The OIL Group of Companies

www.oil.bm

www.ocil.bm

“Tools for Risk Transfer”Presentation to

University of HoustonApril 5, 2012

The Evolution of Energy Mutuals

4/5/2012

2

TraditionalInsurance

Market

EIM1986

sEnergy2002-2011

AEGIS1975

OCIL1986

OIL1972

NEIL1980

TOPS1993-99

2

Insurance Crisis # 1Why was OIL Formed in 1971?

4/5/2012

• Inability of petroleum companies to purchase all-riskproperty damage coverage at realistic rates andcapacity.

– Incident – 1967 Explosion and Fire at Cities Service Oil Co.refinery in Lake Charles , Louisiana.

• Unwillingness of the commercial insurance industry tosell third party pollution liability to petroleumcompanies at any price.

– Incident – 1969 Union Oil Co. oil spill in Santa BarbaraChannel, California.

• Realization on the part of 16 oil companies that thecombined capital & surplus of the petroleum industrygreatly exceeded that of the insurance industry.

3

Insurance Crisis # 2 (1985-86)

4/5/2012

Oil Casualty Insurance, Ltd. (OCIL)

• Energy industry-owned company insuring• Excess General Liability

• D&O Liability (now discontinued)

• Assumed Reinsurance (Energy Industry Risks)

• Formed in 1986 by 14 interested members ofOIL.

• Lack of D&O capacity was key driver inOCIL’s formation.

• Today – 99 Shareholders and Policyholdersheadquartered around the world with totalgross assets in excess of $3.5 Trillion.

4

…and again in 1993

4/5/2012

TOPS (Total Loss Only Platform Structures)

• Petroleum industry-owned company providing high-level Excess Property Damage coverage for largeproduction structures located in the North Sea.

• Established in response to commercial insurancemarket’s overpricing of coverage specifically relatedto such structures.

• Formed in 1993 by 16 petroleum companiesheadquartered in Europe and North America.

• No losses in entire history of operations.

• Liquidated in 1999 when rational pricing returned tothe commercial market.

5

…and once again in 2002!

4/5/2012

• Energy industry-owned company providing

• Business Interruption

• Property Damage (excess of OIL)

• Lack of affordable, long-term and stable commercialmarket capacity was key driver in sEnergy’s formation.

• Formed in 2002 by 12 energy companies.

• sEnergy operated with an “OIL-like” Rating & PremiumPlan.

• Closed down in 2011.

sEnergy Insurance Limited (sEnergy)

6

OIL INSURANCELIMITED

A Case Study….

The OIL Group ofCompanies

4/5/2012

• Two energy industry mutual insurance companies:

• Headquartered in Hamilton, Bermuda.

• Established when commercial market:

– Ceased to provide adequate coverages/limits.

– Priced high risk energy operations at unacceptable levels.

• The two companies have a total combined membership of 121different Shareholders/Policyholders who are world-classenergy companies headquartered around the world.

8

Why Mutualize?

4/5/2012

• Industry ownership ensures fair treatment of

Policyholders.

• Being a mutual or member owned provide ‘hedge’ against a

frequently volatile commercial insurance market.

• Shareholders maintain active control of the coverages

available to them.

• Highly cost-effective catastrophe insurance facility.

• Generates long-term benefits for Policyholders.

9

Why “Bermuda”?

4/5/2012

• Bermuda is one of the three largest insurance markets in theworld (London and New York being the others.)

• More than 1,600 international insurers and 1,200 captiveinsurers are registered in Bermuda.

• Favorable tax/regulatory/legal environment.

• Highly developed markets in all lines of insurance coverage.

• Sophisticated on-Island business infrastructure.

10

The OIL Group of Companies

“Mutual/Member Owned” Structure

• 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”.

4/5/2012

11

Corporate Governance

4/5/2012

SHAREHOLDERS(Annual Meeting)

BOARD OFDIRECTORS

(3-5) Meetings per year)

OMSLMANAGEMENT

CompensationCommittee

AuditCommittee

GovernanceCommittee

ExecutiveCommittee

12

Elects BoardAnnually

ChairmanNominatesCommitteemembersand BoardApproves

All Officers andSupport STAFF reside

in Management Company

The OIL Group of CompaniesOperational Structure

4/5/2012

OIL(52 Members)

Oil InvestmentCorp. Ltd.

(OICL)

Property Damage

Well Control, Pollution

sEnergy AssetBarbados Ltd.

OCIL(99 Members)*

Oil CasualtyInvestment Corp. Ltd.

(OCICL)

Excess General Liability

Oil Management Services Ltd.

*99 Members at April 1, 2012.

13

OIL: An AlternativeInsurance Solution

4/5/2012

• Today, OIL continues to be a very real and attractive option

to many insurance buyers in the energy industry.

• OIL’s $300 Million limit is one of the largest net line

capacity insurers currently available to the energy

industry.

• OIL does not buy reinsurance so it is not subject to annual

changes in conditions or restrictions on terms offered – in

this way full terrorism coverage continued to be offered

after September 11th.

• Any rate increase in OIL is due to increased losses by the

membership - not internal or external pressures - and

hence is transparent.14

Who are OIL’s 52 Members?

4/5/2012

• Big Companies, such as:ConocoPhillipsTOTALChevron

• Small Companies, such as:

Tesoro Petroleum LOOP LLCMurphy Oil Lyondell Chemical

• Electric Utility/Power Generation Companies, such as:

Electricity de France (EDF), DTE Energy

• Other members of varying sizes and business focuswithin the broadly-based Energy Industry.

15

4/5/2012

16

Current OIL Members

Oil Insurance Limited –MEMBERS 2012Apache Corporation

Arkema*

BASF SE*

BG Group plc*

BHP Billiton Petroleum (americas) Inc.

Buckeye Partners, L.P.

Canadian Natural Resources Ltd*

CEPSA*

Chevron Corporation

Chevron Phillips Chemical Company LLC

CITGO Petroleum Corporation*

ConocoPhillips*

DONG Energy A/S*

Drummond Company Inc.

DTE Energy Company

EDF Group*

El Paso*

ENI S.p.a.*

Galp Energia S.A.*

Hess Corporation*

Hovensa LLC

Husky Energy Inc.

LOOP LLC.

Lyondell Chemical Company*

Marathon Oil Company

Marathon Petroleum Corporation

MOL Hungarian Oil and Gas Company*Murphy Oil Corporation

Nexen Inc.*Noble Energy, Inc.

Nova Chemicals Corporation*Occidental Petroleum Corporation*

OMV Aktiengesellschaft*Paramount Resources

Puerto Rico Electric Power AuthorityRepsol YPF, S.A.*Royal Vopak N.V.*

Santos Ltd.*Sempra Energy

Sinclair Companies (The)Southern Union Company

Statoil ASA *Suncor Energy Inc.

Sunoco, Inc.Talisman Energy Inc.*

Tesoro Petroleum CorporationTOTAL*

Valero Energy Corporation*Westlake Chemical CorporationWilliams Companies, Inc. (The)Woodside Petroleum Limited.*

Yara International ASA*

52 Shareholders

* Shareholder and/or Named Insured is a Captive or wholly owned subsidiary

4/5/2012

Membership “Count”*

17

61

78

87 84 82 83

6056 56 54 52

0

10

20

30

40

50

60

70

80

90

100

* Year-end member count, net year on year change.

2012 Membership Count by IndustrySegment

18

6%

2%2%

4/5/2012

OIL Member Headquarter Location

Globally diversified membership with anincreasing interest from non-US

companies.

4/5/2012 19

OIL: Risks Insured

4/5/2012

Eight Business Sector Coverages

1. Physical damage to first party property.

2. Well Control, including Restoration and Redrilling.

3. Third party Pollution Liability, (non-gradual).

4. Limits = $300 million per occurrence, no annual

aggregate.

5. Single Event Limit = $900 Million.

6. Deductibles = $10 Million minimum, increasing in $5

million increments.

Winstorm Coverages: Onshore and offshore (ANWS only)

Coverage Grants same as 1, 2, and 3 above.

Limits= $150 Million p/o $250 million per occurrence

Single Event Limit = $750 Million.

Coverage is automatic for exposed assets, butmember can effectively opt out of the coverage.

20

OIL Rating & Premium Plan

• 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.

4/5/2012

21

Eight Business Sector Coverages only

Sector Weighting for Risk

• Policyholders’ Gross Assets are adjusted to

recognize differences in operational risk between

Business Sectors:

– Offshore E&P -- Pharmaceuticals

– Onshore E&P -- Mining

– Pipelines -- Other

– Electric Utilities

– Refining & Marketing/Chemicals

– ANWS-Onshore

– ANWS-Offshore

• Weighted Gross Assets are used to calculate

individual Policyholders premiums.

4/5/2012

22

OIL “Underwriting” Example– 8 Business sectors

GrossAssets byBusiness

Sector

X

Sector/Deductible/Limit

WeightingFactors

=Weighted

GrossAssets (WGA)

Gross Assets

Offshore E&P = $ 25BPipelines = $ 5BTotal $ 30B

Sector/Deductible /Weight Factors

Offshore E&P = 1.50Pipelines = 0.25

Weighted Gross Assets

Offshore E&P = $37.50BPipelines = $ 1.25BTotal $38.75B

WGA = $38.75B/Group WGA$1,046Bn

= 3.7% of Pool

X

MembershipAnnual

Losses (20%)= Annual

Premium

Annual Premium Calculator

4/5/2012 23

4/5/201224

8 Business Sector GrossAssets

Unmodified Gross Assets by Industry Segment($2,214 Bn)*

Weighted Gross Assets by Industry Segment($1,166 Bn)*

Business Sectors

E&P Offshore

E&P Onshore

R&M / Chemicals

Pharmaceuticals

Mining

Utilities

Pipelines

Other

R&MChemical

s26%

Other2%

Utilities7%

Mining2%Pipelines

3%E&P

Onshore9%

E&POffshore

51%

* as of December 31, 2011

OIL’s History: 39 Years

Membership

Shareholders’ Equity

Assets

Gross Assets Insured

12/31/2011

52

$3.0 Billion

$5.5 Billion

$1.9 Trillion

1972

16

$160 Thousand

$160 Thousand

$48 Billion

+$13.0 Billion

- $13.0 Billion

+$ 4.3 Billion

- $ .8 Billion

+$ .4 Billion

- $ .9 Billion

$ 3.0 Billion

Inception To Date:

Net Premiums Earned

Net Losses & Loss Expense *

Investment Income **

Dividends Paid ***

Preference Shares

Operating, Financing & Other Costs* Includes IBNR/IBNE

** Net of Interest Expense

*** Excluding Preference Share dividends paid

4/5/2012 25

4/5/2012 26

2011 UnderwritingHighlights

as at December 31, 2011

Dec 31,2010

Dec 31,2011

% Change

Written & EarnedPremiums

$784M $543M (31%)

Incurred Losses –Current UnderwritingYear

$269M $375M 39%

Incurred Losses – PriorUnderwriting Years

$173M $120M (31%)

IBNR adjustment $(27)M $91M 437%

Acquisition Costs &Loss Expenses

$7M $13M 86%

Net UnderwritingIncome

$362M $(56)M (115%)

Consolidated Balance Sheet

12/31/2011 12/31/2010

($ in 000s) ($ in 000s)

Assets

Cash and cash equivalents 282,441 249,580

Investments 5,255,944 5,296,317

Investment sales pending settlement 82,853 122,906

Accrued investment income 30,220 29,812

Accounts receivable 22 37,708

Amounts due from affiliates 59 87

Retrospective premiums receivable 91,741 154,603

Other assets 2,725 2,787

Total assets 5,746,005 5,893,800

4/5/2012 27

Consolidated Balance Sheet

12/31/2011 12/31/2010

($ in 000s) ($ in 000s)

Liabilities

Outstanding losses and loss expenses 2,280,278 2,309,945

Unearned premium reserve - -

Retrospective premiums payable 1,313 5,538

Premiums received in advance 22,666 63,386

Securities sold short 116,433 111,623

Investment purchases pending settlement 285,023 196,479

Accounts payable 5,622 5,142

Amounts due to affiliates 1,523 1,052

Total liabilities 2,712,858 2,693,165

Shareholders' equity

Preferred shares 402,458 443,835

Common shares 520 540

Retained earnings 2,630,169 2,756,260

Total shareholders' equity 3,033,147 3,200,635

Total liabilities and shareholders' equity (US GAAP) 5,746,005 5,893,800

Other Capital Information

Statutory capital and surplus 4,221,387 4,338,593

4/5/2012 28

Consolidated IncomeStatement

Year Ended

12/31/2011

Year Ended

12/31/2010

($ in 000s) ($ in 000s)

Net premiums written 543,425 783,687

Unearned premium - -

Premiums earned 543,425 783,687

Losses and loss expenses incurred (599,109) (422,732)

Acquisition costs (323) -

Underwriting income (56,007) 360,955

Interest income 103,667 107,130

Dividend income 31,807 23,463Investment gains (losses) [realized and

unrealized] (143,904) 329,355

Investment advisory and custodian fees (22,619) (24,031)

Discount earned on retrospective premiums

receivable 1,062 802

Net Investment Income (29,987) 436,719

General and administrative expenses (17,855) (15,678)

Interest and debt expenses (787) (216)

Net income (104,636) 781,780

Other Changes in Shareholders' Equity:

Preferred share dividend (24,515) (34,542)

Gain on preferred share repurchase 3,060 2,323

4/5/2012 29

The OIL Group:Efficiency & Control

4/5/2012

Why we are different from the Commercial Market…

CommercialMarket

~30-40% ExpenseRatio

PREMIUM

LOSS PAYMENT

Member

PREMIUM

• LOSS PAYMENT• OWNERSHIP• CONTROL• RETURN ONCAPITAL

“OIL Group”

~ 5%Expense Ratio

Insured(Buyer)

30

Marketing

4/5/201231

• Broker Consulting Agreements

– OIL has signed global service agreements with4 key brokers to assist OIL in its efforts toattract “Quality” new members.

– The services include:

o Prospect Identification & Qualification.

o Market Intelligence/Research

o Product Development

o Member opportunities/issues

o Training

– These agreements do not include anycontingent compensation arrangements.

Investment Management

OIL Financial Management

• Membership comprised of the leading global energycompanies.

• Certainty of loss recovery from membership.• Strong financial ratings = A- (stable watch -S&P.)• Access to capital markets to enhance capital

structures.• Catastrophic insurer, above working layer losses.

Investment portfolios are structured with less need forliquidity which allows for greater diversification by

major asset classes and potential return.

4/5/2012

33

Current Asset Allocationas at December 31, 2011

8%

48%

3%

10%

31%

Global Fixed Income

Fund of Hedge Funds

Global Equity

Cash

Short Duration Fixed Income (Pref

4/5/2012 34

Portfolio Returns by Asset ClassPeriod ended December 31, 2011

-4

6

14

-18

129

33

11

-40

12

18

-9

58

17

-6

56

-50

-40

-30

-20

-10

0

10

20

30

40

2011 2010 2009 2008 2007 2006

%R

eturn

Global Equity Fund of Hedge Funds Global Bond

Update: 2 Months ended February 29,2012

Global Equity Benchmark 11.6%

Hedge Fund Benchmark3.2%

Global Bond Benchmark1.7%

4/5/2012 35

Investment Portfolio Returnsas at December 31, 2011

8

-19

6

11

8

14

-17

7

10

0

1312

10

20

-24

9

-1 -1

-30

-25

-20

-15

-10

-5

0

5

10

15

20

25

2011 2010 2009 2008 2007 2006

%R

eturn

OICL Benchmark OICL Portfolio OIL Total (incl cash)

4/5/2012 36

Current Events:Natural Catastrophes

Historical Hurricane “Tracks”Impacting OIL

Katrina$1,000M

127-161mph

Ivan$581M121-

132mph

Rita$1,000M

121-138mph

Ike$750M104-

109mph

Gustav109-

115mph

4/5/2012

38

Historical Hurricane Lossesas at December 31, 2011

4/5/2012 39

ClaimsAdvised

ClaimsFiled

Gross ForInterest

Net to OILNet to OIL

Scaled

Andrew(1992)

3 3 $127M $108M $108M

Lili(2002)

7 6 $147M $96M $96M

Ivan(2004)

10 8 $789M $559M $559M

Katrina(2005)

25 18 $2,686M $1,992M $1,000M

Rita(2005)

27 20 $1,948M $1,343M $1,000M

Ike(2008)

14 13 $2,007M $1,144M $750M

Total: 86 68 $7,704M $5,242M $3,513M

4/5/2012 40

Current Scaling Factors

Un-scaled NetLoss

As of

31-Dec-11

Calc. Factor

As of

31-Dec-11

InterimPayment

ScalingFactor

Katrina $1,992M 50.2% 50.2%

Rita $1,343M 74.5% 74.5%

Ike $1,144M 65.6% 50%

Hurricanes - Past Payout Patterns

As of December 31, 2011, Payments Scaled for Aggregation Limit4/5/2012 41

YearsHurricane

Lili

(2002)

HurricaneIvan

(2004)

HurricaneKatrina(2005)*

HurricaneRita

(2005)*

HurricaneIke

(2008)*

< 1 Year 0% 9% 5% 2% 2%

< 2 Years 81% 78% 42% 20% 27%

< 3 Years 97% 79% 56% 35% 57%

> 3 Years 100% 98% 100% 100% 61%

Total $96M $559M $1,000M $1,000M $750M

Members 6 8 19 20 13

Net Incurred Losses since 1972*by Geographic Region of Physical

Loss

As at December 31, 2011Expressed in millions of U.S. dollars

* untrended

4/5/2012 42

Net Incurred Losses by Industry1972-2011 (39 yrs)

*AggregateValue =$11.8Bn (untrended)

4/5/2012

* Pure Loss—Excludes loss expense

43

Offshore E&P48%

Refining &Marketing

27%

Petrochemicals9%

Onshore E&P7%

Pipelines4%

Other2%

Mining2%

Electric Utilities1%

4/5/2012

What about OCIL:

44

4/5/2012

The Evolution of Energy Mutuals

TraditionalInsurance

Market

EIM1986

sEnergy2002

(in runoff)

AEGIS1975

OCIL1986

OIL1972

NEIL1980

TOPS1993-99

45

OCIL’s Historical Mission andValue Proposition

•OCIL = historically significant– Founded at a time when capacity was scarce

– Hedge against commercial market “knee-Jerk”reactions, irrational underwriting anderratic pricing

– Owned and controlled by Shareholders

•OCIL’s original mission– To provide its policyholders with Directors &

Officers Liability coverage on policy forms thatwere comparable to or broader than coverageavailable 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 areoften volatile or restrictive bycommercial markets

– To maintain capacity, pay claims that arise,and ensure fair treatment of members

4/5/2012

46

4/5/2012

OCIL OIL

Organization Member owned Mutual

Premiumcalculation

Flexible; Underwritingdiscretion

Formula driven

Mutualization oflosses

No Yes

Avoided PremiumSurcharge &TheoreticalWithdrawalPremium

No Yes

Aggregation limit No Yes

Follow Formcapability Yes No

Ability to AssessMembership No Yes

Major Differences: OCIL vs. OIL

47

4/5/2012

OIL

Financial Strength A- A2

OCIL

Financial Strength BBB+ A- Stable

Moody’s

Financial Ratings

48

Standard &Poor’s

A.M. Best

Consolidated Balance Sheet

4/5/2012

49

30-Nov-11 30-Nov-10

($ in 000s) ($ in 000s)

Assets

Cash and Cash Equivalents 52,934 36,670

Investments 740,982 692,609

Assets pledged under Insurance Trust - 25,019Investment sales pending settlement 43,475 4,660

Accrued investment income 6,621 6,934Losses recoverable from reinsurers 187,179 165,730

Prepaid reinsurance premiums 13,684 14,190

Other assets 37,388 14,516

Total assets 1,082,263 960,328

Consolidated Balance Sheet

4/5/2012

50

30-Nov-11 30-Nov-10

($ in 000s) ($ in 000s)

LiabilitiesOutstanding losses and loss expenses 307,448 312,979

Unearned premiums 44,327 27,141Securities sold short 5,383 4,170

Investment purchases pending settlement 86,573 16,281

Loan payable 150,334 150,334

Reinsurance premium payable 21,537 13,696Amounts due to affiliates 544 724

Accounts payable 5,000 3,500

Total liabilities 621,146 528,825

Shareholders' equity

Common shares 305 305

Retained earnings 460,812 431,198

Total shareholders' equity 461,117 431,503

Total liabilities and shareholders' equity 1,082,263 960,328

Statutory capital and surplus 606,306 577,893

Consolidated Income Statement

4/5/2012

51

Year Ended

11/30/2011

Year Ended

11/30/2010

($ in 000s) ($ in 000s)

UGL premium written 53,345 45,111

Assumed reinsurance premium 28,760 11,597

Premiums written 82,105 56,708

Premiums earned 64,919 49,690

Premiums ceded (27,588) (23,742)

Net premiums earned 37,331 25,948

Losses and loss expenses incurred (193) (79,300)

Commission and brokerage fees, net (1,296) (745)

Underwriting income (loss) 35,842 (54,097)

Interest income 22,114 22,762

Dividend income 1,435 1,007

Investment gains (losses) [realized and unrealized] (4,665) 37,123

Interest and debt expenses (12,482) (13,135)

Investment advisory and custodian fees (2,834) (3,063)

Net Investment Income 3,568 44,694

General and administrative expenses (9,796) (9,884)

Net income (loss) 29,614 (19,287)

OCIL Asset Allocationas at November 30, 2011

4/5/2012

52

75%

11%

10%4%

Global Fixed Income

Fund of Hedge Funds

Global Equity

Cash

Portfolio Returns By Asset ClassFiscal Year Ended November 30

4/5/2012

53

48

25

-9

5

-1

69

-16

13

-2

6

34

-41

15

2 8

22

-19

10

25

9

-12

8

-60

-40

-20

0

20

40

2011 2010 2009 2008 2007

%R

etu

rn

Global Bond Fund of Hedge Funds Global Equity OCICL Portfolio OCICL Benchmark

Update: 3 Months ended February 29, 2012

Global Equity Benchmark 11.6%

Hedge Fund Benchmark 2.8%

Global Bond Benchmark 3.2%

Investment Portfolio ReturnsFiscal Year Ended November 30

4/5/2012

54

26 6

-10

7

2

9

18

-16

9

2

9

17

-16

8

-20

-10

0

10

20

2011 2010 2009 2008 2007

%R

etu

rn

OCICL Benchmark OCICL Portfolio OCIL Total

Cat Bond Definition

• Cat Bond is short for Catastrophe Bond:

– A corporate bond with special language thatrequires the bondholders to forgive or defer someor all payments of interest or principal if actualCatastrophe losses surpass a specified amount, ortrigger.

• Cat Bonds were originally developed by insurancecompanies in the early to mid 1990’s who werelooking for additional capacity to reinsure naturalCatastrophes, ie: earthquakes, wind storms,hurricanes.

• Historically, Cat bonds have provided risksecuritization for purely Catastrophic events –Avalon Re, Ltd. was the FIRST (and probably last)

company to issue a Casualty Catastrophe Bond

4/5/2012

55

Conclusions

OIL Business Model

4/5/2012

• Business model that has worked successfully to service the

energy industry for over 30 years.

• Insurance facility is tailored to the needs of the energy industry.

• Mutualization of losses assures fairness and recovery of losses.

• Among the largest limits available in the world market.

• Highest form and reliability of coverage.

• Strong access to capital markets when necessary.

• Investment strategy promotes capital growth, as well as, security.

• Low cost, most efficient vehicle for managing major risk transfer.

• Biggest Challenge: Natural Catastrophes. How do we insure them?

How do we allocate premium for them in a mutual setting?

57

Thank you!

4/5/2012 58