The Role of the Broker as the advocate of the Insurance Buyer JANUARY 26, 2012 Andrew F. Steptowe Managing Director Houston, TX

Marsh & McLennan Companies Inc. MMC is a global professional services firm that helps clients identify, plan for and respond to critical business issues and risks by providing analysis, advice and transactional services. MMC’s subsidiaries: Marsh Guy Carpenter Mercer Oliver Wyman GET COMMERCIAL IN EARLY! MAJOR PROF SERVICES FIRM $15BN MKT CAP TRULY GLOBAL April 25, 2017

Marsh Global Energy - Locations Oslo Oslo Calgary Calgary London New York Madrid San Francisco Houston Dubai Energy Teams in: Tulsa Dallas New Orleans Singapore Singapore HERE IS A MAP GIVING AN OVERVIEW OF MARSH’S ENERGY OPS JUST DEDICATED TO INSURING THE ENERGY INDUSTRY QUOTE THE FIGURES ABOVE WE ARE WHERE OUR CLIENTS ARE Sao Paulo Perth 300+ employees helping c. 1,750 clients globally Placing approx. USD 1.8 Billion in insurance premiums into energy insurance markets, significantly more than any other broker. Integrated Global Practice, headquartered in Houston, Texas Energy practitioners in many more locations around the world April 25, 2017

Large Commercial Insurance Involves 3 Key Parties…. The Client The Broker The Insurer SO WHAT IS THE ROLE OF THE INSURANCE BROKER? LETS START WITH THE BASICS: EXAMPLE OF MOTOR INS SHOPPING ON LINE COMMERCIAL INSURANCE MUCH MORE COMPLICATED WITH MULTIPLE LINES AND MANUSCRIPT WORDINGS EXPLAIN MULTI LINE EXPLAIN MANUSCRIPT COMMERCIAL INSURANCE HAS 3 PARTIES…. April 25, 2017

In a world with no brokers….. THIS IS HOW MOST BROKERS WOULD VIEW THE WORLD OF INSURANCE IF THEY DIDN’T EXIST! April 25, 2017

So why the “Middle Man”? The Broker is an impartial advisor – not an Agent The Broker is able to best assimilate the risks faced by the Client to the products available from various Insurers The Broker is the advocate of the Insured not the Insurer The Broker also fulfills key administrative functions related to regulation and taxation BROKERS HAS A VERY KEY ROLE TO PLAY IN THE PROCESS OF PROCURRING INSURANCE The Broker is an impartial advisor – not an Agent The Broker is able to best assimilate the risks faced by the Client to the products available from various Insurers The Broker is the advocate of the Insured not the Insurer The Broker also fulfills key administrative functions related to regulation and taxation April 25, 2017

What other important roles do brokers play? Development of new products Market analysis Distribution network for underwriters BROKERS ALSO PERFORM KEY ROLES INDIRECTLY RELATED TO SPECIFIC INSUREDS. BROKERS ARE ALMOST ALWAYS REPONSIBLE FOR THE DEVELOPMENT OF NEW PRODUCTS AND WORDINGS. RELATIONSHIP TO CLIENT – DISCOVERING NEW OR ENHANCED RISKS AND WAYS TO INSURE THEM BECAUSE THEY WORK WITH MULTIPLE INSURERS – AT MARSH ENERGY WE WORK WITH OVER 100 DIFFERENT INSURANCE COMPANIES – WE CAN SPOT MARKET TRENDS AND ADVISE BOTH CLIENTS AND INSURANCE COMPANIES WHAT IS HAPPENING BROKERS ARE ALSO THE DISTRIBUTION NETWORK FOR MANY INSURANCE COMPANIES. WE AT MARSH HAVE SOPHISTICATED SYSTEMS THAT WE MAKE AVAILABLE TO INSURERS (AT A PRICE) WHICH ENABLES THEM TO SEE THEIR MARKET SHARE AND THE AVAILIBILITY OF ADDITIONAL BUSINESS THAT WE HANDLE April 25, 2017

The competitive landscape in Houston GLOBAL BROKERS Marsh Aon Willis DOMESTIC BROKERS Alliant Gallagher Lockton McGriff Seibels John L.Wortham USI HOUSTON AS YOU ALL KNOW – MAJOR CENTER FOR O&G COMPANIES ALSO 4TH LARGEST CITY IN US COMM INS BROKERS VERY WELL REPRESENTED GLOBAL BROKERS AND DOMESTIC BROKERS MANY TALENTED PEOPLE IN THE BUSINESS JUST IN THE ENERGY FIELD ALONE PROBABLY WELL OVER 600 PEOPLE SPECIALIZE IN THE INS BROKGE FIELD April 25, 2017

Being appointed by a Client…. “There are worse things in life than death. Have you ever spent an evening with an Insurance salesman?” SO HOW DOES A LARGE OILD AND GAS COMPANY FOR EXAMPLE CHOSE WHICH BROKER TO WORK WITH? Woody Allen 4/25/2017

How Brokers are chosen Usually multiple brokers are identified Certain key criteria will define the most likely candidates They are then asked to present a conceptual proposal based on a set of service and/or program requirements particular to the needs of the individual client Sometimes selection is made on an “assigned markets” basis Usually multiple brokers are identified Certain key criteria will define the most likely candidates For example: What similar clients do they handle. What is there experience with certain risks that are very important to the client deciding who to use They are then usually asked to present a conceptual proposal based on a set of service and/or program requirements particular to the needs of the individual client Fee or services is always important! Sometimes selection is made on an “assigned markets” basis April 25, 2017

The decision whom to appoint is usually both subjective and objective….. DISCUSSING THIS WITH MY WIFE A FEW YEARS AGO AND SHE ASKED ME: SO HOW DOES A CLIENT MAKE A CHOICE – DON’T ALL BROKERS PROMISE THE EARTH? OFTEN DECISION IS SUBJECTIVE LOTS OF GOOD PEOPLE TO CHOSE FROM NEED A GOOD FEEL FOR HOW A WORKING RELATIONSHIP WILL WORK OUT OBJECTIVE – MONEY, COVERAGE, REFERENCES April 25, 2017

Having been appointed there is a great deal to be done before approaching Insurers: Gaining an in depth knowledge of the Clients business and operations Reviewing insurance policies currently in place to ensure the coverage provided is adequate Gaining an understanding of prior year losses and past experience Benchmarking limits and retentions with similar clients Assessing proposed premium levels against present market trends Identification of key Insurers Developing a marketing plan SO THE CLIENT HAS DECIDED TO USE YOU AS THEIR BROKER - WHAT HAPPENS NEXT. Well there is a great deal of work to be done before any contact is made with an insurer to negotiate a policy Gaining an in depth knowledge of the Clients business and operations Reviewing insurance policies currently in place to ensure the coverage provided is adequate Gaining an understanding of prior year losses and past experience Benchmarking limits and retentions with similar clients Assessing proposed premium levels against present market trends Identification of key Insurers Developing a marketing plan April 25, 2017

The Marsh 3D Model At Marsh, we have developed a specific model for this process we call it 3D DEFINE All based around Business Objectives and key performance Indicators What’s important to the client What risks do they really want to focus on? Which have the most impact on their operations? DESIGN Custom solutions to fit what we learned in the Define stage Is coverage available, is it cost effective, does it meet the expectation of the client? DELIVER Execution of an agreed strategy with Insurers April 25, 2017

Benchmarking Brokers have access to a significant amount of key data from the clients that they work with Clients are always interested in the limits, retentions and premiums paid by their competitors Brokers are always interested in what deals have been done by whom for how much The end game is to leverage the information we have to get the right deal at the right price for the client. Very rarely is there only one option! A key part of the define and design stages is benchmarking Brokers have access to a significant amount of key data from the clients that they work with Clients are always interested in the limits, retentions and premiums paid by their competitors Brokers are always interested in what deals have been done by whom for how much The end game is to leverage the information we have to get the right deal at the right price for the client. Very rarely is there only one option! April 25, 2017

Net Rate on Values & Full Indemnity Period Example Benchmarking Account Exp Date Total Insured Values PD Deductible BI Deductible Net Rate on Values & Full Indemnity Period Policy Limit Company A May-10 $27,292,797,418 $5,000,000 30 Days 0.0307 $750,000,000 Company B Jul-10 $1,649,869,000 $1,000,000 0.0737 $400,000,000 Oct-10 $332,732,460 0.0553 $50,000,000 $1,891,739,309 $10,000,000 21 Days 0.0375 $100,000,000 $1,593,073,036 - 0.0303 $60,000,000 Jun-10 $1,147,873,615 $750,000 15 Days/ 45 Days 0.0631 $10,424,635,829 0.0884 $405,000,000 $2,223,964,977 45 Days 0.0788 $300,000,000 Sep-10 $34,530,620,982 $2,000,000 0.0270 $4,033,338,340 0.0669 Not Known $1,030,685,100 0.2373 $230,000,000 Here is an example of a typical benchmarking report Here we are looking at Property risks for Gas Transmission companies, specifically looking at the correlation between TIV, PD/BI Deds. Premium Rates and Policy Limits April 25, 2017

How do brokers evaluate which Underwriters to approach for a particular risk? Financial Stability A proven track record in a particular class of business: Underwriting expertise Risk Management capabilities Claims capabilities An understanding of the industry in which the client operates Service Licensing So the broker and the client have agreed upon the structure of the program that they wish to put in place. How do they go about choosing an Underwriter to work with? Here are some of the key criteria Financial Stability (Rating S&P AM Best etc.) A proven track record in a particular class of business: Underwriting expertise Risk Management capabilities Claims capabilities (I’ll let Steven talk more about this) An understanding of the industry in which the client operates Service Licensing April 25, 2017

Major Markets for Energy Business Domestic ACE Chartis Chubb Liberty Starr St Paul / Travelers WR Berkley Zurich Overseas Lloyd’s Munich Re Swiss Re GARD AXA Bermuda (XL, Torus, OCIL) OIL Here is a list of the major Energy markets that we deal with: April 25, 2017

The basic marketing plan Identify two or three “lead markets” Prepare a detailed underwriting submission Arrange face to face meetings between the Insured and Underwriters Negotiate! Obtain terms and discuss options with the Client Refine terms as necessary Select a market and bind the risk Once the panel of underwriters has been agreed upon the next step is to develop a marketing plan Talk through the steps above April 25, 2017

An Example of a marketing timeline Setting Expectations An Example of a marketing timeline JANUARY FEBRUARY MARCH APRIL 22 nd Strategy meeting with Rowan & Marsh teams to discuss goals & any issues - 31 st Rowan to provide renewal information & Marsh to develop submission 1 ST Marsh to send submission to Market 4 TH – 8 th Underwriter visits & presentations, as required February Ongoing marketing & information exchange March 10 12 Marsh to present renewal proposal to Rowan 13 20 Binding instructions April May Policies received, reviewed & sent ONGOING Monitor program & provide superb day to day service Client & Marsh teams Client to provide Risk Information to Client APRIL 1st EFFECTIVE DATE In our experience, all clients are very focused on time! When creating a marketing plan it is important to set milestones for key activities. It is easy to let a complicated program get out of hand! Here is an example timeline. Bear in mind – the more lines of business being handled the more detailed the timeline will become April 25, 2017

After the deal is done…. Issue all payment documentation Collect funds and pay insurers Issue documentation: Certificates, Auto ID cards, Policies etc. Prepare a summary of coverage Issue a claims procedure manual Maintain appropriate contact But the brokers job doesn’t just stop once the deal is complete wit the underwriter Comment on above… So as you can see the broker plays a very important role in the interface between a client and insurer. A large commercial insurance program is a very complicated animal. It is imperative that nothing is overlooked. There will certainly be a lot of back and for the between Insurers and the client with the broker acting as the middle man. In my experience this process usually works well if you can keep away from one very important thing…. April 25, 2017

And most importantly…. NO SURPRISES! Thank you all fro your attention – I’ll be happy to answer any questions that you may have (Next slide) April 25, 2017

Thank you for your attention I’m sure you must have some questions! ….. April 25, 2017