Liberty Mutual Insurance Company — An Overview University

Liberty Mutual Insurance Company - An Overview University Of Houston January 24, 2008 Steven Weiss, CPCU, AMIM, NAMS-CMS Liberty International Underwriters

Liberty International Underwriters LMIC • “Helping people live safer, more secure lives” since 1912 • Diversified global insurer – Mutual – owned by policy holders • Sixth largest property and casualty insurer in the U. S. based on 2006 direct written premium. • • 95 th on the Fortune 500 list of largest corporations in the U. S. based on 2006 revenue. • Liberty Mutual Group offers a wide range of insurance products and services, including personal auto insurance, homeowners insurance, workers compensation, commercial multiple peril, commercial automobile, general liability, global specialty, group disability, assumed reinsurance, fire and surety.

Liberty International Underwriters Highlights • Number of Employees More than 40, 000 • Number of Offices Worldwide More than 900 • Financials (12/31/2006) $85. 5 Billion in consolidated assets $74. 6 Billion in consolidated liabilities $23. 5 Billion in consolidated revenue • Financial Strength Ratings (May 7, 2007) A. M. Best A (Excellent) Moody's A 2 (Good) Standard & Poor's A (Strong)

Liberty International Underwriters Financials

Liberty International Underwriters Strategic Business Units • Liberty Mutual Group operates through four strategic business units • Personal Markets – – – • full lines of coverage for private passenger automobile, homeowners, valuable possessions and personal liability through its own sales force in more than 400 offices throughout the U. S. , two direct response centers, appointed Prudential agents and the internet. Personal Markets’ largest source of new business is its more than 9, 800 affinity group relationships, including employers, credit unions, and professional and alumni associations. Liberty Mutual’s affinity program is the industry’s most-sponsored voluntary auto and home insurance benefit. www. libertymutualinsurance. com Commercial Markets Liberty Mutual's Commercial Markets provides risk and disability management and risk transfer products and services to buyers and buyers' representatives through five market segments: – – – National Market, which serves the complex needs of large companies; Business Market, which serves mid-sized businesses that prefer a direct relationship; Liberty Mutual Property, which provides property insurance programs, loss control and claims services for both large and mid-sized companies; Group Market, which provides short- and long-term disability products and services, integrated disability management, group life insurance, AD&D, and FMLA administration for large and midsized businesses; and, Liberty Mutual Reinsurance, which provides property and casualty reinsurance to insurance carriers worldwide. www. libertymutual. com/business

Liberty International Underwriters Strategic Business Units • Agency Markets Liberty Mutual Agency Markets consists of property and casualty, and specialty insurance carriers that distribute their products and services primarily through independent agents and brokers. Core property and casualty products, including a comprehensive set of personal and commercial coverages, are available in most states by the following brands: – America First Insurance (Gulf Region); Colorado Casualty (Mountain Region); Golden Eagle Insurance (Pacific Region); Indiana Insurance (Midwest Region); Liberty Northwest (Pacific Northwest Region); Montgomery Insurance (Southeast Region); Ohio Casualty (Mid-Atlantic Region) Peerless Insurance (Northeast Region) Wausau Insurance Companies (National) – • Specialty operations include: • Liberty Mutual Surety (contract and commercial surety) • Summit Holding Southeast, Inc. (mono-line workers compensation) International Operations Liberty International provides personal and commercial lines insurance through operations in 13 markets: – – – Argentina, Brazil, Chile, China, Colombia, Hong Kong, Portugal, Singapore, Spain, Thailand, Turkey, Venezuela and Vietnam Additionally, Liberty International Underwriters, a global specialty lines insurance and reinsurance business, writes casualty, specialty casualty, marine, energy, engineering and aviation through 31 offices in Asia, Australia, Europe and North America. Liberty Syndicate 4472 at Lloyd’s of London writes on a worldwide basis. ww. libertyinternational. com

Liberty International Underwriters Breakdown by SBU • • Personal Markets – 29% Commercial Markets – 20% Agency Markets – 28% International Markets – 23%

Liberty International Underwriters • Where I work • Global specialty insurer with over 20 offices worldwide • Coverage's offered – Ocean Marine – Exploration and Production – Oil and Gas – Construction – Casualty – Specialty Casualty

Liberty International Underwriters What we do • • • Recipient of risk transfer Risk Evaluation Risk Improvement Attendance Control and approval

Liberty International Underwriters Types of Projects There a wide variety of construction projects, however given the recent rise in commodity prices, some of the largest projects are in the Mining and Energy sectors: • Mining – Nickel, Copper, Gold etc • Energy – Nuclear, Wind, Solar, Oil/Oil Sands, Offshore Platforms, LNG Terminals, Simple/Combined Cycle power plants • Civil / Infrastructure – Pipelines, Bridges, Ports, Roads, Telecommunications Networks, Housing, Commercial facilities, Fertilizer Plants…

Liberty International Underwriters What I Do • Project Cargo Transportation • Physical Damage Cover • Financial - Advanced Loss of Profits (ALOP) / Delay in Start-up Cover • Engineered risks • High Value • Long Lead • Risk Management • Underwriting

Liberty International Underwriters Insurance Company Agenda Introduction Step 1: The Risk Transfer… Placing the Coverage Step 2: Project Cargo Phase… How do we get it there… Step 3 The Construction Phase… Can anyone say Legos. .

Liberty International Underwriters Introduction Project Terminology

Liberty International Underwriters Project Financing Who funds the project Who Funds Projects and what interest do they have? • Banks – Corporate and Investment Bankers – Protection of principle and interest – Contractually protected through a lenders agreement • Shareholders – Protection of share value and ROI – Will pull support for company / diminish share value – Less impact on insurance requirements • Internal – Divisional expectations/ Management bonuses • Government – Adherence to process and budget – but can be a significant source of funding

Liberty International Underwriters Feasibility Study The type funding is one of the major drivers as to the depth and extent of the feasibility study performed before moving forward with a project and the time required to go from an idea to an approved plan: • Who’s Involved – Internal: management, logistics, legal, accounting – External: finance, legal, contractors, joint venture partners, broker • Insurance Involvement – cost estimates and risk analysis

Liberty International Underwriters Feasibility Study Final decisions – board approval - Weeks, Months or even Years • What may have already been done – Basic site preparation – Test Plants – Financing – Early Procurement / Bids

Liberty International Underwriters What’s Involved in the Project Management: – EPCM (Engineering, Procurement, Construction, Management) Project Locations: – Brown vs Green • implications Type of Build: – Module vs Stick Build • Implications – – Order times and Delivery Dates Conveyances required Values Exposed Approach to Replacement

Liberty International Underwriters What is Involved? (cont) Modular Stick built Greenfield Brownfield

Liberty International Underwriters Establishing the Project Timeframe and Logistics Risks Logistics and Delivery: • Gantt Chart • Critical Equipment Replacement Times • The DSU Worksheet

Liberty International Underwriters Gantt Chart FID 2006 Construction: Sulphur Complex Hydrogen Mfg. Utilities & Offsites Atmos. & Vacuum Resid. Hydro. Conversion 2008 2009 2010 90% Engineering Major Equipment 2007 Purchasing recv at site MC MC MC Black Oil in Commissioning Jul. 31

Liberty International Underwriters Critical Equipment Replacement There are thousands of parts of a project, any one of which could be critical to the on -time start up of a project. It is important to cover all of the equipment going into a project, however some of the key items to look for include: – Long lead times – Heavy lift or unique handling requirements – High value – Last minute arrivals

Liberty International Underwriters Critical Equipment Replacement Longer lead time or Critical equipment seen in major projects can include: – Power Plants – Transformers and Turbines – Petrochemical - Reactors and Pressure Vessels – Mining/Heavy industry - Mills and other heavy equipment – Proprietary or new technology – Pipe and Steel • It is also important to remember critical contractor’s equipment – Cranes – Heavy lift vessels – Specialized tools

Liberty International Underwriters Critical Equipment Replacement

Liberty International Underwriters Critical Contractors Equipment Replacement

Liberty International Underwriters The DSU Worksheet Sample Project Marine Cargo/DSU Critical Item Analysis Equip ment Value Origin Delive ry Time Exp. Deliv Original ETA Worst ETA Install Start React ors $50 M Italy 75 70 01/01/08 05/05/09 05/26/09 2/1/09 -16 Turbin es $10 M Germany 52 40 10/06/08 05/04/09 05/25/09 2/1/09 -16 CNVS Vent Fan $1 M Canada 46 46 02/21/08 11/27/08 12/18/08 2/1/09 6 SAG Mill $20 M Europe 90 85 11/15/08 07/03/10 07/24/10 2/1/09 -77 Main Shaft $10 M Africa 60 50 02/03/09 01/19/10 02/09/10 2/1/09 -53 * Comments… Critical

Liberty International Underwriters Calculating the Cost of a Delay in Startup What’s on the line? • Fixed Costs • Variable Costs that cannot be easily put on hold • Profits – Revenue projections – Ramp Up Period – Testing and Commissioning

Liberty International Underwriters Summarizing in a Market Submission What should the Submission Include: • Project Description • Outline of Costs • Logistics Details • DSU worksheet • Outline of expectations for insurance • Lots of Pictures…

Liberty International Underwriters Step 1 The Transfer of Risk Placing Insurance

Liberty International Underwriters What is Covered / The Wording What will the Program Cover? • Transit • Storage • Installation/Construction • DSU per Agreed Form with recovery after – Physical loss – Loss of Vessel (Hull Extensions) • Extra Expense

Liberty International Underwriters What is Excluded What the Program will Not Cover? • Schedule issues • Liquidated Damages • Guarantees Deductibles • Physical Damage – $10 to $25, 000 is common • Waiting Periods – 30 days common, or equivalent $$$ value

Liberty International Underwriters Market Selection What Markets Can Write Cargo and Construction with DSU? • Leading Underwriters – Must have related underwriting experience – Must have structured solution to risk management issues, and team of vetted surveyors worldwide – Must have structured solution to handling claims, quick to respond and empowered • Market Capacity / Shared Participation • North America vs. London vs. Europe • Presenting to Markets – interactive presentations

Liberty International Underwriters Underwriting How do Markets underwrite project risk? • Rating – Physical Damage rate is generally as per market, or slightly higher – DSU premium based on “Rate on Line” methodology • Cross Fingers and hope for the best – No statistics or actuarial analysis available – Potential downside is HUGE – Must count on loss prevention, and claims handling Risk / Results • Comment on project losses and profitability vs. exposure – Physical damage common, as expected – DSU mitigation good

Liberty International Underwriters Step 2 The Project Cargo Phase How do we get it there:

Liberty International Underwriters Managing the exposure Marine Surveyors are key to the success of a project, acting as Underwriters’ eyes and ears from the planning stage through execution: • When should the Surveyor be involved? • What is the role of the Surveyor? • Factors in Company/Surveyor selection – In-house – External

Liberty International Underwriters When should the Surveyor be involved? • Pre-Bind – To assist the Underwriter in the analysis of the risk from a Logistics and complexity standpoint – Agree Critical Items – Agree estimated costs for surveys – Review logistics package • Post Bind – Kickoff meeting – Set up survey parameters – Assign Surveyors – Accomplish the actual surveys • Claim – What are the on site Surveyors responsibilities

Liberty International Underwriters What is the role of the Surveyor? • Review of Engineering and Design – Critical items – Discuss bottlenecks – Structural/packing for voyage • Vessel and Route Selection – Break bulk vs. Containerized – Heavy Lifts – Self loading or not – Weather – WNA, Hurricanes, winter access – Inland – Rail, Truck, unusual circumstances – Barge

Liberty International Underwriters What is the role of the Surveyor? (cont) • Load/Stow and Discharge – Attendance for load out – What and when to report • • Guidelines Critical Items Deck Cargo if not previously identified Report

Crewmember Liberty International Underwriters Load and Stow

Liberty International Underwriters Roll on/roll off

Liberty International Underwriters Typical Cargo

Liberty International Underwriters What is the role of the Surveyor? (cont) • In the event of a Claim – Be sure they have contact details – Complete log of events – Photos – Statements of participants – Preservation of evidence – Compilation of reports

Liberty International Underwriters Claims

Liberty International Underwriters Factors in Company/Surveyor selection • Technical Knowledge – Is the Surveyor competent? • Area of expertise – Is the surveyor competent for the project? • Local Knowledge – Where is the Surveyor? • Recommendation – Who do we know (and trust) that has used him/her before?

Liberty International Underwriters Step 3 The Construction Phase Can anyone say Legos

Liberty International Underwriters Builders Risk • Cargo safely delivered to lay down yard • Turn over to Builder’s Risk • This will have to be the subject of another presentation • Project Completion then operational