1. Leadership, Knowledge, Solutions…Worldwide. The Role of the Broker as the advocate of the Insurance Buyer University of Houston - January 27 th, 2011 Andrew Steptowe – Marsh Energy Houston

2. Marsh—Leadership, Knowledge, Solutions…Worldwide. 1 Introduction Andrew Steptowe, Managing Director, Marsh Energy Practice 30 years experience in the Marine & Energy Insurance Market Has worked in London, Toronto and Houston Practice Leader of Marsh’s US Upstream Energy Business

3. Marsh—Leadership, Knowledge, Solutions…Worldwide. 2 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

4. Marsh—Leadership, Knowledge, Solutions…Worldwide. 3 Marsh Global Energy - Locations New York Calgary San Francisco Oslo Singapore Calgary Houston London Oslo Dubai Singapore Energy Teams in: Tulsa Dallas New Orleans Madrid  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 Pert h

5. Marsh—Leadership, Knowledge, Solutions…Worldwide. 4 Large Commercial Insurance Involves 3 Key Parties….  The Client  The Broker  The Insurer

6. Marsh—Leadership, Knowledge, Solutions…Worldwide. 5 In a world with no brokers…..

7. Marsh—Leadership, Knowledge, Solutions…Worldwide. 6 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

8. Marsh—Leadership, Knowledge, Solutions…Worldwide. 7 What other important roles do brokers play?  Development of new products  Market analysis  Distribution network for underwriters

9. Marsh—Leadership, Knowledge, Solutions…Worldwide. 8 The competitive landscape in Houston  GLOBAL BROKERS – Marsh – Aon – Willis  DOMESTIC BROKERS – Alliant – Gallagher – Lockton – McGriff Seibels – John L.Wortham – USI

10. Marsh—Leadership, Knowledge, Solutions…Worldwide. 9 Being appointed by a Client…. “There are worse things in life than death. Have you ever spent an evening with an Insurance salesman?” Woody Allen

11. Marsh—Leadership, Knowledge, Solutions…Worldwide. 10 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

12. Marsh—Leadership, Knowledge, Solutions…Worldwide. 11 The decision whom to appoint is usually both subjective and objective…..

13. Marsh—Leadership, Knowledge, Solutions…Worldwide. 12 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

14. Marsh—Leadership, Knowledge, Solutions…Worldwide. 13 The Marsh 3D Model

15. Marsh—Leadership, Knowledge, Solutions…Worldwide. 14 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!

16. Marsh—Leadership, Knowledge, Solutions…Worldwide. 15 Example Benchmarking AccountExp Date Total Insured Values PD DeductibleBI DeductibleNet Rate on Values & Full Indemnity Period Policy Limit Company AMay-10$27,292,797,418$5,000,00030 Days 0.0307$750,000,000 Company BJul-10$1,649,869,000$1,000,00030 Days0.0737$400,000,000 Oct-10$332,732,460$1,000,00030 Days0.0553$50,000,000 Oct-10$1,891,739,309$10,000,00021 Days0.0375$100,000,000 Oct-10$1,593,073,036$5,000,000-0.0303$60,000,000 Jun-10$1,147,873,615$750,00015 Days/ 45 Days 0.0631$50,000,000 May-10$10,424,635,829$1,000,00030 Days0.0884$405,000,000 May-10$2,223,964,977$1,000,00045 Days0.0788$300,000,000 Sep-10$34,530,620,982$2,000,00030 Days 0.0270$750,000,000 Sep-10$4,033,338,340$2,000,00045 Days0.0669Not Known May-10$1,030,685,100$1,000,00030 Days0.2373$230,000,000

17. Marsh—Leadership, Knowledge, Solutions…Worldwide. 16 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

18. Marsh—Leadership, Knowledge, Solutions…Worldwide. 17 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

19. Marsh—Leadership, Knowledge, Solutions…Worldwide. 18 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

20. Marsh—Leadership, Knowledge, Solutions…Worldwide. 19 Setting Expectations An Example of a marketing timeline

21. Marsh—Leadership, Knowledge, Solutions…Worldwide. 20 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

22. Marsh—Leadership, Knowledge, Solutions…Worldwide. 21 And most importantly…. NO SURPRISES!

23. Marsh—Leadership, Knowledge, Solutions…Worldwide. 22 Thank you for your attention I’m sure you must have some questions! …..

24. www.marsh.com