,000 jobs directly • 14,000 jobs indirectly • Moratorium estimated to cost $2.1 billion in lost economic activity2 • Wider impact on tourism, recreation Sources: 1 Bloomberg 2010; 2 Institute for Energy Research 2010

9. Financial Impact of Macondo • Total estimated economic loss: $40 billion • Funds spent to date: $8 billion1 • Combined $100 billion reduction in market capitalization of companies directly involved (as at 15th September 2010) • Estimated potential insurance recoveries: $1.5 billion to $3.5 billion2 • Maximum offshore energy market capacity: approximately $5 billion (including liabilities) • Current maximum capacity not deployed for a Macondo scenario Source: 1BP 2010 (Q2 results); 2Swiss Re 2010

10. Economic Loss vs. Insurance Limits Total economic loss: $40 billion BP spend to date: $8 billion1 Working Maximum interest insurance coverage BP 65% Captive Anadarko 25% $163 million Mitsui 10% $175 million Transocean 0% $950 million Source: 1BP 2010

11. Impact To Date on BP • Amounts paid by BP as of September 13, 2010 Payments to third-party claimants $500m Clean-up, containment & relief wells* >$7,500m Total >$8,000m * Includes money spent by government and reclaimed from BP • Equivalent to $55 million per day (145 days) • Does not include escrow funds established by BP Gulf Coast Research Institute $500m Unemployed Rig Workers’ Fund $100m Claims Escrow Fund $20,000m • BP has billed Anadarko $1.2 billion, but payment has been withheld Source: BP 2010; Anadarko 10-Q 2010

12. Impact on Market Capitalization BP Transocean Source: UBS 2010

13. Impact on Market Capitalization Mitsui & Co. Ltd. Anadarko Source: UBS 2010

14. Other Impacts of Macondo • US deep-water drilling moratorium • Increased regulatory environment? • Increased financial responsibility standards? • More stringent requirements for operating licences? • Review of contractual responsibilities • Joint Operating Agreements • Operator/Drilling Contractor

15. Other Impacts of Macondo • Impact felt globally • EU, Norway, Australia undergoing regulatory reviews • Indonesia seeking $2.2 billion in compensation from PTTEP for Montara oil spill

16. Other ‘Uninsurable’ Risks • Examples of previous responses by insurance market to similar problems • Nuclear Pool • Established in 1950s • Capacity grown since formation to up to $2 billion currently • Liability limits aggregated over lifetime of unit • Terrorism - TRIA • Response to 9/11 • Reinsurance by US federal government • Significant exposure retained by insurance industry • Market capacity has grown to $1.5 billion

17. Other ‘Uninsurable’ Risks • International Group of P&I Clubs • Commercial reinsurance provided to mutual insurers owned by shipowners • Combined purchase • Significant pollution coverage provided including clean up • Led by Catlin

18. Questions for Insurance Market • Can insurers provide enough capacity to adequately protect insureds from financial ruin in case of an incident similar to Macondo? • Can insurers provide appropriate coverage? • Clean up • Fines / penalties • Can insurers satisfy regulatory and other stakeholder requirements? • Speed of payment?

19. Chrysalis • Developed by Catlin in conjunction with Oil and Gas Industry • Launched February 2010 (pre-Macondo) • A response to uncertainty over claims costs/exposures • Additional capacity from recognized market leaders • Single point of access to market • Standard wording • Sustainable pricing • Event limit shared by policyholders • Complementary to existing market placements – OIL • Flexibility to expand

20. Drivers for Maximum Market Capacity • Co-ordinated response from insurers, led by requirements from Oil and Gas Industry • Committed buyers/insurers/regulators/financiers • Certain of exposure/protection • Clarity of coverage • Measure of indemnity • Transparency of risks • No clash potential • Impact of additional exposures arising from same incident • Sustainable pricing • Industry-wide solution

21. Conclusion • Insurance helps manage risk • Uncertain times for Oil &Gas Industry and insurers • Transocean physical damage loss paid within 16 days of incident • Insurers provide a promise to pay • Long-term viability of insurers requires adequate pricing • Success is built upon collaboration