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MANAGING RISKS IN A VOLATILE BUSINESS ENVIRONMENT

Lars Henneberg

Head of Group Risk Management

A.P. Moller – Maersk A/S

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Contents

• Our Business

• The Gryphon A Accident

• Transforming Risk Management

• Setting up Maersk Insurance

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OUR BUSINESS

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Maersk Liner

Business Maersk Oil

APM

Terminals Maersk Drilling

Maersk Supply

Service Maersk Tankers Damco

Shipping Oil & Gas

Strategic growth

through the

cycle

Opportunistic

investments

Assets managed

for value

Strategic

investments Danske Bank

Höegh

Autoliners Maersk FPSOs DFDS

Dansk

Supermarked

Svitzer

Our portfolio

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• 1000 owned vessel

• 500 chartered vessels

• 60 terminals

• 26 rigs

• 626,000 boepd in 6 countries

• Exploration in 11 countries

• 108.000 employees

• Active in 130 countries

Asset heavy risk management

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THE GRYPHON A ACCIDENT

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• 175 miles NE of Aberdeen

• Vessel equipped with 10 point mooring system

• Vessel uses 5 thrusters controlled by a DP system

Introduction

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Vessel and subsea configuration

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Incident timeline and vessel movements

4 February between 0705 and 0733 Mooring line 7 fails followed by line 6

DP system fails to maintain vessel heading

Mooring lines 4 and 5 fail Vessel moves 180 meters off station

Heading and position recovered manually

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Extent and cost of damage

Production shutdown since February 4 2011

15,000 bopd for equity

Budget October 2012 USD mio

FPSO repair 325

Subsea construct 350

PM&E 100

CAR insurance 25

Subsea deconstruct 75

Emergency costs 50

Total 925

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Underlying causes

• Manufacturing defect on a chain link

• DP failure to maintain heading

• Ineffective transfer to manual control

Power Configuration

Chain failure

DP fails to maintain

heading

Ineffective transfer to

manual control

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TRANSFORMING RISK MANAGEMENT

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Where did we come from?

Decentralised organization

Limited transparency

Substantial premium spend

Budget hedging mindset

Benign claims experience

Why do we

insure?

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Our theory of value creation

To continuously reduce the Group's total cost of insurable risk by 15% p.a.*

Through insurance procurement, retention management, loss prevention, claims management, insurance governance and insurance advice

Being cost effective, fast, competent, transparent and accessible while fully leveraging the Group's position

* Applicable to 2012 and 2013

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What did we want to achieve?

Utilising our risk bearing capacity and risk appetite

Simplifying our programme structures

Avoiding dollar swapping

Reducing our exposure to market volatility

Drive mindset towards loss prevention

Dri

vin

g d

own

ou

r co

st o

f ri

sk

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Moving from "budget hedging" to active risk management

Commercially leverage Group

position

Retention management

Loss prevention

Strategic relation to insurers

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Hardwiring our strategy

Year/MM USD BU retained losses

MIAS retained losses

External market premium

Cost of MIAS capital

Total

2011 Actual 221 N/A 246 N/A 467

2012 Target 157 37 176 9 379

Year/KPI MIAS net result before tax (MM USD)

Amount of claims (MM USD)

Average age of open claims (days)

External market premium (MM USD)

2011 Actual N/A 910 690 246

2012 Target 9 87 460 176

KEY PERFORMANCE INDICATORS

TOTAL COST OF RISK

The strategy is supported by measurable and tangible targets and KPIs

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SETTING UP MAERSK INSURANCE

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The new programme structure

$2bn

$500m

$150m

Property Damage Hull & Machinery Property Damage Control of Well (OEE) Third Party Liability Business Interruption Business Interruption Third party liability

Captive

Captive

Captive

Market

Coinsurance

Energy Marine

Market

Coinsurance

Property

Market

Coinsurance

Insurance Market

Insurance Market

Insurance Market

BU deductibles

BU deductibles BU deductibles

Risks in MIAS:

- General: Physical damage and business interruption

- Energy: Rigs, platforms, pipelines, wells and FPSOs

- Marine: Vessels

- Property: Terminals

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The business case for MIAS

Substantial annual savings due to

programme consolidation

optimized risk retention

loss prevention

Solvency capital requirements

Lean and compliant operation

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Why a captive?

Substantial risk retention without a vehicle does not work:

Requires either a captive or other risk retention vehicle

Breach of requirements in loan agreements,

JV-agreements, legislation etc.

High volatility in business units

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EXCESS INSURANCE

REINSURANCE

MIAS

Fronter

Group Risk Management

BU Risk

Insurance

MIAS in action

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Project planning and execution are key

Importance of stakeholder involvement

Availability and quality of data is key

Value of actuarial work

Be clear on your theory of value creation

Importance of performance transparency

Importance of loss prevention

The lessons learned