OIL Guide 2013 Seguros

8/12/2019 OIL Guide 2013 Seguros

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Energy Practice

A GUIDE TO OIL INSURANCELIMITED OIL2013


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i A Guide to OIL 2013

f Introduction ........................................................................... 1

f Background ........................................................................... 2

f Eligibilit ................................................................................ 2

f Prospect Premium Indications ................................................ 3

f Membership Application Process ........................................... 3 f Timing ...................................................................................4

f Contractual Premium Obligations ..........................................4

f Coverages ..............................................................................5

f Limits and Deductibles ...........................................................6

f ANWS Speci c Coverage Restrictionsand Premium Obligations ......................................................9

f Windstorm Coverage in Other Geographic Regions ............. 10

f ANWS Occurrence De nition ............................................... 11

f Rating & Premium Plan (R&PP) ............................ ................. 11

f General Conditions .............................................................. 16

f Claim Reporting Requirements ............................................ 16

f

O shore Pollution Liabilit Agreement(OPOL) Endorsement (and OPOL Certi cation) .................... 16

f Split Policies and Policies b Geographic Region .................. 17

f Proposed Changes for 2014 ................................................. 18

f Frequentl Asked Questions ........................... ...................... 19

f Considerations for Membership ........................................... 23

CONTENTS

Note: This brochure uses terms as defined b OIL. The full list of terms and definitions can be found here: www.oil.bm


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INTRODUCTION Aside from some technical adjustments to the OIL Rating & Premium

Plan (R&PP) and Shareholders Agreement, 2013 has proved to be acomparativel quiet ear as far as OIL changes are concerned. On the otherhand, 2014 promises to be more interesting. A Special General Meeting hasbeen convened in September this ear for shareholders to vote on SinglePool and Experience Modification proposals. If approved, the proposals willbe adopted in 2014.

As the proposed changes will not be implemented until2014 at the earliest, we will not comment in detail in thisedition of Marshs OIL Guide, which is intended as an

update on OIL as it stands toda . However, we wil l providesome comment later in the document.

Marshs OIL Guide seeks not onl to be informative boffering an overview of OIL, but also to offer balance andobjectivit from the brokers perspective. It examines theadvantages of OIL and also possible disadvantages ofmembership, and potential shortfalls in cover that meritconsideration in the evaluation of OIL.

This guide does not advocate the use of OIL as opposedto conventional markets or vice versa, but it will hopefull

foster a greater understanding of OIL.

As ever, for in depth anal sis of OIL, its underwritingmethods and full coverage specifications, plus companfinancials and literature, we recommend that ou visitwww.oil.bm which is the official OIL website. This will

of course contain the most up-to-date information andas alwa s, has been a valuable source for much of theinformation used in compiling this guide.

Finall , we could not allow this issue of Marshs OILGuide to be published without reference to the OTA (OILTechnical Accreditation) online training program which wassuccessfull launched b OIL in December 2012. Members,brokers and their prospects have access to the OTA, andthis provides training and reference materials in muchmore detail than the overview provided b this guide.Marsh strongl encourages an one with an interest in OILto register for the OTA through the OIL website. Marshcolleagues engaged with OIL or with OIL prospects arerequired to participate in OTA training and man of thosecolleagues are alread OTA certified.

Marsh 1
https://www.oil.bm/https://www.oil.bm/https://www.oil.bm/


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2 A Guide to OIL 2013

BACKGROUND Energ industr mutual (includes mining and chemical operations).

Established in 1972.

Estimated Gross Assets insured (unmodified) of approximatel US$2.3 trillion (at Januar 1, 2013).

Shareholders equit in the region of US$3.9 billion (at March 31, 2013).

Total assets in the region of US$7.2 billion (at March 31, 2013).

55 members (domiciled in USA, Canada, Europe, Australia, and Latin America/Caribbean as of June 30, 2013).

Rating philosoph designed to full fund past losses over time (past losses = future premiums = past losses).

Standard & Poors (S&P) rating (financial strength) A- (stable), Mood s A2 (stable) as of Ma 2013.

OIL is currentl not reliant upon reinsurance (fundamental principle to be an alternative to the commercial market).

ELIGIBILITYEligibilit requirements are rigorousl enforced and onl companies that are defined as an Energ Compan are eligible formembership. In addition to traditional upstream and downstream oil and gas exploration and production, refining and marketingcompanies, the definition of Energ Operations extends to electric utilities/power generation, chemical (including pharmaceutical),and mining companies. To be eligible for membership, at least 50% of Gross Assets must be devoted to, or 50% of annual gross revenuesmust derive from, Energ Operations.

Additionall , certain criteria have to be met (and in man cases maintained) to qualif for OIL membership:

Minimum US$1 billion of Gross Assets (Propert , Plantand Equipment (PP&E) before depreciation, depletion oramortization, plus book value of inventories).

Minimum credit rating of either BBB- (S & P) or Baa3 (Mood s).

Companies without external credit ratings can obtain ashadow rating or submit to financial anal sis b OIL and mabe required to post acceptable securit (e.g. a letter of credit(LOC)).

Acceptable 10- ear loss histor .

Business operations that represent an appropriate spread ofrisk and fit within a mutual framework.

Demonstrated track record of maintaining world-class health,environment, and safet s tandards.

NOTE: Despite the minimum requirement for US$1 billion of Gross Assets, in orderto qualify for the full US$300 million OIL limit Gross Assets will be deemed at

US$3 billion for premium purposes.

Existing members whose credit ratings fall below established minimum criteria must post acceptable securit (usuall a LOC) and/or patheir premium annuall .

All applications must be approved b OIL management. New members are not permitted to amend their coverage profile for three earsother than with the specific agreement of OIL.



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PROSPECT PREMIUM INDICATIONSPremium indications can be obtained from OIL in one of twowa s:

For a non-binding premium estimate, a Premium IndicationRequest Sheet (PIRS) must be completed. Indications canbe offered on a no-name basis but are provided subjectto confirmation that the prospect meets the eligibilitrequirements.

If a prospect wishes to activel pursue OIL membership,additional information is required and a Premium IndicationRequest Form (PIRF) must be completed as part of themembership application process.

The PIRS can be downloaded from the OIL website and submitted

directly or by a broker to [email protected] or to a member of theOIL team, and turnaround time for premium indications is usually48 to 72 hours.

It should be noted that despite the minimum eligibilitrequirement of US$1 billion of Gross Assets, for some prospects

OIL ma not be a cost-effective option unless their Gross Assetsare at least US$3 billion. This is because, as noted above,

to qualif for the full US$300 million OIL limit, Gross Assetswill be deemed at US$3 billion for premium purposes. Thisma significantl impact the quoted premium. For example,a compan ma qualif with the minimum US$1 billion ofGross Assets, but if those assets are devoted entirel to theOffshore Exploration and Production Sector the will firstl bedeemed at US$3 billion and then further adjusted (weighted) toapproximatel US$5 billion (according to the weighting factorsthat currentl appl under the R&PP). Such prospects ma indeedqualif for OIL with Gross Assets of onl US$1 billion but for aUS$300 million limit their assets (and premium) will potentiallbe loaded b as much as a factor of five. Thus OIL ma not bea competitive option at the full US$300 million limit for suchprospects if their Gross Assets are less than US$3 billion. Insteadit ma be more appropriate to consider membership initiall ata lower limit (limit equivalent to 10% of Gross Assets) until suchtime as the compan grows in size.

MEMBERSHIP APPLICATIONPROCESSThere are four primar wa s to appl for OIL membership: Direct (Energy Company as Shareholder ) OIL will insure

the energ compan on a direct basis. The energ companwill be the named insured.

Direct and reinsurance ( Energy Company as Shareholder ) OIL will insure the energ compan on a direct basis for somerisks and act as a reinsurer (of the energ compan s captive)for other risks. The energ compan will be the named insuredand the captive will be scheduled as a joint polic holder.

Reinsurance ( Energy Company as Shareholder ) OILwill reinsure the energ compan s captive for all risks. Thecaptive will be the named insured. A parental guarantee is notrequired.

Reinsurance ( Captive as Shareholder ) OIL will reinsure theenerg compan s captive for all risks. The captive will be thenamed insured. A parental guarantee will be required.

Application for OIL membership is a fairl straightforwardprocess, but a certain amount of forward planning is required:

Once a company has expressed an interest in joining OIL, it willneed to complete the Premium Indication Request Form (PIRF)and the membership application forms. These application formsprovide OIL with information regarding the business operations ofthe prospect as well as the required legal information. In addition,OIL requires a detailed summary of the prospective companys10-year loss history, for all losses in excess of US$5 million.

OIL membership application forms can be found under the Agreements, Policies & Forms section of the OIL website.

Once the completed application forms have been received by OIL,all information will be submitted to OIL management for approval.OIL management may impose restrictions on the coverage profileoffered to a prospective member. Once the prospect receivesapproval, the OIL insurance/reinsurance policy is issued to thenew member.

A new member will be billed for its initial premium plusUS$10,000 for the purchase of one class A share. Ownership andvoting rights are accrued over time as a function of premium paid

and length of membership. The OIL Shareholders Agreementmust be signed in Bermuda prior to joining or within a reasonabletime thereafter. If the new member is unable to travel to Bermuda,the Shareholders Agreement can be signed by a local contact(broker or lawyer) via proxy.

Visit OIL.bm for

membershipapplication forms
mailto:indications%40oil.bm?subject=PIRShttps://www.oil.bm/https://www.oil.bm/mailto:indications%40oil.bm?subject=PIRS


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TIMING A compan can join OIL at an time.

The initial polic period will run from the date of joining to December 31 of that ear. Thereafter, policies are issued for a calendar earand automaticall renew at the anniversar (December 31) unless notice of cancellation is received b OIL b September 30.

CONTRACTUAL PREMIUMOBLIGATIONSOIL membership requires a commitment to certain express premium obligations. These can be summarized as follows:

An member leaving OIL must pa , immediatel upon exit, itsshare of unfunded pooled losses and, if applicable, an unpaidRetro Premium; this is referred to as the Withdrawal Premium.In simple terms the Withdrawal Premium is the premium themember would have paid over the next five ears had it notwithdrawn from OIL.

Members are typically required by their auditors to book theTheoretical Withdrawal Premium (TWP) amount, i.e. potentialexit premium (regardless of intent to exit or otherwise) whichhas to be carried on balance sheet as a contingent liability. Accrual of the TWP liability is not an OIL requirement, although

OIL does calculate the TWP amount for each member.

An member that does not satisf , or falls below, the minimumfinancial eligibilit criteria ma have to post additional securit

(usuall a LOC) to cover its additional premium obligations asoutlined above.

NOTE:

OIL ma , at its discretion, terminate coverage if a member failsto:

A. Pa its premiums when due,

B. Maintain appropriate financial responsibilit (e.g. creditrating); or

C. Meet the eligibilit requirements set out in the Shareholders Agreement.



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COVERAGESPRINCIPAL RISKS INSURED INCLUDE:

Ph sical damage to propert . Basis of recover is ReplacementCost Value but if propert is not repaired or replaced the claimis settled on an Actual Cash Value basis.

Terrorism (including c ber terrorism).

Well control costs.

Well restoration and redrilling costs.

Pollution liabilit (legal, including punitive damages, orcontractual liabilit for third part propert damage orpersonal/bodil injur ). Coverage is provided on a sudden

and accidental basis (40 da s discover /120 da s reporting)for Occurrences commencing on or after Januar 1, 2006 ordate of OIL entr , whichever is later. It should be noted thatgradual tail (non-sudden and accidental) cover for priorOccurrences remains available for members who electedbroad form pollution coverage prior to Januar 1, 2006. Allmembers of OIL including those insured on a sudden andaccidental basis are still pooling losses with the gradual tailmembers.

Clean-up expenses (reasonable and necessar expensesincurred to mitigate further injur or damage that wouldotherwise arise).

Offshore Pollution Liabilit Agreement (OPOL) certification.

Debris removal costs.

Sue and labor expenses (including general average andsalvage expenses).

Cargo.

Construction (some limited conditions contractors or projectlenders cannot be named as additional insured parties).

Watercraft (optional cover via endorsement [Exhibit H to the

OIL Shareholders Agreement] but onl for a limit of US$25million per Occurrence).

It should be noted that apart from Atlantic Named Windstorm(ANWS) and the Watercraft endorsement, none of the coveragesprovided b OIL are sub-limited and therefore the full limit of theOIL polic is available for all perils/coverages.

PRINCIPAL EXCLUSIONS ARE: War (excepting terrorism) and political risk (confiscation orexpropriation).

Nuclear (does not appl to non-nuclear risks within nuclearfacilities from Januar 1, 2014 this will onl provide cover inthe Cold Zone).

Oil in the ground.

Land, land values.

Loss of hire.

Business interruption.

Waste site pollution liabilit (commercial).

Products and completed operations l iabilit .

Tanker pollution liabilit (except charterers liabilit ).

Third part liabilit (other than pollution liabilit ).

Defective part.

Wear and tear (does not appl to collapse of the propert , ora material part thereof, or resultant loss or damage to otherpropert ).

Loss of hole (including drilled, mined or natural excavation).Direct ph sical loss or damage to insured equipment in hole iscovered.

Transmission and distribution (T&D) l ines above ground(1,000 meter exemption).

Economic and trade sanctions.

Watercraft (unless optional Watercraft endorsementpurchased). Floating production storage and offloadingunits (FPSOs) are not considered as watercraft if

operating in support of energy operations and notengaged in the transportation of cargo .


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LIMITS AND DEDUCTIBLESFor all coverage provided b OIL, including (currentl ) all non-ANWS windstormcoverage, the limits and deductibles are as set out below. However, specific limitand deductible conditions (restrictions) appl to ANWS coverage and these arehighlighted separatel .

Note: Designated Named Windstorm (DNW) currentl equates to the Atlantic Named Windstorm (ANWS) region onl (US Gulf ofMexico/Caribbean/US Gulf Coast etc), but other regions could potentiall be included as DNW regions (subject to coverage andlimit restrictions) if triggered b future windstorm loss activit . However, in this guide we focus on the windstorm coverage and limitrestrictions as the currentl appl to the ANWS region.

LIMITS CURRENT 2013

OCCURRENCE LIMIT US$300 million

However

ANWS Occurrence limit is restricted to US$150 million (60% quota share part of US$250 million).

Limits are also restricted to the lesser of 10% of a members Unmodi ed Gross Assets (UGA) or

US$300 million, although a member can purchase excess limits up to the maximum US$300 million

Occurrence limit or US$150 million (part of US$250 million) ANWS Occurrence limit speci ed above by

declaring UGA deemed at US$3 billion.

INDIVIDUAL MEMBERS ANNUAL AGGREGATE LIMIT Not applicable.

However

An ANWS annual aggregate limit of up to US$300 million (twice the Occurrence limit selected) appliesfor each member.

JOINT VENTURE LIMIT Not applicable limits are not scaled to working interest and recoveries are onl restricted b :1. Members individual Occurrence limit.2. Members ANWS annual aggregate limit.3. Aggregation Limit, as applicable (see below).

AGGREGATION LIMIT US$900 million

However

ANWS Aggregation Limit is restricted to US$750 million. Aggregation Limit is shared between all members per Occurrence (e.g. major earthquake or majorwindstorm). However, each member is still limited to their individual Occurrence limit or ANWS annualaggregate limit as applicable. The effect of this condition is potentially to reduce an individualmembers OIL recovery in any given Occurrence.

FLEXIBLE LIMIT Limits can appl as primar , excess or quota share and ma be ventilated.

Di erent limits are allowed on a Sector b Sector basis.

Members can select a reduced limit (minimum US$100 million or US$60 million part of US$100 millionfor ANWS). If less than full limits are purchased, OIL ma , at its discretion, impose a warrant relating tothe absence of an other excess insurance (i.e. prohibiting insurance purchases from other insurers).Currentl OIL does not appl the warrant to windstorm limit selection.

Members can purchase split (or ventilated) limits subject to approval b OIL. Splitting the limit intola ers (using part of the limit on a high excess basis) allows members to avoid the warrant regardingthe absence of other insurance (for selecting less than full OIL limits).


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DEDUCTIBLES CURRENT 2013

MINIMUM DEDUCTIBLE US$10 million per Occurrence. Deductibles scale to working interest subject to a minimum ofUS$1 million per Occurrence.

However

ANWS minimum deductibles are subject to OIL agreement and do not scale to working interest.

New members ma potentiall be subject to a higher minimum deductible than US$10 milliondepending upon their 10- ear loss histor .

HIGHER DEDUCTIBLES Higher deductibles are allowed on a Sector b Sector basis in increments of US$5 million.Deductible credits are given up to a maximum attachment point of US$750 million or

US$2.5 billion for ANWS.If higher deductibles are selected, OIL may , at its discretion, impose a warrant relating to theabsence of underl ing insurance (i.e. prohibiting the purchase of underl ing insurance).

DEDUCTIBLE APPLICATION A single Occurrence involving multiple Sectors attracts onl the highest deductible (losses erodingthe highest deductible applicable to an one Sector are also applied to erode or exhaust thedeductible amount applicable to an other Sectors involved in the same Occurrence).

However

The highest single deductible methodolog onl applies to the eight Sectors.

For ANWS Occurrences, onshore losses will onl erode onshore deductibles and o shore losses willonl erode o shore deductibles on a separate and distinct basis .

Members are allowed one coverage (limit/deductible pro le) change during the polic ear subject to one calendar month noticeto and consent b OIL (but ANWS changes are onl allowed at the polic anniversar date).


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8 A Guide to OIL 20138 A Guide to OIL 2013


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ANWS SPECIFIC COVERAGERESTRICTIONS AND PREMIUMOBLIGATIONSWindstorm specific coverage restrictions and premium obligations appl to the ANWSregion (windstorm exposures in the US Gulf of Mexico/Caribbean/US Gulf Coastregion). For OIL members with ANWS exposed assets, the restrictions and premiumobligations (applicable to ANWS Occurrences onl ) can be summarized as follows:

COVERAGE RESTRICTIONS Lower limit and quota share (QS) retention: The limitis lower than the full OIL limit and is restricted to US$150million (60% QS) part of US$250 million per Occurrence.This imposes a 40% QS retention of up to US$100 million perOccurrence for ANWS losses.

Lower Aggregation Limit: A lower limit of US$750 millionapplies to ANWS Occurrences. This creates a potential shortfallin cover. However, this limit is less likely to be exposed (only60% of ANWS losses are paid by OIL and thus exposed to the Aggregation Limit); therefore, scaling of limit is less likely tobe an issue for ANWS losses than before such restrictions were

applied.

Annual aggregate limit: The per member annual aggregatelimit is 200% of the ANWS Occurrence limit selected andimposes a recovery cap of US$300 million per annum for eachmember.

Deductible: The ANWS deductible stands for interest (notscaling) which means that members have a fixed attachmentpoint for ANWS losses. For members with a US$10 millionper Occurrence deductible, this potentiall creates a largerdeductible b up to US$9 million per Occurrence for workinginterests of 10% or less. For higher deductibles the effect

is more pronounced. ANWS specific deductibles must beselected and declared to OIL each ear and appl separatelfor onshore and offshore losses.

NOTE: The above restrictions only affect ANWS Occurrences (namedwindstorm losses in the US Gulf of Mexico/Caribbean/Gulf Coastregion) at this time and do not apply to other perils (fire, explosion,and earthquake, for example) for which limits/deductibles remainunaltered, including the full US$300 million per Occurrence limit.

PREMIUM OBLIGATIONS Members of the eight defined OIL Sectors (Refining &Marketing/Chemical, Offshore Exploration & Production, forexample) pa for all non-windstorm losses.

ANWS losses up to an annual aggregate of US$300 mill ion areabsorbed (mutualized) b all members of the eight Sectors inthe Standard Premium (Pool A annual aggregate retention).

ANWS losses in excess of the US$300 million Pool A annualaggregate retention are absorbed (mutualized) onl b thosemembers with ANWS exposed assets in two excess windstormpools (onshore and offshore).

ANWS losses flow through the Pool A annual aggregateretention and into the two excess windstorm pools from thebottom up (with pool exposure adjustment at ear end).

For premium purposes the two excess windstorm poolsare ring-fenced the onshore pool is not exposed to losses(premium pa back) from the offshore pool.

OIL ma require the excess windstorm pools to quota share(QS) the US$300 million Pool A annual aggregate retentionwith the eight Sectors. The QS factor will be determinedannuall and is subject to a maximum of 25%. Currentl theQS percentage factor is 0%.

The two specific (and distinct) excess windstorm premiumpools are potentiall more volatile in the event of ANWSlosses.

ANWS losses no longer flow through Pool B (because of theabove 40% QS retention).

Retro plan option can be selected for the 40% QS retention (inincrements of 10% up to 40%).


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WINDSTORM COVERAGE IN OTHERGEOGRAPHIC REGIONSWindstorm specific coverage restrictions and premium obligations do not appl to non- ANWS areas of the world. However, depending upon future loss record, restrictionscould be applied to other geographic regions, such as the Australia/Pacific region.For OIL members without ANWS exposed assets the future potential coverage andpremium implications can be summarized as:

COVERAGE RESTRICTIONS

Windstorm specific coverage restrictions are onl applied to ANWS losses at thistime. However, Trigger Events have been defined b OIL to implement coveragerestrictions for other geographic regions if impacted b future windstorm losses.Incurred loss Trigger Events b geographic region are defined as:

A single loss event of US$750 million.

Cumulative losses of US$1 billion over a five- ear rolling period.

Once a Trigger Event is incurred, windstorm coverage and pricing for thatgeographic region will automaticall change in the next polic ear. Changes willmirror the restrictions as currentl appl to the ANWS region. A new DNW regionwill be created.

An new DNW region will be as defined b OIL, but we understand this willessentiall relate to an area (concentration of assets) which can be impacted b asingle named windstorm.

In the short term whilst there is no coverage or limit restriction, future windstormcoverage restrictions are possible for an OIL member for their non-ANWSexposed assets.

PREMIUM OBLIGATIONS

As stated above, members of the eight defined Sectors pa for all non-windstorm

losses. However, members with ANWS exposed assets will absorb the majorit ofthe premium severit and volatilit relating to ANWS losses, as the eight definedSectors onl pa for up to US$300 million annuall of ANWS losses (and this mabe further reduced b application of a quota share (QS) factor with the excesspools, although as stated above, the QS factor is currentl set at 0%). Therefore,there is less exposure from ANWS losses to the greater mutual bod (due to theper member annual aggregate limit and annual aggregate retention capping,and the creation of ANWS specific premium pools). Consequentl , there is lessexposure to potential premium increases from losses caused b ANWS events.

The potential for change is highlighted to alert members with windstormexposures in other parts of the world and not just ANWS. Such windstorm

exposures ma present a risk to members and a prospective coverage changema arise in the event of future loss events for non ANWS exposed members.


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ANWS OCCURRENCE DEFINITIONOIL coverage is triggered b the happening of an Occurrenceas defined. The ANWS definition of Occurrence requires careful

consideration.

In simplistic terms:

ANWS Occurrence comprises losses attributable directl orindirectl to an ANWS (as defined) and includes all onshoreand offshore losses arising from such s stem (ANWS),irrespective of the period or area over which such losses occur.

ANWS Occurrence definition includes losses arising out of pre-storm preparator measures (including ensuing fire, explosionor collapse resulting from pre-storm shutdown and re-startactivities).

For the purposes of the ANWS Occurrence definition, an ANWS isdefined (simplisticall ) as a hurricane, t phoon, tropical c clone,

c clonic storm or an other windstorm which originates in ormigrates into the Atlantic Basin (which essentiall comprisesthe North Atlantic Ocean west of the Cape Verde Islands, theCaribbean Sea and the Gulf of Mexico as defined b OIL) AND isnamed b the Responsible Meteorological Service.

Conceivabl , in the event of an ANWS Occurrence triggeringthe OIL Aggregation Limit (for all losses arising out of a singleOccurrence), a member suffering damage which is solelattributable to precautionar shutdown/re-start activities mabe unable to recover their full OIL loss even though the did notsuffer an actual storm (wind or flood) impact damage, but this

will depend upon the facts and circumstances of each loss (whichwill govern polic interpretation).

RATING AND PREMIUM PLAN R&PPIt is important to understand that the OIL premium calculation(premium model) is different from that which applies to the widercommercial market. Premium is derived from OILs R&PP. This is aformula driven rating plan (no individual underwriting) based onmembers Gross Assets (as derived from audited balance sheet not insured values), adjusted with credits/debits for operationalrisk and coverage profile (to produce Weighted Gross Assets see detail below), and the five- ear mutualized loss histor of OIL.The intention is to provide a five- ear post loss funding facilit(fund past pooled losses) on a mutual basis.

The R&PP sets out the method of premium calculation, known asthe Lock-In Plan, and details of the plan are discussed below.

STANDARD PREMIUM POOL A

The Standard Premium (Pool A) is mandatory, paid by all

members, and is governed by their discrete (historical)percentage shares of the unfunded loss pool (Pool Percentage) foreach of the past five years (during which time the loss pool wasgenerated).

In ver simple terms, a members premium obligation isdetermined b calculating their individual Pool Percentage(members Weighted Gross Assets relative to total Weighted

Gross Assets) for each of the past five ears. The Pool Percentageonce calculated for an given ear is locked-in. A memberspremium is a function of their Pool Percentage and the unfundedloss pool for each of the past five ears (contributing to annualpremium at 20% per ear) and is locked-in irrespective of amembers current (or prospective) Weighted Gross Asset profile.

NOTE:If a member exceeds 30% of an pool, OIL will require pre-losscollateral against the members contingent liabilities (futurepremium obligations) for that pool. This will most likel be in theform of a LOC.

A current or prospective Weighted Gross Asset profile hasno bearing on current annual premium. If a member makesprospective risk profile (Weighted Gross Asset) changes, suchchanges do not alter their retrospective Pool Percentage (of theloss pool/premium obligation) onl their future Pool Percentage(and therefore their future premium obligations). Annualpremium, therefore, takes five ears to full reflect coverageprofile (Weighted Gross Asset) changes.

The standard premium is intended to fund 60% of the pastlosses of the mutual or, looked at another wa , fund 60% of theUS$300 million limit.


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NAMED WINDSTORM EXCESS PREMIUM

Named Windstorm Excess Premium is paid b members of thetwo excess windstorm pools with exposed windstorm assets andis determined separatel based on losses (in excess of theUS$300 million annual aggregate Pool A retention) that are

allocated to either of the excess pools. Premium is calculatedusing the Lock-In method, with individual Pool Percentageshares based on Weighted Gross Assets exposed in the relevantgeographic region. Currentl , this premium onl applies tomembers with assets located in the ANWS Geographic Region.This region includes the Caribbean, eastern seaboard states ofthe USA, and Trinidad and Tobago, but as these areas havehistoricall not produced losses to OIL the are currentl notsubject to Named Windstorm Excess Premium. This exemption isachieved b wa of a zero ANWS Operational Area Risk(Weighting) Factor which discounts assets in those areas.However, it is important to note that such assets are still subject

to the ANWS limit and deductible restrictions.

Members without exposed windstorm assets will have 0% shareof the excess windstorm pools and no Named Windstorm ExcessPremium.

PREMIUM OPTIONS

All members must participate in the mandator StandardPremium (Pool A), but given that it onl funds 60% of past losses,members then have a choice of options to fund the remaining40% of such losses.

In simple terms the choices are:

i. Standard Premium Only option : Pa the StandardPremium and onl recover 60% of losses from OIL, thatis, retain 40% of own losses (retain US$120 million part ofUS$300 million limit) for all Occurrences (or place quotashare in the commercial market).

ii. Flat Premium option (Pool B): Premium (calculated onsame basis as Pool A above) is intended to fund10%-40%of past losses (fund US$30 million-US$120 million part of

US$300 million limit). Note: This option is not applicablefor ANWS losses; as such losses do not flow through Pool B.

iii. Retro Premium option: An additional premium tobe paid b members, but onl if the actuall sustainlosses, that is, Retro Premium adjustment on their ownlosses. Premium is intended to repa 10%-40% of theirown losses over five ears (Retro Premium repa menton a straight line basis in equal installments). The RetroPremium option is a substitute or replacement for theFlat Premium option described above. This option isavailable for ANWS.

Under the Lock-In Plan, members have the abilit of selectingdifferent premium options for each Sector in an combination ofthe three options available.

Premiums are pa able quarterl (except where a member fallsbelow the minimum credit rating; then premiums would bepa able annuall ).

12 Marsh


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GROSS ASSETS AND SECTOR WEIGHTING

OIL Weighted Gross Assets are generated as follows:

Unmodified Gross Assets are taken from an audited balancesheet (not schedules of insured values).

Unmodified Gross Assets equate to the gross value (historicalcost) of Propert , Plant and Equipment (PP&E) beforedepreciation, depletion and amortization, plus book value ofinventories, materials, and supplies.

Unmodified Gross Assets are adjusted for operational risk(Sector weighting) and coverage profile (for example,deductibles) to generate Weighted Gross Assets used tocalculate the Pool Percentage and individual premiums.

The R&PP recognizes differences between low or high riskoperations b wa of a weighting of Unmodified Gross Assetsdepending upon Sector (as defined b OIL) and variations indeductible credits (depending on Sector).

The Unmodified Gross Assets are allocated across Sectors asfollows:

Offshore Exploration & Production (E&P).

Onshore E&P.

Refining & Marketing/Chemicals.

Pipelines (pipelines ph sicall located offshore = OffshoreE&P).

Pharmaceuticals.

Electric utilities.

Mining.

Other (an Unmodified Gross Assets not falling within theforegoing categories).

Sector Weighting Factors appl to the Unmodified Gross Assetswithin each Sector, which are then further adjusted for coverageprofile (Deductible Weighting Factors) to produce WeightedGross Assets. The weighting factors are adjusted annuall .

NOTE: Sector weighting does not appl to the two excess

windstorm pools. These pools use a Deductible and Operational Area Risk Factor which is applied to the Unmodified Gross Assetsto produce Weighted Gross Assets used for Named WindstormExcess Premium calculation.

Therefore, as part of the Gross Asset declaration process (due June30 each year), the balance sheet Unmodified Gross Assets (asdefined) must be allocated by Sector and certified by an auditor.This includes specific declaration requirements for UnmodifiedGross Assets that are within the ANWS Geographic Region.

NOTE: The ANWS declaration requires sign off b an officer of

the member or prospect (it does not need to be audited).

For oil sands operations, assets declared are to be split betweenthe Onshore E&P, Refining & Marketing/Chemicals and MiningSectors depending upon the stage of the oil sands extractionprocess to which the assets relate.

FLAT PREMIUM OPTION POOL B

The alternative to individual Retro Premium exposure is a FlatPremium option or Pool B entr (as mentioned above).

This produces an additional Flat Premium charge, pa able for thepolic ear.

It is important to appreciate that, b entering Pool B, a memberis not insulated from the effects of mutualization in Pool A butonl from pa back of the members own losses under the RetroPremium Plan. This in itself is achieved b mutualizing with aslightl smaller, potentiall more volatile, Pool B.

As noted, Pool B premium does not fund ANWS losses.


16/28


QUOTA SHARE QS OPTIONS

INTERNAL QS TO POOL B

The Pool B QS (Internal QS) option allows members to removetheir exposure to individual Retro Premium (b entering Pool B)and then reduce their exposure to the mutual nature of Pool Bb taking a QS retention of their OIL limit (in increments of 10%,20%, and 30%). Alternativel , a member can opt for the StandardPremium Onl option, whereb the member full retains 40% oftheir own losses outside of Pool B. Either of these options can befull or partiall protected in the commercial market b wa of aQS placement.

One downside to this option is using onl a part of, rather thanthe full, available OIL limit in an one loss, thus potentiallsacrificing capacit .

EXTERNAL QS

The External QS option allows a member to use the full OILlimit as QS part of a larger program limit without sacrificing OILcapacit .

This reduces the horizontal exposure to OIL (and therefore, intheor , to loss pa back) and will result in a reduction in the OILpremium over time as profile (Weighted Gross Asset) changesare graduall reflected under the Lock-In premium calculation. Again this option can be blended with a QS commercial marketplacement.

One benefit of selecting a QS option (either Pool B Internal QS orExternal QS) is that it avoids total reliance on OIL. If a suitable QSprogram can be developed, it could not onl support the bu ingof business interruption and other coverages in the commercialmarkets, but also establish an exit strateg should OIL cease tomeet a members requirements.

RETROSPECTIVE PREMIUM OPTION

If the Retro Premium option is selected in place of the Flat

Premium or Standard Premium Onl options, then the memberbecomes liable for the Retro Premium. The main features of theRetro Premium plan are:

Retro Premium is onl paid b members actuall sustaininglosses.

OIL pa s 100% of such losses full limit (coverage) available(including for ANWS).

Retro Premium plan members then repa 40% of their ownlosses through pa ment of Retro Premium.

Losses are repaid on a straight line basis in equal installments(20% per ear) over five ears.

Retro Premium is first collected in the OIL polic periodimmediatel following the date the loss is incurred (datereserve booked irrespective of the actual date of losssettlement).

Members also have the option to select a partial RetroPremium option (in increments of 10% up to 40%). This optioncan then be combined with Internal QS to Pool B.

Under the Retro Premium plan, 60% of a members losses arerepaid b all members pa ing the Standard Premium (Pool A)and between 10% and 40% (depending upon partial optionselected) is repaid (over time) b the member sustaining losses.

MINIMUM PREMIUM

The notion of minimum premium has been rendered redundantby the advent of the Lock-In Plan. As such, at the March 2013 AGM, shareholders approved removal of the minimum premiumfrom the R&PP and this will take effect from January 1, 2014. A members premium is formulated off a base calculation ata deductible of US$10 million and a limit of US$300 million.Discounts off the base calculation are available for deductiblesthat are higher than US$10 million and for limit profiles that areless than US$300 million but premium reductions are phased inover five years (as the risk profile changes).

NEW ENTRANT PREMIUM

New Entrant Premium will be determined b OIL, based on theexpected losses for the ear of joining for each of the premiumpools that the new entrant is participating in, multiplied btheir Pool Percentage. The Pool Percentage will be determinedb comparing their Weighted Gross Assets relative to the totalWeighted Gross Assets for the first ear of membership. TheNew Entrant Premium is then fixed. In each subsequent ear, thepremium will be adjusted at 20% per ear as a combination ofNew Entrant and Lock-In premium, calculated as above, until theNew Entrant Premium is eliminated after five ears.


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Marsh 15Marsh 15


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GENERALCONDITIONS

CLAIM REPORTINGREQUIREMENTS

Claim reporting requirements are acondition precedent to coverage underCondition L of the OIL polic . In summar :

OIL could look to avoid liabilit for non-compliance.

Pollution claims have to be submitted within a ear of the membermaking settlement/incurring ultimate net loss (UNL) for suchclaim. The member must not settle an claim or make voluntarpa ments without the prior written consent of OIL.

A pollution Occurrence will have to be discovered within 40da s/reported within 120 da s of the date of Occurrence and aclaim made within one ear of the member making settlement/incurring UNL for such Occurrence.

Furthermore, an member leaving OIL ma report claims up to fiveears from the date of departure. However, for all claims for which

pa ment is sought after the date of departure, a members recoveris limited to their notional dissolution rights.

OPOL ENDORSEMENT AND OPOLCERTIFICATIONThe OPOL endorsement (OIL endorsement No. 3) allows members to use the OIL policy tocertify evidence of financial responsibility to OPOL for a limit of liability of US$250 millionper incident.

The OPOL endorsement specificall dedicates US$250 million of

limit per operator for OPOL incidents and will reserve that limituntil liabilit is determined as defined b OPOL. OIL requires anindemnit from the member before the OPOL endorsement isissued. An indemnit also applies if:

A. A member has an OIL polic deductible that is greater thanthe OPOL maximum of US$10 million (the member hasto indemnif OIL for an OPOL claims between the OPOLmaximum deductible and the OIL polic deductible).

B. There are differences in conditions between the OIL and OPOLwording (mid- ear differences in conditions will be covered bOIL on an indemnit basis and is cancellable mid ear b OIL ifthe credit exposure for DIC is unacceptable to OIL); or

C. Claims paid from a single Occurrence exceed the AggregationLimit.

The fact that OIL will reserve US$250 million (part of the US$300

million) limit for OPOL claims (give priorit of settlement to OPOLclaims) could give rise to a potential recover gap and additionaladjustment complexit for policies written excess of OIL (orOIL Wraps) where the OIL limit is deemed in place. The OILsettlement ma be readjusted upon final resolution of OPOL claim(or withdrawal of OPOL claim or if the OPOL claim is time barred one ear from date of incident as defined b OPOL) and this willrequire careful coordination with excess markets, otherwise therema be a recover gap or at best a recover dela . Its not so muchthe CSL and priorit of settlement that is the problem, but morethe potential for readjustment and dela in OIL loss settlement.

OIL members with OPOL entries should be aware of this addedcomplexit and it is recommended that companies refer to theirinsurance advisers for guidance.

TERRITORy Worldwide (no restrictions, includingterrorism) BUT a sanctioned activitexclusion applies.

CURRENCy US dollars

POLICyGOVERNING LAW

New york State

SHAREHOLDER AGREEMENTGOVERNING LAW

Bermuda

JURISDICTION Arbitration: Law of England and Wales.

OTHER INSURANCE Excess of other insurance (unlessschedule OIL as primar per OILEndorsement No.5).


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Marsh 17

SPLIT POLICIES AND POLICIES BYGEOGRAPHIC REGION As mentioned, OIL is flexible. Members have the option of arranging their OIL entrsuch that it more appropriatel meets the needs of the business or operations ofsubsidiar or joint venture companies.

There are two further options available:

Marsh 17

SPLIT POLICy

A member can request a separate polic , known as a split polic , for a joint venture orsubsidiar compan . To qualif for a spli t polic , the joint venture or subsidiar must:

A. Be a separate legal entit with separate financial statements.

B. Have a separate insurance program.

C. Operate as an independent profit center.

D. Have autonomous risk management and insurance functions.

Requests for split policies are at OILs discretion and subject to OIL seniormanagement approval. Split policies do not increase the overall members policlimit as the limit under a split polic is shared with the limit of the members main OILpolic .

The assets of the split member are reported separatel on the gross asset declarationof the member, and onl those assets are taken into account when calculatingthe premium for the spli t polic . The main OIL shareholder assumes financialresponsibilit for split members.

Benefits of a split polic include:

A. The abilit to select different limits or deductibles from the members main OILentr for a particular subsidiar or joint venture compan .

B. A separate premium invoice for the subsidiar or joint venture compan .

C. The full US$300 million limit being available for the subsidiar or joint venture

compan without the requirement to deem assets at US$3 billion for suchcompan .

This may allow a joint venture company to be covered that might not otherwise qualifyfor a standalone OIL entry.

POLICIES By GEOGRAPHIC REGION

A member can have its polic and premiums split b geographic region, forexample, US and non-US risks. The Polic Declaration issued b OIL will be split bthe requested geographic regions. The premiums will also be split based on thepercentage allocations provided b the member. A polic split b geographic region

does not alter the coverage, deductibles, limits, or premiums that would otherwiseappl had a single polic been issued to the member.


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PROPOSED CHANGES FOR 2014We would like to take this opportunit to touch briefl upon the recentl proposed

changes to the OIL Rating & Premium Plan (R&PP) for the merging of Pool A (Standard)and Pool B (Flat) premium pools and the (re) introduction of Experience Modification(EM) into the R&PP. These changes have not et been agreed but will be discussed at aSpecial General Meeting (SGM) in September.

Our understanding of the proposals in summar is as follows:

MERGE POOLS Merge Pool A (Standard) and Pool B (Flat) into a singlepremium pool (pool simplification).

60% minimum pool participation with quota share options upto 100%.

60% [or % > 60%] of Limit = 60% [or % > 60%] of WeightedGross Assets (WGA) for premium purposes.

EXPERIENCE MODIFICATION EM (Re)introduce EM into premium calculations.

Differentiation at the individual member level based on lossreserve ratios.

WGA will still be used to calculate Pool % and premium butwill be further adjusted b a debit/credit EM Factor.

Therefore WGA = Unmodified Gross Assets (UGA) x SectorWeighting (SW) x Limit/Deductible Weighting (LDW) x EMFactor.

EM Factor is to be based on an individual members five earloss reserve ratio relative to the average loss reserve ratio overthe total membership.

Ratio better than average = a credit (EM Factor 1.0).

Minimum EM (credit) Factor and Maximum EM (debit) Factorwill be determined b the OIL Board.

Shareholders are to vote on the proposals at the September 2013SGM and if approved the changes will be adopted in 2014. Theproposals are prospective onl no impact on past loss driven

premium. The first premium ear anticipated to be affected bthe changes is 2016 (based on the impact of 2014 loss reserveratios on 2015 Pool Percentages).

If approved then EM and merged pools will be phased in andsplit pools phased out over a five ear period (at 20% per ear).OIL will effectivel operate a split rating s stem for five ears (sothere will be medium term added complexit to the R&PP).

The decision to defer approval of the Single Pool/EM proposaluntil the SGM in September will allow members the opportunitto review and anal ze the data issued b OIL in support of the

proposal. This will help members understand whether theproposal is beneficial ahead of the SGM. Whilst the SinglePool proposal would seem to be efficient (simplification whilemaintaining structural flexibilit ) it is important to understandhow the EM proposal would impact (would have impacted)members premium obligations, especiall as the proposal willadd additional complexit to the R&PP. Marsh has the expertiseand capabilit to assist with this review process.

OTHER CHANGES

Technical adjustments to the Shareholders Agreement andR&PP were approved at the March AGM. The intention to usemediation as first recourse prior to arbitration was approved. Areview of polic language (clarit and coverage) is also underwaand shareholder meetings will take place to discuss the review.This will most likel be sometime during 2014.


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Marsh 19

FREQUENTLy ASKEDQUESTIONS

FAQSInterested parties arerecommended to refer tothe OIL websitewww.oil.bm for anextensive list of answersto FAQs. However, inthis guide we offer ourown answers to selectedquestions that are oftenasked but which are notspecificall addressed bthe OIL website FAQs.

Q1. Can a member nameadditional insured parties under theirOIL polic ?

A: OIL insures the Polic Holder (NamedInsured) and its subsidiaries and affiliates,but does not permit the naming ofadditional insured parties such as jointventure partners or contractors on thepolic .

Q2. Does OIL agree to specificlenders clauses?

A: The OIL policy form is set and non-negotiable. OIL will issue a Certificateof Insurance under which they willacknowledge a lenders interest by way of aloss payee provision but claims will only benegotiated and adjusted with the NamedInsured. Refer to the Agreements, Policies& Forms section of the OIL website for anexample of the certificate form.

Q3. Does OIL impose a testing andcommissioning requirement onpropert coming off construction?

A: All propert owned b the assuredor for which the assured is responsibleunder contract for repair or replacementis automaticall covered, subject onl toannual Gross Asset declarations.

Q4. Can I select differentdeductibles for property and terrorismor operating and construction?

A: OIL deductibles appl on a Sectorb Sector basis (not coverage or location

specific). All propert or risk within agiven Sector (e.g. Refining & Marketing/Chemicals) takes the same deductible.However, OIL can be utilized at var inglevels within an overall risk transferstrateg for different risks.

NOTE: If a different deductible (or limit) isrequired for a subsidiar or joint venture,a split polic could be arranged (withdifferent risk profile), but onl if the meetthe criteria set forth in the Split Polic

section of this guide.

Q5. Does OIL cover wells in thecourse of drilling at inception?

A: OIL does not require specificdeclaration of wells in order to establishpremium or cover. As such all wells arecovered b whichever OIL polic is inforce at the date of the Occurrence (loss)irrespective of when drilling ma havecommenced.

Q6. Can I change deductibles mid-term?

A: Assuming an OIL entr has been inplace for three or more ears, changes

can usuall be made with the agreementof OIL, b giving one calendar monthsnotice. However, onl one change per

ear is permitted for the eight Sectors(additional change requests are at thediscretion of OIL). Windstorm profilechanges are onl permitted at thepolic anniversar date, and requestsfor reduced deductibles are subject to areview of updated windstorm data andare subject to OIL approval. Premiumchanges will take five ears to be fullrealized under the terms of the Lock-InPlan.

NOTE: OIL ma , at its discretion, appla warrant prohibiting the purchase ofunderl ing insurance if higher deductiblesare selected.

Q7. Does OIL cover clean-upexpenses?

A: OIL Insuring Agreement 3 (Seepageand Pollution Liabilit ) extends to coverreasonable expenses incurred (includingliabilit to an governmental entit ) forclean-up and removal costs and expenses,but onl to the extent necessar tominimize or remediate, or prevent further,injuries to persons or loss or damage topropert of others.

Q8. Does OIL accept single locationentries?

A: T picall no, but if all other eligibilitcriteria are met, OIL could in theor makean exception, although such entries arediscouraged.
http://www.oil.bm/http://www.oil.bm/


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(US$ trillion)

2.5

2.0

1.5

1.0

0.5

0.0

2005 2006 2007* 2008 2009 2010 2011 2012

Unmodied Gross Assets

Weighted Gross Assets

Q9. Can I include joint venture (JV)partners under m OIL entr ?

A: Assuming the OIL member is theoperator or has a controlling interest

in a given project, and if certain otherconditions imposed b OIL are met, themember can seek approval to cover100% (or an amount up to 100%) of theproject (JV) under their OIL entr . Coverwill onl take effect upon declarationto OIL of the additional JV assets of theproject to be insured (if subsequentlthe OIL member relinquishes operatorstatus or its controlling interest, coverfor the JV partner automaticall ceases atthat time). Approval in writing from OIL isrequired prior to declaration of additional JV partner assets. Additional premium willbe charged on the increased (JV partner)assets declared. If an of the conditionsimposed b OIL are not met (or are notmaintained, including the OIL memberbeing the operator or having a controllinginterest), it will be necessar to appealto the OIL board for special approval tocover, or continue cover for, JV partners.However, OIL does not permit the namingof JV partners as additional insured partiesand contract wording ma need to be

adapted.

Q10. Can I select a differentpremium basis for m refineries andm onshore pipelines?

A: Under the Lock-In Plan, Premiumoptions can appl on a Sector b Sectorbasis so, for example, a member mightselect Flat Premium (Pool A and B) forPipelines but Standard Premium Onl(Pool A) for Refining & Marketing/Chemicals. Although this is notspecificall stated on the Coverage ProfileSelection Worksheet issued b OIL, it ispermitted.

Please note that in the case of an OILprospect, OIL will need to understand

their actual profile to determine if var ingpremium options per Sector is feasiblebased on the circumstances presentedprior to entr . Additionall , an coverageor premium profile changes (elections)remain at OILs discretion.

Q11. What is the Offshore/Onshore Excess Pools default profilefor a member not declaring ANWSassets?

A: The default profile is US$60 millionpart of US$100 million (the minimumlimit) excess of US$2,500 million (andmembers without ANWS assets will have0% of the excess windstorm pools).

Q12. What is the differencebetween Gross Assets insured andWeighted Gross Assets?

A: Gross Assets insured represent thetotal of Unmodified Gross Assets (takenfrom members audited balance sheets)before adjustment for operational risk andcoverage profile to produce WeightedGross Assets used for individual PoolPercentage and premium calculation.

GROSS ASSETS INSURED

Source: OIL 2012 Annual Report*2007 was a split policy year.

This chart clearl illustratesthe impact of weightingand the difference betweenGross Assets insured(Unmodified Gross Assets)and Weighted Gross Assets.


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Marsh 21

Q13. Can m OIL entr be direct forsome risks and reinsurance for otherrisks?

A: Members can have their entr onboth a direct and reinsurance basis busing the Joint Polic holder Endorsement(No. 2). For example OIL could be a directinsurer for the Energ Compan for USrisks (Energ Compan listed as the namedinsured for US risks) and a reinsurer of thecaptive for non-US risks (captive listed asthe Joint Polic holder for non-US risks) orvice versa. Furthermore, a member couldhave a split polic (see above) with OIL asa reinsurer for the split polic onl and adirect insurer for all other risks.

Q14. Does OIL cover cargo?

A: yes, but cover is available undercommercial market forms with a broaderrange of benefits such as loss of hire/ALOP,

inherent defect or gradual deterioration,confiscation or expropriation, claimshandling and certificates for claims pa ableabroad scheme, additional named insuredbenefit, guaranteed outturn, m steriousdisappearance/shortage, commingling/contamination, and special loading clausesor specific pirac extensions. It is difficult,therefore, to evaluate the true benefitof OIL for cargo other than in providingautomatic catastrophe limit.

Q15. How does OIL loss recovervar under the different premiumoptions available (internal quota shareversus external quota share, forexample)?

A: The attached exhibits clearl illustratethe impact on claims at various levels ofthe different premium options that can beselected.

Marsh would welcome ourfeedback on additional questions tobe answered and we ma includethese periodicall as an update inour Energ Market Monitor.

OIL OPTIONS LOSS RECOVERy EXAMPLES FOR US$100 MILLION LOSS US$100 million propert damage loss 100% interest.

Deductible US$10 million (except where shown).

POOL B BASISD/A 10 MILLION

US$


US$

NO POOL B#RETRO

US$

40% INTERNAL#QS SPOUS$

100 MILLIONEXTERNAL QSUS$

CLAIM 100,000,000 100,000,000 100,000,000 100,000,000 100,000,000

D/A 10,000,00 100,000,00 10,000,000 10,000,000 10,000,000

RECOVERy 90,000,000 N/A 90,000,000 54,000,000** 67,500,000***

INDIVIDUAL PAyBACK N/A N/A36,000,000*(7,200,000 annual)

N/A N/A

TOTAL RETENTION 10,000,000 100,000,000 46,000,000 46,000,000 32,500,000

* US$90,000,000 x 40% = US$36,000,000 x 20% = US$7,200,000 annual ** US$90,000,000 x 60% = US$54,000,000 *** US$90,000,000 x 75% (US$300 p/o US$400) = US$67,500,000 # Examples appl equall to DNW losses


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US$


US$

NO POOL B#RETRO

US$



CLAIM 260,000,000 260,000,000 260,000,000 260,000,000 260,000,000

D/A 10,000,000 100,000,000 10,000,000 10,000,000 10,000,000

RECOVERy 250,000,000 160,000,000 250,000,000 150,000,000** 187,500,000***

INDIVIDUAL PAyBACK N/A N/A100,000,000*(20,000,000 annual)

N/A N/A

TOTAL RETENTION 10,000,000 100,000,000 110,000,000 110,000,000 72,500,000

* US250,000,000 x 40% = US$100,000,000 x 20% = US$20,000,000 annual ** US$250,000,000 x 60% = US$150,000,000 *** US$250,000,000 x 75% (US$300 p/o US$400) = US$187,500,000 # Examples appl equall to DNW losses




US$


US$

NO POOL B#RETRO

US$



CLAIM 310,000,000 310,000,000 310,000,000 310,000,000 310,000,000

D/A 10,000,000 100,000,000 10,000,000 10,000,000 10,000,000

RECOVERy 300,000,000210,000,000

300,000,000 180,000,000** 225,000,000***

INDIVIDUAL PAyBACK N/A N/A120,000,000*(24,000,000 annual) N/A N/A

TOTAL RETENTION 10,000,000 100,000,000 130,000,000 130,000,000 85,000,000

* US300,000,000 x 40% = US$120,000,000 x 20% = US$24,000,000 annual ** US$300,000,000 x 60% = US$180,000,000 *** US$300,000,000 x 75% (US$300 p/o US$400) = US$225,000,000 # DNW losses capped at US$250,000,000 (per previous example)


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Marsh 23

CONSIDERATIONS FORMEMBERSHIPIn order to full evaluate the suitabilit of OIL membership man factors have to becarefull assessed, not just the premium cost. When contemplating membership,various advantages and disadvantages of membership need to be considered.

IF OIL MEMBERSHIP CAN BE RECONCILED WITH OVERALL RISK MANAGEMENT STRATEGy, THEN ITCAN OFFER MANy BENEFITS, INCLUDING:

OWNERSHIP Owned b , and therefore responds to, its membership asopposed to financial markets or reinsurers.

Focus is on the needs of its members in relation to thecoverages afforded; again OIL is not reliant on reinsurerscoverage issues.

CONTINUITy Long-term capacit available to members.

S&P and Mood s rated.

Affords an alternative to or hedge to the commercial marketc cles.

INDUSTRy FOCUSED Established in direct response to the needs of the petroleumindustr when commercial markets ceased to provide adequatecoverage or limits for certain catastrophe events. Subsequentlexpanded to encompass Energ definition in response to thechanging profile of the industr and its members.

Coverage tailored to the specific needs of the energ industr .

Mutual for the benefit of and run b companies with sharedgoals and interests, provides a forum for sharing industrintelligence with peer group.

COST Premium simpl designed to post fund historical losses plusexpenses incurred b existing members.

Greater operating efficiencies than traditional markets.

Expense ratios amongst the lowest in the insurance industr .Effectivel ever premium dollar collected has a directcorrelation to claims incurred b the membership.

Delivers maximum value of premium dollar spend to membersrather than outside shareholders.

COVERAGE Automatic cover for new assets.

In man instances coverage is less restrictive than the

equivalent commercial market product. With the exception of Atlantic Named Windstorm (ANWS), nocoverage (risk or peril) sublimits.

Worldwide coverage (no territorial exclusions/restrictions but asanctioned activit exclusion applies).

LIMITS AND DEDUCTIBLES Availabilit of significant and reasonabl easil accessed limits.

Limit flexibilit available b wa of individual Sector limits(no need to purchase full limits for all Sectors subject to a

warrant ) or split (ventilated) limits. Full limits available for terrorism and, with the exception of ANWS, natural catastrophe (Nat Cat) perils.

No joint venture restriction on individual assets and, with theexception of ANWS, no annual aggregates for Nat Cat perils(onl the overall single event aggregate).

Deductible options with flexibilit to structure to individualneeds.

EASE OF ADMINISTRATION

No capital contribution purchase of voting stock onl(US$10,000 for one A share of capital stock).

No long-term membership tie in can exit each ear onDecember 31 (after giving 90 da s notice) in return for pa backof members share of unfunded pooled losses and (if applicable)outstanding Retro Premium. The creation of the exit premium(Theoretical Withdrawal Premium (TWP)) balance sheetcontingent liabilit , potentiall eases the exit process as theliabilit has alread been incurred.

Premium calculation based on Gross Assets derived frompublished balance sheet significantl reduces reporting burdenon risk management department (as long as balance sheet

complies with US GAAP/IFRS or IAS). No requirement for engineering inspections or visits.

Entry can be direct or by captive in order to facilitate reinsuranceof local insurance programs by OIL.


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POTENTIAL DISADVANTAGES TO CONSIDER, DEPENDING UPON INDIVIDUAL PERSPECTIVE,INCLUDE:

The concept of mutualization and the members philosoph tothis and risk retention in general.

The fact that the member will be participating in a mutual withcompanies involved in high risk exploration and production orheav petrochemical operations.

Exposure to potentiall volatile risk areas, e.g. ANWSirrespective of own risk profile, although this exposure hasbeen somewhat mitigated for members without ANWSexposure b the introduction of the Pool A annual aggregateretention and the specific excess windstorm pools.

The potential for additional collateral requirement if poolparticipation exceeds 30% of an pool.

The potential of premium calls for adverse loss experience.

NOTE: this risk has potentiall reduced as the BermudaMonetar Authorit and Standard & Poors have given OILspecific capital credit for the outstanding TWP amounts owedb the membership.

The extent that an OIL entr addresses a members totalinsurance needs.

The single event Aggregation Limit, currentl US$900 million(or US$750 million for ANWS), which creates uncertaint if aloss exceeds this limit. Recover b each member could be

significantl less than their full polic limit.

The ANWS (per Occurrence and annual aggregate) limit anddeductible restrictions.

Potential for future windstorm limit restrictions in othergeographic regions.

Inabilit to individuall influence premium. Premiums areset b the board of directors according to the Rating &Premium Plan (R&PP) no negotiating position for individualmembers. Risk differentiation comes through the weighting ofassets b Sector (or geographic area for ANWS) for premium

generation. There is currentl no individual differentiationbetween members in a given Sector.

Members have to ensure their balance sheet conforms to USGAAP/IFRS or equivalent IAS (certified b an auditor).

Requirement to repa on withdrawal, which is now immediate,the members share of unfunded pooled losses and (ifapplicable) outstanding retrospective premium at the time ofsuch withdrawal. Members need to account for the TWP basedon their theoretical (at an time potential) withdrawal fromOIL. This has created an immediate balance sheet contingent

liabilit for OIL members accounting under US GAAP/IFRS/IAS, regardless of their intention or otherwise to withdrawfrom OIL. However, upon withdrawal, the contingent liabilitis translated into a cash flow demand with a correspondingpositive impact on the balance sheet.

Elective coverage changes do not result in an immediate andcorresponding change in premium. The impact of coverageprofile (Weighted Gross Asset) changes on premium takesfive ears to be full embedded. On the other hand therequirement for Avoided Premium Surcharge (APS) has beeneliminated.

Decisions affecting coverage are at the discretion of the boardof directors; majorit decisions will appl . An decisionsaffecting the R&PP require a majorit vote of the shareholders(not the board of directors).

The OIL form is set and non negotiable from an individualstandpoint. Significant elements of wraparound accountspecific coverage ma still be required. OIL is not necessarila complete antidote to the commercial market.

Potential OIL claims adjustment complexit if OPOL claim issubsequentl withdrawn (or time barred).

Construction all risk (CAR) cover is potentiall of limitedvalue (no benefit to contractors or lenders, etc) although themember can designate third parties as loss pa ees.

OIL is non-admitted in certain territories (but fronting througha captive can be arranged).

The non-gradual pollution cover now offered b OIL is, insome cases, potentiall more restrictive in terms of discoverand reporting provisions than coverage available from thecommercial market for offshore (upstream) E&P operations.However, it is still ver much broader than what is availableunder a traditional propert form.

While an one of the above considerations taken individuallma not be sufficient to determine the final decision on OILmembership, taken collectivel the ma influence that decisionand lend subjective support to the more objective pricing andstructure considerations that will appl .

As can be seen, the issues surrounding OIL can be complex and itis recommended that companies refer to their insurance advisersfor guidance before taking decisions on OIL membership. This isan area where Marshs Global Energ Practice can certainl addvalue and deliver expertise.


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For further information and assistance in evaluating OIL, please contact:

This document has been prepared with the cooperation and assistance of Oil Insurance Limited

Marsh is one of the Marsh & McLennan Companies, together with Guy Carpenter, Mercer, and Oliver Wyman.

The information contained herein is based on sources we believe reliable and should be understood to be general riskmanagement and insurance information only. The information is not intended to be taken as advice with respect toany individual situation and cannot be relied upon as such.

Nothing in this document constitutes, nor is it in any way intended to constitute, advising on investments

for the purposes of the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001.Insureds should consult their insurance and legal advisors regarding specific coverage issues.This document or any portion of the information it contains may not be copied or reproducedin any form without the permission of Marsh except that clients of Marsh need not obtainsuch permission when using this report for their internal purposes.

Services delivered within each of the markets we operate within will be subject tolocal regulatory requirements. More information is available on request.

In the United Kingdom, Marsh Ltd. is authorised and regulated by theFinancial Conduct Authority for insurance mediation activities only.

Copyright 2013 Marsh Ltd. All rights reserved.

JOHN NEIGHBOUROIL TECHNICAL ACCREDITATION

OTA CERTIFIEDEnergy Practice+44 (0) 20 7357 5576 [email protected]

usa.marsh.com

AMY BARNESOIL TECHNICAL ACCREDITATION

OTA CERTIFIEDEnergy Practice+44 (0) 20 7357 [email protected]

GUY BESSISOIL TECHNICAL ACCREDITATION

OTA CERTIFIEDEnergy Practice+971 4212 [email protected]

OIL Guide 2013 Seguros

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Transcript of OIL Guide 2013 Seguros