0utlook of the Energy and Marine Industry

Presented By:

AFTAB HASAN - CEO ‘Arya Insurance Brokerage CO. (LLC)’

Dubai - U.A.E.

Economic Outlook on the Energy and Marine Industry Factors Influencing Offshore – Oil & Gas Market Cyclic Nature of Oil Price & Global Economic Downturn Outlook for Offshore Energy Vessels Major Factors Driving Insurance Industry General State of the Market – Post Recession The Underwriting Environment with Upstream The Underwriting Environment with Downstream Regional Overview due to the unrest in the Middle East & Africa Region on Energy / Marine Insurance Sector Conclusive Remarks

Presentation Outline

The world economy ran out of steam in 2008 while 2008 was also record year for some as the economic boom reached its peak in the first half of the year.

The worldwide Energy Industry ravaged by the economy and financial crisis over the last two years has passed through its darkest hour.

Global GDP of the key driving nations went down drastically. Global activity in the key areas – Production / Trade / Oil /

Non-Fuel Commodity Prices also affected badly. The recovery remains largely policy driven and faces

significant challenges as policy makers look to unwind the unprecedented fiscal monetary and financial support they provided to keep their economies and financial market’s from collapsing.

Economic Outlook & Energy/ Marine Industry

When the world economy collapsed in late 2008, the order book for Shipping & Offshore industry was at an unprecedented level. Many of these new build contracts have since been cancelled or renegotiated. While some new tonnage will be delivered in 2011, in shipping there is inevitably a time lag before supply can adjust to demand.

Whilst the world fearfully debates whether there will be a double-dip recession, the energy industry and the underwriting markets are both suffering from the same problem – surplus capacity as rates are softening yet fresh capacity is queuing up to join in, particularly in Lloyd’s, almost in defiance of logic.

Economic Outlook & Energy / Marine Industry

75% of the earth's surface is covered by oceans and today 60% of the world's petroleum production comes from offshore operations in waters of more than half the coastal nations on earth so it is no surprise that as onshore oil and gas reserves will deplete exploration and production activities will extend into offshore basins which has potential proven reserves.

This in turn will create opportunities for E &P Companies, Oilfield Equipment's Manufacturers, Shipyards, Oil and Gas Suppliers, Human Capital, Professionals, Technology and Assets to turn the tide from the doldrums it was in a year ago.

Worldwide Offshore Industry is on a promising-to-bullish track. Energy Demand wants to grow long terms (China – India –

Elsewhere) Offshore Accounts for one third of oil production which is up

significantly from pass.

Economic Outlook & Energy / Marine Industry

Increase in spending activitiesMergers and acquisitions taking placeCapital expenditure is an average down Investment climate is improvingMajor reforms in Brazil's energy sectorGlobal offshore drilling spending has

increasedShale plays a key role in unconventional

investment in energy sectorGlobal energy investments to restart their

stalled projects

Factors Influencing Offshore

Oil & Gas Market

Due to Global financial crisis at the end of 2008 we have observed a global economic downturn in 2009.

As per International Monetary Fund, global output fell by an estimated 0.6% in 2009.

Due to imbalance in supply & demand for oil we observed a sharp decrease in oil price from US$140 to US$40 per barrel price levels in the first quarter of 2009.

The oil and gas sector is building up slowly as world markets pull themselves out of recession.

We have observed that the industry is cyclical in nature and subject to fluctuations in demand.

With the demand for crude oil increasing, especially from China and India, as well as the need to offset falling output due to natural field depletion, oil and gas companies have plans to increase investments in 2012.

Amid macro-economic uncertainty and market volatility, analysts are putting the industry on a promising-to-bullish track for 2012 as oil prices remain solid, rig counts rise and the offshore industry turns the tide from the doldrums it was in a year ago.

Cyclic Nature of Oil Price &

Global Economic Downturn

Energy Vessels – Market Cautiously Optimistic• Oil companies throughout the world have been re-evaluating energy

developments given a collapse in oil prices, which has made some projects uneconomic.

• Integrated Oil & Gas Companies are showing an increasing reliance on very large projects to replace the more diverse existing production base

• Demand still strong for E&P Rigs and (OSV) Offshore Support Vessels but market is moving with cautious

• Lack of enthusiasm to commit to additional new-builds. Market has seen a few cancellations & slippage

• National Oil Companies have strategic interests that differ from listed companies

• Shortage of semi-submersibles

• Surplus of Jack-ups

• Continued financial turmoil, prevailing low oil prices and economic recessions are impacting activity levels

• Even if companies take a bullish outlook on a recovery in oil demand growth, declining revenues and unavailability of credit will limit their ability to invest in new build projects

OUTLOOK FOR OFFSHORE ENERGY VESSELS

The global energy insurance markets have had to take immediate stock of their position following the recent tragic earthquake and subsequent tsunami in Japan.

Before this tragedy struck, the Macondo blowout and oil spill had resulted in the largest Operators Extra Expense (OEE) loss in the upstream market’s history.

A genuine upstream market bifurcation is therefore becoming apparent.

Notwithstanding the impact of Macondo and the Japan earthquake, both upstream and downstream markets remain overcapitalized.

Furthermore, a new series of energy losses are also contributing to the break on any market softening, at least in the short term.

In the meantime, the statistics continue to point to overall profitability in both markets.

MAJOR FACTORS DRIVING ENERGY & MARINE INSURANCE INDUSTRY

Piracy continues to be a huge concern, spreading from the Gulf of Aden into the Indian Ocean. Claims arising from piracy have exceeded $300 million and it is hard to see any solution in the short term. Meanwhile, the additional cover and support provided by a kidnap and ransom (K&R) policy has resulted in policy being expensive to those who have elected to purchase such policies.

The increase in sanctions against countries such as Iran has brought new challenges in 2010. Underwriters and brokers are constantly working to ensure they remain ‘Compliant’ within the various different sanction regimes.

The European Union’s latest sanctions directive is due to be ratified and while its impact on insurers is not yet clear, anyone even considering ways in which sanctions could be avoided may be prosecuted under the ‘Anti-Avoidance Clause’.

As profit margins continue to be squeezed, we foresee increased divergence between those underwriters who are looking to build or expand their accounts and those who may become increasingly defensive or selective. This means a market place where it will be essential to employ a SOUND BROKER!

MAJOR FACTORS DRIVING ENERGY & MARINE INSURANCE INDUSTRY

ENERGY UPSTREAM

Almost five months to the day after the tragic blowout of its Macondo well on April 20, BP announced that the well had been permanently sealed, and abandonment operations had commenced. The immediate disaster may be over for BP but the aftermath for the Oil and Gas Industry in general has only just begun. Whilst BP themselves did not buy insurance, the loss the market is ultimately likely to suffer from control of well (including clean-up costs) and Liability Policies purchased by BP's Joint Venture Partners and Contractors has been estimated by some commentators to be in excess of USD 3Bn.

THE UNDERWRITING ENVIRONMENT WITH UPSTREAM INDUSTRY

Softening pressures are beginning to mount, despite recent losses capacity is at a ten-year high

Major losses are particularly felt by the fledgling Singapore Market

Although 2009 was not a bumper year in terms of profitability, it was hardly a disastrous one either

The new Gulf of Mexico rating model remains untested following a benign windstorm season

There has been an upswing in activity in the Offshore Construction Sector

THE UNDERWRITING ENVIRONMENT WITH UPSTREAM INDUSTRY

THE UNDERWRITING ENVIRONMENT WITH UPSTREAM INSURER CAPACITIES

UPSTREAM ENERGY LOSSES VERSUS ESTIMATED GLOBAL OFFSHORE ENERGY

PREMIUM INCOME

So in reality 2010 – despite including both Macondo and the Gryphon A loss – might still turn out to be a profitable year for most direct and reinsurance underwriters; indeed, it could even be argued that both losses were blessings in disguise for much of the direct upstream market.

UPSTREAM ENERGY PORTFOLIO STILL LOOKS PROFITABLE

UPSTREAM INSURER CAPACITIES AND AVERAGE RATING LEVELS

UPSTREAM INSURER CAPACITIES AND AVERAGE RATING LEVELS

Downstream insurers are beginning to compete for business in a manner not seen since the last truly soft market in 1999-2000. While North American market capacities remained stable, its International counterpart continued to grow. Various markets became more prominent, including Chartis, CV Star, Talbot, Validus, Torus and Zurich.Following a benign underwriting year in 2009, the portfolio remained profitable, despite the softening market conditions. The level of attritional losses has fallen to the point where rates could fall further before the inherent profitability of the class is threatened.The degree of aggression shown by individual insurers is now driving competition in the market, rather than overall capacity. Regional markets are contributing to the softening process.

THE UNDERWRITING ENVIRONMENT WITH DOWNSTREAM INDUSTRY

THE UNDERWRITING ENVIRONMENT WITH DOWNSTREAM INSURER CAPACITIES

DOWNSTREAM ENERGY LOSSES VERSUS ESTIMATED GLOBAL OFFSHORE ENERGY

PREMIUM INCOME

The improved loss record since 2001 may well be down to general improvements in risk control and mitigation by the downstream industry, encouraged by the risk engineering approach taken by the market in recent years.

DOWNSTREAM ENERGY PORTFOLIO STILL LOOKS PROFITABLE

DOWNSTREAM MARKET DYNAMICS 2011

DOWNSTREAM INSURER CAPACITIES AND AVERAGE RATING LEVELS

GLOBAL INSURANCE MARKETS IN FLUX

ASIA: GROWING CONFIDENCE

EUROPE: REGIONAL STRENGTH, INTERNATIONAL CAPACITY

SCANDINAVIA: DOWN, BUT NOT OUT

THE UNITED STATES: RISING PRICES

LONDON MARKET: TRAVELLING WELL

REGIONAL OVERVIEW: MARINE INSURANCE

MARKETS MOVE CLOSER TO CUSTOMERS

ASIA GAINS CONFIDENCE

EUROPE FLEXES MUSCLES

SCANDINAVIA TAKES STOCK

US SEES PRICE RISES

LONDON REMAINS AT THE CENTRE OF INNOVATION

HIGHLIGHTS

A DECADE OF UNDERWRITING RETURNS

DOWNTURN HITS INVESTMENT INCOME

HULL VALUES FALLING

INCREASING REINSURANCE COSTS

UNDERWRITERS PRESS FOR RATE RISES

PREMIUM VOLUMES FALL

PLENTIFUL CAPACITY

H & M:CHALLENGES AHEAD

CLUBS TAKE DECISIVE ACTION

BIG CLAIMS DRIVERS

TIME LAG

ASSET RE-ALLOCATION

REGULATION

P&I: SIGNS OF STABILITY

Plenty of options open for buyers, but beware of the long-term implications.

The current market conditions are now causing insurers to think again about long term policies.

Recently, the unrest in the Middle East/North Africa region has led to an increased interest in strikes, riot and civil commotion coverage.

Intelligent ‘INSURANCE BROKER’ can help identify and quantify risks and bring them under control. They can create and implement customized solutions employing the most effective blend of risk mitigation, risk transfer, and advanced risk financing. These solutions go beyond traditional property / casualty insurance programs to encompass strategies that can help increase a firm's revenue growth, enhance its net income, and strengthen its balance sheet.

CONCLUSION

THANK YOU