Agenda • Review of topics • Class structure INTERACT • Take-aways • Industry facts • Little fun
Our Valuable Teachers • Steve England – AIG, Resident Vice President Mitch Harless – AIG, Vice President Global Energy Claims • Donna Pettersen McGinnis – Consultant for D&O at Dynegy • Cindy Chapman – Apache, Corporate Risk Manager • Robert D. Stauffer – President , OIL • O.J. Sanchez – Principal,Decision Strategies • James Hughes – Director of Corporate Risk Management ConocoPhillips • James Ferguson – Assoc. Gen Council and Director of Risk Management, Halliburton • Ted Gobillot – Assoc. General Council, Rowan • Bob Hixon – Managing Director, John L. Wortham & Son
Class Structure How did we learn from this class? • Real-life experience of lecturers • Interaction through Q&A • Constant commitment through written assignments • Reinforcement of knowledge through presentations • Practice of team working
How else could we have learned? • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • No way! This was the best way! • Any other ideas?
Take-Aways • What did we learn from the class? • Concepts from the energy industry • Fundamentals in the oil and gas sector • Cyclicality of commodity prices • The magnitude of the operations • Notions of risk and how to insure and manage that risk • Impact of natural catastrophic events • Risk management is both an art and a science
Gasoline Prices Source: U.S. Bureau of Labor Statistics
Earth by Night Source: NASA (Nov 2000)
Insured Loss & Claim Count for Major Storms of 2005* Hurricanes Katrina, Rita, Wilma & Dennis produced a record 3.2 million claims *Property and business interruption losses only. Excludes offshore energy & marine losses. Source: ISO/PCS as of February 8, 2006; Insurance Information Institute.
Outlook for 2006 US Hurricane Season *Average over the period 1950-2000. **As of December 4, 2005. Source: Dr. William Gray, Colorado State University, December 6, 2005.
Top 10 Most Costly Hurricanes in US History, (Insured Losses, $2005) Seven of the 10 most expensive hurricanes in US history occurred in the 14 months from Aug. 2004 – Oct. 2005: Katrina, Rita, Wilma, Charley, Ivan, Frances & Jeanne Sources: ISO/PCS; Insurance Information Institute.
Global Insured CAT Losses, 1970–2005(Property and Business Interruption) Billion USD, at 2004 prices There has been a huge increase in the insured value of global CAT losses in recent years Record $78 billion in insured natural CAT losses in 2005, compared to $5B in man-made disasters Source: Swiss Re, sigma No. 1/2005 & 2/2006.
Types of Risks • Financial risk • Credit risk • Interest rate risk • Legal risk • Liquidity risk • Market risk • Reinvestment risk
Steps in Managing Risk • Establishing the context • Identifying • Assessing • Treating • Transfer • Avoidance • Reduction (Mitigation) • Acceptance (Retention) • Creating the plan • Implementing • Reviewing and evaluating
Types of Insurance • Health insurance • Life insurance • Property insurance • Casualty insurance • Credit insurance • Reinsurance • Self insurance • Travel insurance
Did You Know? • History of transferring of risk • Smoking is bad! – risk and insurance • K&R insurance • Celebrities insured: • Bruce Springsteen • Marlene Dietrich • Fred Astaire • Tina Turner • Dolly Parton
Famous Quotes • You don’t need to pray to God any more when there are storms in the sky, but you do have to be insured. (Bertold Brecht – german poet) • For almost seventy years the life insurance industry has been a smug sacred cow feeding the public a steady line of sacred bull. (NYTimes – Ralph Nader – 1974)
Jokes The cowboy was trying to buy an insurance policy. The insurance agent was going down the list of standard questions. • "Ever have an accident?" • "Nope, nary a one.“ • "None? You've never had any accidents…" • "Nope. Ain't never had one. Never." • "That's hard to believe. No accidents at all?“ • "Well, rattler bit me one time.“ • "Wouldn't you consider that an accident?“ • "Hell no. Damned varmint bit me on purpose."