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Success in a Redefined World

Success in a Redefined World. An Industry Mutual Perspective. Who Are We?. OIL and OCIL are Industry Owned Insurance Companies (“Mutuals”) Owned by and Serving the Oil and Gas Industry (70 of the Largest Global Companies) OIL Writes $225 M Limits Property and Pollution Coverage – Formed 1972

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Success in a Redefined World

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  1. Success in a Redefined World An Industry MutualPerspective

  2. Who Are We? • OIL and OCIL are Industry Owned Insurance Companies (“Mutuals”) • Owned by and Serving the Oil and Gas Industry (70 of the Largest Global Companies) • OIL Writes $225 M Limits Property and Pollution Coverage – Formed 1972 • OCIL Writes $100 M Liability Coverage – Formed 1986 • Located Offshore in Bermuda

  3. The Wang Word Processor

  4. Other Companies and Institutions that Did Not Recognize and Adapt to Change • IBM’s Reliance on Mainframe Computers • The Polaroid Camera • Lloyds

  5. Why Should We Be Concerned? • OIL and OCIL Enjoy High Customer/Shareholder Satisfaction • OIL for Example: • Built Capital of Almost $2 B with No Investment • Lowest Expense Ratio in Industry (3%) • Made $350 M in Income Last Year • Returned $700 M in Dividends in Last Three Years • Shareholder Base Expanding • So What’s the Problem?

  6. The Challenge • Signs of Fundamental and Irreversible Change (Shift in the Paradigm) • In our Customer Base (the “Energy” Industry) • In our Competition (the Insurance/Financial Services Industry) • Change Can Impact Business Models • Change Can Create Threats • Also, New Opportunities

  7. The Process • Retained External Resources (A T Kearney) • Interviewed All Shareholders • Interviewed Selected Brokers and Competitors • Developed Macro View of Industry Dynamics • Considered Implications to OIL/OCIL • Competitive Position • Challenges • Opportunities • Developed Specific Strategic Responses

  8. Energy Market Dynamics • OIL & Gas Industry Reshaping into Three Distinct Groups • “Mega-majors” • Midrange • Specialists • Likely to Continue Due to Shareholder Pressure • Presence of Midrange Companies Will Diminish • Demand for Traditional Insurance Products Will Be Reduced • Diverging Risk Profiles and Preferences • Oil & Gas/Transportation/Utility “Convergence”

  9. Insurance Market Dynamics • Excess Capacity Will Slow Return to Rational Pricing Prolonging Intense Competition • Non-traditional Alternatives Will Cap Rate Increases at Price Efficient Levels • Trend Towards Enterprise Risk Management • Deconstruction of the Value Chain – Segment Specialization • Emergence of E-Commerce

  10. Impact of Energy and Insurance Market Dynamics Energy Industry Transformation Impact of Technology OIL OCIL Emergence of Alternative Solutions Intense Competition

  11. Specific Strategic Responses • Retain and Build On Mutual Structure • Eligibility – Broaden “Energy” Definition • OCIL Declared Electric Utilities, Mining Eligible • OIL Changes (Under Review) • Coverage/Limits (Under Review) • Strategic Partnerships (Under Review) • Coordinate Strengths of OIL and OCIL • Leverage Unique Member ‘Franchise’

  12. Specific Strategic Responses • Marketing/Shareholder Relations • Additional Resources • Product and Marketing Committee • Comprehensive Marketing Plan • Refine Equity of OIL Rating Formula • Changes in Sector Weighting • Governance • Ability to React Quicker • More Flexibility/Delegation • Governance Sub-Committee • E-Commerce Strategy

  13. E-Commerce Strategy • Potential Savings to Industry So Great, E-Commerce Enabled Insurance Transactions Are Inevitable (Over $100 B Available - Kearney) • Cultural, Institutional and Regulatory Hurdles Have Delayed Development • Few Insurance Net Start-Ups Are Broad, Independent and Buyer-Focused • OIL/OCIL See a Unique Opportunity to Add Value to Shareholders by Facilitating Change

  14. Our Vision of an Exchange:“Insurance Net” • End-To-End Integration (Linking Large Numbers of Buyers, Sellers, Advisors) • Independent (Not Favoring a Single Component of the Value Chain) • Open to All • Offering the “Three Cs” • Commerce • Content • Community • Buyer Focused and User Friendly

  15. Options For Playing a Role • Develop Our Own Exchange • High Cost • Sub-Scale • High Risk of Losing the Race • Wait And See • No Control Over Developments • Sub-Optimal Solutions • No Value Added to Shareholders • Influence An Independent Exchange • Low Cost • First Mover Advantage • High Influence (Bring Financing and Critical Mass) • Enhanced Shareholder Value Proposition

  16. Implementing an E-Commerce Strategy • Retained A T Kearney to Help With Due Diligence • Selected Existing Insurance Exchange Best Aligned With Our Vision • Assessed Capability of Execution • Strategic Investment in Early Financing Round • Chose Global Risk Exchange (“GRX”) • Seat on Board, Input Into Business Plan • Dedicated Energy Relationship Manager • Focus Groups, Beta Testing to Develop Product

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