University of Houston Bauer College of Business January 27, 2005 presentation by: Robert B. Hixon T HE W ORTHAM G ROUP Insurance & Risk Management.

University of HoustonBauer College of Business

January 27, 2005

presentation by:

Robert B. Hixon

THE WORTHAM GROUP

Insurance & Risk Management

THE WORTHAM GROUP

Take-Away Concepts

Agent vs. Broker – Is there a difference?

Salesmen or Professional Service provider?

Where does your allegiance reside?

Contractual Issues with the Insured and the Insurer

Compensation Issues Commission Fee PSA’s, MSA’s and the new Underwriter Service Fee

Response to Request for Proposal

THE WORTHAM GROUP

Insurance & Risk Management

Sample Broker Presentation

THE WORTHAM GROUP

Discussion Items

The Wortham DifferenceInsurance Market UpdateAvailable ServicesTeam Selection & SupportCasualty and Energy Claim Handling ServicesInternational CapabilitiesCost of Risk and Retention AnalysisEnergy, Liability and Casualty Insurance Renewal StrategiesEmployment Practices LiabilityAlternative Programs Broker Relationship & CompensationClosing Comments

The Wortham Difference

THE WORTHAM GROUP

The Wortham Difference

Largest independent insurance broker in Texas Our clients include many of Texas’ largest public

companies and entities Largest market-share of any one broker in a major

U.S. city Founded in 1915, current 425 employees

Stable and experienced team

Over $1 billion in client premiums annually

THE WORTHAM GROUP

The Wortham Structure

A partnership owned by 69 individual partners with average tenure with the Firm of 20 years

Approximately half of our partners are technical staff

Highly departmentalized with specialization by coverage

Dedicated to independence in finding the best solutions for our clients

Excellent reputation with carriers worldwide

High quality service with low overhead

THE WORTHAM GROUP

Mission Statement

Service – to handle our client’s insurance business as if it was ours

Quality Coverages – to develop coverages and risk management tools that allow clients to better compete in their business

Price – to forge relationships between carriers and our clients that will add value and be long term

THE WORTHAM GROUP

Representative Clients

THE WORTHAM GROUP

Adams Resource & Energy, Inc.American National Power

Anadarko PetroleumAnderson Oil, Ltd.

Apache CorporationCity of Austin (Austin Energy)

Bridas EnergyBrownsville Public Utility Board

BT Operating CompanyChevron Phillips Chemical Co. LLC

CICO Oil & GasCogen America

ConocoPhillips CompanyCopano Operations, Inc.

Delta Power Company, LLCDorchester Hugoton

Dynegy Inc.Edge Petroleum Corporation

Global OctanesHNG Storage

Key Energy Services, Inc.Lewis Energy

LCRAMosbacher Energy Company

Nabors Industries, Inc.National Fuel Gas / Seneca Resources

Ocean Energy, Inc.Parker Drilling CompanyPioneer Drilling Company

Plains ResourcesPeoples Energy Production

Quicksilver ResourcesRange Resources

Seitel, Inc. / DDD Energy, Inc.Spinnaker Exploration Company

Tetra TechnologiesTexas Petrochemical

The George R. Brown PartnershipVerus Energy

Representative Energy Clients

THE WORTHAM GROUP

Representative Marine Clients

32 supply boats 5 tankers

28 harbor tugs

1 derrick barge9 vessels

10 vessels

2 seismic vessels

1 derrick barge

THE WORTHAM GROUP

Non-Energy Profile Clients

Insurance Market Update

THE WORTHAM GROUP

Standard & Poor’s Ratings Comparisons

Insurers Pre 9/11/2001 07/07/2003

ACE A+ A+ AIG AAA AAA Allianz AAA AA- Axa AA AA- Generali AA AA XL AA AA Zurich AA+ A+ Reinsurers

Berkshire Hathaway AAA AAA GE Frankona Re AAA AA- Munich Re AAA AA- Scor A+ BBB+ Swiss Re AAA AA+

Source: Standard & Poor’s

Notes: (1) Munich has now been downgraded to A+(2) CNA ‘s senior debt was recently down graded by Fitch to BBB-

THE WORTHAM GROUP

Lloyd’s of LondonPure Year Profit/Loss, 1985-2002 (£m)

-3500

-3000

-2500

-2000

-1500

-1000

-500

0

500

1000

1500

85 86 87 88 89 90 91 92 93 94 95 96 97 98 99 '00 '01 '02

2000-2002 Annual &

3 Year Accounted

Results

THE WORTHAM GROUP

Capacity Utilization (£bn)

* Estimates from Business Plans

THE WORTHAM GROUPSource: Lloyd’s Syndicate

Quarterly Returns For First Quarter 2003

Risk Code: ETEnergy, Search and Production Vessels and Offshore Property, including War (excluding War Only Risks)

0

20

40

60

80

100

120

140

160

180

200

220

2n

d

4th

6th

8th

10

th

12

th

14

th

16

th

18

th

20

th

Quarter

1998

Year of Account

Loss Ratio %

2000

1999

200120022003

THE WORTHAM GROUP

Risk Code: EWEnergy Operators Extra Expenses and Well Control

020406080

100120140160180200220240260280

1st

2nd

3rd 4th

5th

6th

7th

8th

9th

10th

11th

12th

13th

14th

15th

16th

17th

18th

19th

20th

21st

Quarter

1998

Year of Account

Loss Ratio %

19992000200120022003

Source: Lloyd’s Syndicate Quarterly Returns

For First Quarter 2003

THE WORTHAM GROUP

Premium Rating Index

THE WORTHAM GROUP

Insurance Market -2003

Additional capacity entered the market following 2001 losses to take advantage of favorable underwriting conditions Lloyd’s capacity at all time record high of £14.4 billion Significant new capacity in Bermuda

Attractive programs are oversubscribed

Still have potential for 2003 catastrophes

Available Services

THE WORTHAM GROUP

Service DifferentiationRisk Management Support

Partner in risk management problem solvingProvide presence when required Administrative consultation Underwriter meetings TPA/claims support meetings

Trigger technical supportSubmitting frequent “open items” listsAdvise as insurance market conditions change

THE WORTHAM GROUP

Critical Wortham Services

Risk Management Information Systems (RMIS) supportInternet portalElectronic certificatesContract reviewRetention analysisExposure surveyLoss control / safety supportAlternative risk products

THE WORTHAM GROUP

Wortham ServicesRisk Management Information System Support

Wortham can offer assistance in the design and/or maintenance of a Risk Management Information System which will: Record past/future loss data Track historical exposure data Provide accurate data on a timely basis Create needed reports for all management levels and disciplines Forecast “cost of risk” as a percent of revenue Support actuarial studies Perform administrative functions such as issue Certificates of

Insurance

THE WORTHAM GROUP

Internet Portal

Web portals are becoming a popular means of sharing information from many different sources into one convenient place: Publish on-line manuals Reference materials Include forms, video clips, sound and links Review/request certificates at anytime Review/request invoices at anytime Share files of any kind Collaborate on claims and safety issues

http://portal.jwortham.com/worksitehttp://portal.jwortham.com/worksite

THE WORTHAM GROUP

The Value of Wortham RMIS to Corporation’s Risk Management

Enhance quality of information and archiving

Provides additional insight into loss trends; becoming tool for reduction of retained losses

Leverages further your insurance negotiations to your advantage

Creates flexibility for consideration of budgeting and allocation alternatives

Many additional applications

Significant support incorporated into basic brokerage model

THE WORTHAM GROUP

On-line Certificates of Insurance

Web-based Certificate of Insurance coordination

system

24 hours a day, 7 days a week

Issue certificates directly from desk computers

Look up prior certificates issued

http://www.jwortham.com/demohttp://www.jwortham.com/demo

Certificate issuance service is subject to insurance carrier approval.

Contract & Certificate Review Support

Drilling EngineeringProject

Management

WorthamContract Review

Coordinator

CasualtyTechnician

RiskManagement

Support

PropertyTechnician

CLIENT

Team Selection & Support

THE WORTHAM GROUP

Goals in Team Selection

Experience in industry, very significant accounts and specialization requirements

Availability to deliver Wortham’s standard of service

Depth to provide appropriate and timely solutions to Noble Corporation’s risk management needs

THE WORTHAM GROUP

Service Team

Primary account service team members chosen to meet Your needs

Access to Wortham’s 425+ member team of experts

Continuity – the average tenure of our partners and professionals is over 20 years

THE WORTHAM GROUP

Your Wortham Team

PartnerAccount Executive

PartnerRisk Mgmt.

Services

PartnerRMIS

Loss Control

PartnerAlternative Risk

PartnerProf. Indemnity

PartnerCrime/Bond

Manager

PartnerMarine

PartnerMarine

PartnerCasualty

InternationalCasualty

PartnerCasualty Claims

PartnerEnergy

PartnerEnergy

Joyce GilbertAssistant

Casualty and Energy Claim Handling Services

THE WORTHAM GROUP

Casualty Claims Commitment

Directed by Wortham Claims Manager

10-person Casualty Claims Department with over 130 years of combined claim experience

Resources from across the country as needed

Wortham’s continued assurance of quality control

THE WORTHAM GROUP

Casualty Claim Services

Assistance in selecting claim service providers

Monitoring of insurance company or independent claims services

Review of claims prior to statistical filings

Monitoring of “questionable” claims and active involvement in “large” claim settlements

Resolution of coverage questions/disputes

Assistance in locating qualified defense counsel

Claim/reserve audits as needed

Periodic status reports with action recommendations

Self-insured program design and implementation

Structured settlement and portfolio transfer consulting services, as requested

THE WORTHAM GROUP

Wortham’s Energy and Property Departments have successfully collected over $250,000,000 in claims, which have resulted from upstream oil and gas operations during the past five years.

Our technicians handle all physical damage and control of well claims personally. Wortham believes that the client’s interest is best served when the individual that negotiated the terms of coverage pays an integral role in the collection of a claim. We believe this approach provides a better service to the client.

Energy, Well Control and Property Claims

International Capabilities

THE WORTHAM GROUP

WorthamNet

Business partnerships with 179 successful brokerages in 134 countries worldwide

In-country knowledge and expertise

Wortham quality, service and standards of coverage

THE WORTHAM GROUP

Wortham Assurex Global Partner

Made up of nearly 70 of the largest independent P&C agencies in the U.S. and Canada

Third largest brokerage organization in the U.S. and one of the largest globally

Over $14 billion in annual premium

Over 300 offices around the world

Employs over 12,000 professionals worldwide

THE WORTHAM GROUP

Your Wortham International Correspondents

Noble Locations JLW Network Allow Non-Admitted

Barbados Lynch Insurance Brokers Must be approvedBrazil Adams & Porter Sociedade de Corretagem NoCanada, Alberta Trilagy Insurance & Financial Services, Inc. No (40% tax)Canada, Newfoundland Anthony Insurance, Inc. YesCayman Islands Crusader International Management (Cayman) Ltd. YesDenmark Dahlberg Assurance Brokers Ltd. YesGermany Leve & Nill GmbH YesNigeria Femi Johnson & Company Ltd. NoNorway Aon Grieg AS YesQatar Arab Commercial Enterprises Qatar, Ltd. YesScotland Willis Corroon Scotland Limited YesThe Netherlands Meeus Assurantien YesUnited Arab Emirates HSBC Insurance Brokers NoVenezuela Asegure, S.A. No

Cost of Risk and Retention Analysis

THE WORTHAM GROUP

TOTAL COST ($)OF INSURANCE

AND LOSSESASSUMED

What is the OptimumLevel to

Retain Risk?

$0

Do we pay lossesfrom funds available?

How predictable and what is the

estimated cost of losses retained ?

What is the cost to transfer losses?

FACTORS

Aggregate Insurance Premiums

Plus Retained Losses from Insurance

Programs

Cost of Risk =

Premiums + Retained Losses

THE WORTHAM GROUP

Risk Retention Factors

Materiality of extraordinary losses

Frequency and severity of expected losses

Cost and availability of insurance excess of various retention levels

Company’s degree of risk aversion

THE WORTHAM GROUP

Cash Flow After % Change in Loss Extraordinary Loss Cash Flow

$5,000,000 $229,000,000 2.1%

$10,000,000 $ 224,000,000 4.3%

$15,000,000 $ 219,000,000 6.4 %

$25,000,000 $ 209,000,000 10.7%

$50,000,000 $ 184,000,000 21.4 %

Risk Retention Materiality – Cash Flow

2003 Estimated Cash Flow from operations -$234,000,000(annualized first six months)

THE WORTHAM GROUP

Loss Net Income After % Change in Change inDecrease Extraordinary Loss Net Income E.P.S.

$5,000,000 $161,000,000 -3.0% $0.04$10,000,000 $156,000,000 -6.0% $0.08$15,000,000 $151,000,000 -9.0% $0.11$25,000,000 $141,000,000 -15.1% $0.19$50,000,000 $116,000,000 -30.1% $0.38

Risk Retention Materiality –Net Income

$166,000,000 2003 Net Income (annualized first 6 months)132,932,000 Outstanding shares of common stock

$1.25 Earnings per share

THE WORTHAM GROUP

Retention Capacity

Based on industry standards established by International Risk Management Institute (IRMI) in millions:

Method Basis Low High MedianWorking Capital* $173 $3.5 $26.0 $14.82-15%

Total Assets* $3,098 $31.0 $154.9 $92.91-5%

Earnings* $166 $5.0 $13.3 $9.13-8%

Operating Margin* $227 $1.1 $2.8 $5.5½-2%

* As of June 30, 2003 or annualized first 6 months of 2003

Marine, Liability and Casualty Insurance Renewal Strategies

THE WORTHAM GROUP

Wortham’s Objectives Relatingto the Corporation

Understand Your culture, operating philosophies, goals – corporate and risk management – ongoing

Recognize past underwriting relationships

Recommend changes when appropriate – keeping realistic creativity at forefront

THE WORTHAM GROUP

Wortham’s Objectives Relatingto the Corporation

Work hand-in-hand with you to reduce cost of risk, seeking maximum cost efficient transfer of risk given market conditions

Constantly look for ways to enhance risk management support service

Fully realize the Wortham mission statement for you

Involve you in the marketing process

THE WORTHAM GROUP

Marine Package and Excess LiabilityMarketing Approach and Goals

Utilize your culture, operating philosophies, corporate goals and approach to risk management as a positive marketing tool.Leverage Wortham's independence by seeking new marketing approaches from a number of sources.Develop coverage options and alternative structures that support your corporate goals without jeopardizing the possibility of completing any of the options or alternative structures.Enhance the effectiveness of your insurance program by exploiting the market whenever possible.

THE WORTHAM GROUP

Marine Package and Excess LiabilityMarketing Approach and Goals

Examine the overall historical profitability of the of your account

Exploit past relationships and historical goodwill

Emphasize the effects of your safety and loss prevention initiatives throughout all all phases of the marketing process

THE WORTHAM GROUP

Marine PackageLloyd’s and Bermuda Brokers Used

JLT Risk Solutions Miller Insurance Group

Agnew Higgins Pickering Limited Benfield Greig

First City Glenrand Simpson

Health Lambert Newman Martin & Buchan, Ltd.

Willis

Bermuda BrokersHSBC International

JLT Limited Park International

We are Independent

THE WORTHAM GROUP

Marine Package and Excess Liability Market Issues

The hard market cycle has leveled off. Certain segments of the market are showing signs of softening.Underwriters are beginning to write risks based on their merits rather than simply imposing a broad market approach.Attractive programs are oversubscribedIf the market does not experience a major catastrophe, some Underwriters may find it difficult to reach their premium targets for the year.

THE WORTHAM GROUP

General Comments – Package and Liability Program Structure

Large Multi-line Package Structure

Primary/Excess Package Structure

Examine the Package structure to determine if an “All Lines” approach or placing certain lines separately would be a more effective use of the market

Exploit market resources to achieve the most comprehensive and cost effective program

Explore the possibility of reducing the cost of risk through the use of an aggregate stop feature

THE WORTHAM GROUP

Maritime Employers’ Liability (P&I) Renewal Strategy

Difficult class of business

Key to success will be our ability to generate creative competition

Markets to be approached Origin (AEGIS/Steamship Venture)

WFT Incorporated

Osprey – London

Limit Syndicate Facility

THE WORTHAM GROUP

Primary Casualty Key Markets and their Issues

Key markets are ACE, AIG, Liberty Mutual and Zurich

All underwriters have reduction in investment income and concern over long tail issues such as asbestos

Primary casualty underwriters are focused on issues of collateral and catastrophic exposures, especially terrorism

THE WORTHAM GROUP

Primary CasualtyRisk Financing Strategy

Risk transfer above selected retentions only a portion of cost of risk

Loss analysis and forecasting to assist with Negotiation of risk transfer cost Retention analysis Reducing collateral requirements Internal budgeting and allocation alternatives Consider revising inception to minimize

reinsurance treaty impact

THE WORTHAM GROUP

Primary CasualtyLoss Forecasting Strategy

Price Waterhouse Cooper (PWC) loss forecasting software calculates insured’s own individual loss development factors

Factors used to develop prior year losses to ultimate; forecast expected losses for renewal

PWC software can only be used if triangles are available

Insurers use their own factors

Wortham can use commercial insurer factors or work with you to develop your own

THE WORTHAM GROUP

International Insurances -Controlled Master Program

Non-admitted and admitted policies are placed with the same carrier

Admitted policies are reinsured 100% by one international insurance company

ACE, AIG, Zurich or Chubb

Local/Admitted Placements inVarious Foreign Countries

Non-Admitted Excess –Difference in Conditions Program

Various Excess Placements

THE WORTHAM GROUP

Controlled Master Program - Benefits

Underwriting controlled by one underwriter, one broker and your risk management department

Premium savings over “one-off” placements

Standard and consistent level of coverage

Avoidance of coverage duplication

Avoidance of gaps in coverage

Simplified claims handling

Enhanced communications

Alternative Programs

THE WORTHAM GROUP

“Outside the Box” Ideas

Risk Financing Programs Captive and finite risk programs could be considered for

retention management purposes

Potential tax planning opportunities

Retention Adjustment Structures Structures allow for adjustment of retention based on current

economic / business indices – rig count, for instance

Provides for lower retentions and greater risk transfer when business is soft

THE WORTHAM GROUP

“Outside the Box” Ideas

Loss Portfolio Transfer (LPT) Reduction of balance sheet reserves

Reduction of required collateral

Environmental Cost Caps Funding vehicle plus risk transfer for overruns

Reduction of balance sheet reserves

Potential tax planning opportunities

Broker Relationship & Compensation

THE WORTHAM GROUP

Service Agreement andWortham Compensation

Broker Service Agreement Detailed written agreement not essential Prefer simple letter agreement

Compensation Annual fee in the form of negotiated commission No contingent commission, no wholesale commission, no

hourly charges, no reconciliation Base compensation for annual services Incentive compensation to promote even greater value added Quarterly payment option suggested Incentive payable within 90 days of conclusion of annual period

THE WORTHAM GROUP

Negotiated Commission Proposal

In addition to standard brokerage service, our fee contemplates:

Claims Support & Consultation Including Coordination of Excess insurers Claim audit participation National account instruction oversight

Electronic Certificates including Noble issuance of standard certificates

Exposure survey – annual prepared with recommendations

Assumption of prior year open items only extends to duration of Wortham service period

THE WORTHAM GROUP

Negotiated CommissionProposed

Other Essential Aspects:

Loss Portfolio Transfer fees separate

Any placements made not in current program to earn standard commission

Includes any due diligence on acquisitions or divestitures

Negotiated commission is payable quarterly

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3 Year Negotiated Commission

Year 1 Year 2 Year 3Total

Base

(In 000’s)

THE WORTHAM GROUP

Suggested Bonus Criteria

Some suggested criteria for objective scoring:

Timely policy / other documentation delivery

Communication quality / timeliness of open items

Delivery of certificates / contract review support

Delivery of renewals within parameters established as part of the renewal process

General support on other open risk management issues

Closing Comments

THE WORTHAM GROUP

We invite you to contact ourClient Reference List

Intentionally left blank

THE WORTHAM GROUP

Why Wortham?

Wortham has the depth of staff and technical expertise to add value to your Risk Management initiatives.

Independence model provides widest window to alternatives

Wortham has a substantial amount of experience negotiating international programs

We will build on your existing relationships while introducing competition

Wortham’s hands-on approach to energy claims means the same people who negotiated the wording will adjust the claims

THE WORTHAM GROUP

Why Wortham?

Our partnership business model is dedicated to providing very broad, high quality, meaningful service to our customers with long-term view

Our strategy is to lower your overall cost of risk

You would be an important energy related account for Wortham and would be handled with a sense of urgency

We invite you to check our reputation with clients, underwriters and service providers

THANK YOUfor this opportunity