8/1/2013

Superstorm Sandy ‒ What Risk Managers and Underwriters Learned

Gary Ladman Vice President, Property Underwriting AEGIS Insurance Services, Inc.

Superstorm Sandy Change in the

• Recent years appears to indicate increase in frequency and severity of weather events • Sandy, Irene, tornadoes in Midwest • Predictions that this trend will continue to escalate  Temperatures have risen 1.5° F in past century  Sea levels have risen • How does this impact the utility industry? • How will this impact property insurance for utilities?

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Hurricanes in the US

16

14

12

10

8

6

4

2

0 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Total Hurricanes Made landfall as hurricane

Largest Population Change In Coastal Counties (1960 – 2008)

12,907,103

10,035,878

3,566,531 2,465,351 1,725,133 1,623,672 1,189,466 885,309 817,703

California Florida Texas Washington Virginia New York New Jersey Maryland Massachusetts

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Superstorm Sandy and Tornadoes

• Named windstorms (NWS) occur June through October • No NWS ever made landfall before June or after November • September is most common month for hurricanes making landfall in the US • Tornadoes occur year round • April through June are the most common months • Often are part of a major NWS event

Most Costly US Catastrophes Involving Windstorms

$41,000.00

Hurricane Katrina

$18,750.00 $15,500.00 Superstorm $12,500.00 Sandy Hurricane Andrew Hurricane Ike

August 25 - 30, 2005 October 28 - 31, 2012 August 24 - 26, 1992 September 12 - 14, 2008

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Most Costly US Catastrophes Involving Tornadoes ($ Millions when Occurred)

$7,300 $6,900

$3,205 $2,700 $2,500 $2,500 $2,200 $2,000 $1,850

April 22 - 28, May 20 - 27, May 2 - 11, 2003 October 4 - 6, March 2 - 3, April 28 - 29, April 6 - 12, May 12 - 16, April 13 - 15, 2011 2011 2010 2012 2012 2001 2010 2006

Top Ten States, by number of Tornadoes (2012)

145

114

87 75 65 53 48 41 40 39

Kansas Texas Alabama Mississippi Kentucky Louisiana Nebraska Oklahoma Florida Illinois

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What Underwriters Learned

• CAT modeling tools not reliable for flood and surge • Underwriters need much more information to underwrite flood exposures • Insured provide detailed information  Loss control to determine flood zones and secondary modifiers  Locations and values actually exposed

What Underwriters Learned

• Underwriters need to remain diligent in evaluating information and addressing exposures

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FirstEnergy: Superstorm Sandy

Thomas McDonnell Manager, Insurance & Operational Risk FirstEnergy Corp.

Pre Storm Preparation Proactive Preparation is Vital to Restoration

• FirstEnergy meteorologists monitor and forecast and areas of impact • Local and Mutual Assistance crews are strategically positioned to respond • Communications are established with responders, state officials, and media • Staging areas and command centers are established to coordinate the response • Crews inspect “at risk” locations and take preventative measures

More than 8,000 workers were staged in 14 areas helping to restore service to 90% of affected customers within 7 days

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Casino Pier Seaside Heights, NJ

Funtown Pier Seaside Heights, NJ

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Casino & Funtown Piers Seaside Heights, NJ

Superstorm Sandy

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Hurricane Sandy By the Numbers

• 2.47 million: FirstEnergy customers • 30,000: cross arms damaged by storm who lost power in New Jersey, Pennsylvania, Ohio, West Virginia and Maryland • 10,000: utility poles replaced • 1.5 million: customer outage calls received • 6,400: transformers replaced at our three contact centers • 930: miles of wire replaced • 20,000: line workers, hazard responders, forestry workers, contact center representatives, management and support personnel involved in storm response $850 million: total cost of the storm

Storm Preparation Going Forward Always Room to Improve

• Strengthening of infrastructure  Over $500 million in system reliability improvement projects • Enhanced communications  Advanced outage management system more accurately and quickly pinpoints outages  Improved online customer outage maps provide more accurate updates and restoration estimates  Text messages, phone apps, and social media accelerate the communication process and provide localized info • Vegetation management  Over 3,500 circuit miles will be trimmed in JCP&L alone by the end of 2013 • Crew mobilization  Enhanced outage management systems allow for better prioritization and more rapid and accurate crew deployment

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Superstorm Sandy ‒ What Risk Managers and Underwriters Learned

David Layne Senior Treasury and Risk Manager The Empire District

Joplin – May 22, 2011 EF-5 Tornado Strikes Joplin on Sunday Evening at 5:41 pm

• Storm path is 13 miles long and more than ¾ mile wide • Wind speeds in excess of 200 mph • 20,000 customers without power • St. Johns Hospital destroyed • 6 of 17 Joplin schools damaged / destroyed • 7,500 homes damaged / destroyed • 557 businesses damaged / destroyed • 162 lives lost and more than1,500 injured

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Path East to West

St. Johns Hospital Joplin High School

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Residential Structures

Business Structures

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EDE Facility Damage

• Transmission  Ten transmission lines out of service  135 structures affected • Substations  Six initially impacted  Sub 59 destroyed 422 and 430 damaged

EDE Facility Damage

• Distribution  100 miles of line down  Approx. 3,900 poles damaged  31 of 60 circuits off  1,450 transformers recovered • Fiber  30 cuts repaired / replaced • $30 million – total cost of storm

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Immediate Response

• Immediate mobilization • Communication issues • Employees responded, even those personally affected • Assess damage • De-energize lines • Make safe for public, emergency and Empire personnel • Make safe for roads to be cleared • Debris removal

Critical Infrastructure Assessment and Restoration

Freeman Hospital • Primary substation – de-energized but minimal damage  Transmission down over a half mile in both directions • Primary circuit  Distribution down from substation to hospital • Alternate substation – destroyed • Alternate circuit – damaged and no connection to energized substation • Engineered and constructed alternate circuit before sunrise • Water & sewer services restored within 72 hours

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Mutual Aid and Restoration Results

• 247 lineman from 6 companies • 144 tree trimmers and debris removal personnel from 4 companies • Established 12 pole and material yards throughout town • Poles dropped, materials filled and kitted overnight • Within 1 week – St. John’s temporary hospital • Within 10 days – service restored to all who could receive service • Within 1 month – 600 FEMA units, 5 new subdivision extensions, temporary school sites • Worked hand in hand with City, State, FEMA and USACE

Lessons Learned

• Improve system reliability – increase sectionalization to reduce customers affected during outages • Mobilize storeroom operations around the clock • Book hotel rooms, provide box lunches and laundry services for crews • Communication difficulties overcome • Underground not necessarily better • OMS ineffective due to damage; relied solely on field verification • Storm material kitting – plan revision • Retrain construction designers to assess damage and write jobs

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