Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Megatrends Part 3: Natural Catastrophes and Climate Change - Stress Testing your Property Program RIMS 2014 April 29, 2014

Page 2 Recording of this session via any media type is strictly prohibited. Joe Guistino is a Partner and leader of Global Insurance Claims practice New York, NY The practice assists clients on large business interruption, extra expense, and property damage claims resulting from major insurance losses. Joe has over 25 years of experience in the field of forensic accounting, all of which has been dedicated to commercial insurance, the measurement and analysis of claims and review of insurance policies. Alice Edwards is a Managing Director in PwC Insurance Claim Services Atlanta, GA Alice specializes in managing large insurance claim projects. Over 30 years experience in claims project management for manufacturing, automotive, chemical, food and beverage, real estate, hospitality, healthcare, construction, and retail clients. About Your Presenters

Page 3 Recording of this session via any media type is strictly prohibited. Source: IPCC WGII AR5 Summary for Policymakers - Climate Change 2014: Impacts, Adaptation, and Vulnerability p39 31 March Assessment Box SPM.1 Figure 1. Intergovernmental Panel on Climate Change 2014 update:

Page 4 Recording of this session via any media type is strictly prohibited. “ Assessment of the widest possible range of potential impacts, including low-probability outcomes with large consequences, is central to understanding the benefits and tradeoffs of alternative risk management actions. “ Source: IPCC WGII AR5 Summary for Policymakers - Climate Change 2014: Impacts, Adaptation, and Vulnerability p10 31 March

Page 5 Recording of this session via any media type is strictly prohibited. Recent mega-disasters have given rise to highly complex losses: Katrina – hurricane, flood, storm surge, fire, civil disturbance Fukushima - earthquake, tsunami, radiation Sandy – wind, flood, storm surge, explosion Significant loss of life and/or trauma to society All involve loss of infrastructure and displacement of populations All involve the operation of multiple perils

Page 6 Recording of this session via any media type is strictly prohibited. Mega-disaster claims - measurement is complicated by: Chains of causation - excluded or sub limited perils Policies generally cover the “direct result of physical damage” Period of restoration – what is “due diligence & dispatch”? Coverage extensions are narrowly written Deductibles – application of percentage and time deductibles Claim industry capacity constraints

Page 7 Recording of this session via any media type is strictly prohibited. Stress test your property program – create loss scenarios Pick 2 or 3 low probability, high impact scenarios Assume a maximum foreseeable loss Assume the operation of multiple perils (consider EQ, tsunami, flood, landslide, storm surge, windstorm, fire, collapse, civil unrest, contaminants/pollution, mold) Assume widespread infrastructure disruption (loss of utilities, bridges, roads, waterways, communications, internet) Assume displacement of your suppliers, customers and employees

Page 8 Recording of this session via any media type is strictly prohibited. Stress test your property program – “adjust” the loss scenarios What sublimit, or deductible is each peril subject to? What exclusions might operate? Which coverage extensions might be available? If you have DIC EQ, how would you measure the loss to submit under the EQ DIC vs. the all risks program? Consider bottom line exposure from the following: Damage caused by perils that are potentially excluded Amounts in excess of sublimits Losses that may continue beyond the end of the period of indemnity The applicable deductible/s

Page 9 Recording of this session via any media type is strictly prohibited. Share issues identified: Sharing the process/results of the exercise with your broker and insurers will improve contract certainty around: Operation of % deductibles Operation of coverage extensions Definitions of catastrophic perils What is covered by DIC EQ Educate the C Suite about the limitations of property insurance

Page 10 Recording of this session via any media type is strictly prohibited. Questions, Final Comments and Contact Information Joe Guistino – PwC Alice Edwards – PwC © 2014 PricewaterhouseCoopers LLP, a Delaware limited liability partnership. All rights reserved. PwC refers to the US member firm, and may sometimes refer to the PwC network. Each member firm is a separate legal entity. Please see for further details. This content is for general information purposes only, and should not be used as a substitute for consultation with professional advisors.