The OIL Group of Companies. www.oil.bm www.ocil.bm. “Tools for Risk Transfer” Presentation to University of Houston April 11, 2013. The Evolution of Energy Mutuals. TOPS 1993-99. sEnergy 2002-2011. OIL 1972. Traditional Insurance Market. AEGIS 1975. OCIL 1986. EIM 1986.
“Tools for Risk Transfer”
University of Houston
April 11, 2013
sEnergy Insurance Limited (sEnergy)
A Case Study….
$300 million broad and stable “cornerstone” capacity
$6 billion in assets
Over $3.0 billion in shareholder’s equity
Over $11 billion in claims paid over 40 years
S&P A- rating (stable outlook)
Expense ratio = approx. 3-6 %
Not dependent upon reinsuranceWho is OIL?
World’s Largest Energy Mutual
–by the numbers
OIL is an Energy Industry Mutual Insurance Company headquartered in Hamilton, Bermuda
Formed by 16 major energy companies in 1972 after two incidents in the late 60’s that resulted in inadequate coverage / pricing
Today, OIL is a world leader in global energy insurance
52 Shareholders / Policyholders - medium to large public / private world-class energy companies headquartered around the world
46% of membership has been with OIL for over 20 yearsWho is OIL?
World’s Largest Energy Mutual
Second largest insurance / reinsurance market in the world headquartered in Hamilton, Bermuda
Over 1200 international insurers and reinsurers listed on its books
Writes nearly $108 billion in gross written premium
Capital & Surplus nearly $185 billion
Total assets of approximately $525 billion
World’s largest captive domicile
Home to 600+ licensed captives
Total assets over $86Bn and $21Bn in annual gross premium
Location: quick access from main hubs (East Coast / London)
Friendly regulatory environmentWhy Bermuda?
Bermuda Monetary Authority 2011 Annual Report
Basic structure similar to any other corporations:- Shareholders, Board of Directors, Board Committees, Officers & Staff.
Major differences: Shareholders are the Customers (Insureds.)
Directors are elected from the Shareholder Body.
The Investment companies are directed by a separate Board of Directors, which includes senior financial officers from major Shareholder companies.
In case of OIL, no “Underwriting” per se - each Policyholder treated equitably; premiums are formula-based—”Post lost funding”.
Elects Board Annually
(3-5) Meetings per year)
Chairman Nominates Committee members and Board Approves
All Officers and
Support STAFF reside
in Management Company
OCIL and OIL have no employees, The Companies are administered by Oil Management Services Ltd.
Oil Management Services Ltd.
Oil Insurance Limited
Investment Corp. Ltd.
Excess General Liability
Well Control, Pollution
Apache Corporation headquartered in Hamilton, Bermuda
BG Group plc*
BHP Billiton Petroleum (Americas) Inc.
Buckeye Partners, L.P.
Canadian Natural Resources Ltd*
Canadian Oil Sands Limited
Chevron Phillips Chemical Company LLC
CITGO Petroleum Corporation*
DONG Energy A/S*
Drummond Company Inc.
DTE Energy Company
Energy Transfer Partners, L.P.
Husky Energy Inc.
Lyondell Chemical Company*
Marathon Oil Company
Current OIL Members
Marathon Petroleum Corporation
MOL Hungarian Oil and Gas Company*
Murphy Oil Corporation
Noble Energy, Inc.
Nova Chemicals Corporation*
Occidental Petroleum Corporation*
Phillips 66 Company
Puerto Rico Electric Power Authority
Repsol YPF, S.A.*
Royal Vopak N.V.*
Sinclair Companies (The)
Statoil ASA *
Suncor Energy Inc.
Talisman Energy Inc.*
Tesoro Petroleum Corporation
Valero Energy Corporation*
Westlake Chemical Corporation
Williams Companies, Inc. (The)
Woodside Petroleum Limited.*
Yara International ASA*
Membership “Count headquartered in Hamilton, Bermuda”*
* Year-end member count, net year on year change.
OIL Shareholders by Headquarter headquartered in Hamilton, BermudaLocation
Globally diversified membership with an increasing interest from non-US companies.
Automatic coverage for: headquartered in Hamilton, Bermuda
Worldwide Coverage for an Energy Company and its Consolidated Subsidiaries / Affiliates
A member’s interest in a JV or other non-consolidated affiliate (if interest equates to less than 1% of Gross Assets)
Coverage for non-owned assets where a member has a contractual obligation to repair / replaceWhat’s Covered?
Membership is exclusive to energy companies headquartered in Hamilton, Bermuda
Members are all shareholders / policyholders and have vested interests
“Mutualized” sharing of losses
Easy annual renewal.
Premiums are formula and performance based i.e. no underwriting
One policy form for all members per the OIL Shareholders’ Agreement
OIL uses gross assets from audited balance sheets while the market uses insured valuesOIL vs. Commercial Market
No Annual Aggregate. headquartered in Hamilton, Bermuda
Joint Ventures – full Limits available. Limits do not scale for working interest but deductibles scale for interest.
Aggregation Limit – maximum payout of $900 Million (non-windstorm) on multiple shareholder claims arising out of one occurrence.
Reduced limits are available (minimum limit is $100M) subject to a warranty as respects the absence of other insurances (warranty does not apply to windstorm).
Limits can apply as primary, excess, quota share, ventilated and different limits may be elected by sector.Oil Limits – 8 Business Sectors
For windstorm coverage outside of the ANWS zone (i.e. South China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
ROW coverage, by geographic region, will be restricted only after incurring a Loss Trigger Event:
A single loss event of $750M
Cumulative losses of $1B over a 5 year rolling basis
After a threshold trigger is met, windstorm coverage and pricing will automatically change in the next policy year unless the Board of Directors determines otherwiseRest of the World (RoW)
Formula basis – no traditional “underwriting.”
Premiums paid by Policyholders is a function of their Gross Assets.
Gross Assets = Gross value (historic cost) of property, plant & equipment before deprecation, depletion, and amortization, plus inventories, materials, and supplies.
Gross Assets are then adjusted for operational risk and coverage profile (i.e., sector and deductible weightings) = Weighted Gross Assets.
Eight Business Sector Coverages only
By Geographic Region of Physical Loss
As at December 31, 2012
Expressed in billions of U.S. dollars
Repayment Schedule for Losses Incurred China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.2007-2011
Policyholders’ Gross Assets are adjusted to recognize differences in operational risk between Business Sectors:
Offshore E&P -- Pharmaceuticals
Onshore E&P -- Mining
Pipelines -- Other
Refining & Marketing/Chemicals
Weighted Gross Assets are used to calculate individual Policyholders premiums.
Utilizes sector and deductible weightings. China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
Gross Assets are adjusted for operational risk (sector weighting) and coverage profile (limit/deductible weighting) to generate Weighted Gross Assets which is used to determine pool % and calculate individual premiums.8 Business Sector Pricing(Non-Windstorm)
8 Business Sector Gross Assets China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
Unmodified Gross Assets by Industry Segment
Weighted Gross Assets by Industry Segment
* as of December 31, 2011
Premium Calculator Example China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
- 8 Business Sector
SECTOR / DEDUCTIBLE / LIMIT WEIGHTINGFACTORS
GROSS ASSETS (WGA)
Offshore E&P = 1.50
Pipelines = 0.25
Weighted Gross Factors
Offshore E&P = $37.50B
Pipelines = $1.25B
Total = $38.75B
Offshore E&P = $25B
Pipelines = $5B
Total = $30B
38.75B / $1,046B
(GROUP WGA) = 3.7%
Gross Assets Insured
Inception To Date:
Net Premiums Earned
Net Losses & Loss Expense *
Investment Income **
Dividends Paid ***
Operating, Financing & Other Costs
* Includes IBNR/IBNE
** Net of Interest Expense
*** Excluding Preference Share dividends paid
Why we are different from the Commercial Market…
~30-40% Expense Ratio
In 3rd year of a global marketing plan
Building global broker network capabilities
Oil has been “on the road” globally engaging brokers
Delivering new global marketing materials
Launching the OTA (Oil Technical Accreditation)
Launched in December 2012
New On-Line Tutorial & Official Accreditation China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
Register @ www.oil.bm“OTA”
Oil Technical Accreditation
Investment Management China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
Update: as approved by the Investment Board, 25% of Global Bonds (benchmark and portfolio) were shifted to short duration on October 1, 2012. This shift was made to reduce interest rate risk, locking in gains following a period of declining interest rates and protecting against potential losses from future interest rate rises.
As at December 31, 2011
Expressed in millions of U.S. dollars
*Aggregate Value = $11.8Bn (untrended)
* Pure Loss—Excludes loss expense
By Industry Sector – 2012 only
Aggregate Value = $599M*
What about OCIL: China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.
The Evolution of Energy China Sea, North Sea, Australia etc.), the windstorm limit is $300M (not $150M part of $250M) and the Aggregation Limit is $900M.Mutuals
OCIL = historically significant
Founded at a time when capacity was scarce
Hedge against commercial market “knee-Jerk” reactions, irrational underwriting and erratic pricing
Owned and controlled by Shareholders
OCIL’s original mission
To provide its policyholders with Directors & Officers Liability coverage on policy forms that were comparable to or broader than coverage available in the commercial market
To offer substantial limits at reasonable prices, which are reliable over the long-term in lines (Excess General Liability and D&O) that are often volatile or restrictive by commercial markets
To maintain capacity, pay claims that arise, and ensure fair treatment of members
Financial Strength A- A2
Financial Strength BBB+ A- Stable
Standard & Poor’s
Update: 3 Months ended February 29, 2012
Global Equity Benchmark 11.6%
Hedge Fund Benchmark 2.8%
Global Bond Benchmark 3.2%
Cat Bond is short for Catastrophe Bond:
A corporate bond with special language that requires the bondholders to forgive or defer some or all payments of interest or principal if actual Catastrophe losses surpass a specified amount, or trigger.
Cat Bonds were originally developed by insurance companies in the early to mid 1990’s who were looking for additional capacity to reinsure natural Catastrophes, ie: earthquakes, wind storms, hurricanes.
Historically, Cat bonds have provided risk securitization for purely Catastrophic events – Avalon Re, Ltd. was the FIRST (and probably last) company to issue a Casualty Catastrophe Bond