SARIMS D&O Liability Market Update November 3, 2009 Valerie Cusano

Market Update  Hard market?  Where?  Advisen Special Report, dated December 30, 2008  “The Hard Market is Coming (But Don’t Hold your Breath)  “Losses from both underwriting and investment activities are destroying excess insurance capacity, signaling that the bottom of the commercial insurance pricing cycle is near”

But…..  In the US, trend has been to raise pleading standards and reduce punitive awards  Number of securities class actions so far has declined in 2009, down 22% from 2008  Half of filings in 2009 have been driven by credit crisis  Over 60% of all cases brought in 2009 name a finance sector defendant  13% of S&P 500 financial firms have been named as defendants  15 filings relating to Ponzi schemes thus far, most of these on behalf of investors in Madoff funds

Dual Listed Companies Primary Market Options  Still limited options, due to cross border exposure  Chubb, Chartis, Liberty, Zurich, Travelers, Lloyd’s  Coverage terms and conditions broadened somewhat  No pressure on retentions Excess Markets  Very competitive  New entrants such as Berkley Pro and Professional Risk  Also some existing players with new licenses  Can achieve greater consistency of coverage

Purchasing Trends  Towers Perrin survey shows average 5% decline in premium  Non-banking financial services respondents reported average 13% increase  33% increase in purchase of Side A only coverage  15% of companies with assets over $10B only bought Side A  Very little interest in Independent Directors only coverage

Litigation Trends - Canada  Securities class actions on the rise as several provinces have passed legislation that doesn’t require plaintiffs to prove reliance on alleged misrepresentation or omission  Securities legislation now makes Canada more plaintiff friendly than the US  2008  substantial rise in filings  Record 9 class actions filed  Had ranged between 1 to 5 from 1997 to 2008  1 st time we have seen claims involving options backdating and credit crisis

Litigation Trends contd.  Bill 198  First case – IMAX in 2006  Since then 11 new cases – none have yet reached leave application or certification stage  Class Actions Allegations  26% relate to Accounting Misstatements  16% relate to Earnings Guidance  13% relate to Insider Trading  19.5% relate to Product / Operational defects  6.5% relate to Customer / Vendor issues  18.1% relate to Other allegations

Litigation Trends contd.  Credit Crisis cases  2 actions filed in 2008 – CIBC and AIG securities class actions  2 Canadian cases with options backdating allegations  Settlements  20 class actions have settled  Cross border cases result in larger settlements  Almost $890MM in total payments consented to for Cdn securities class actions

What Next?  Plaintiff’s bar in Canada is active, with 9 class action filings in 2008  Compared to US, total number is miniscule  Currently, Canada has approx $3B in claims over 21 active class actions  Unlikely to see an increase in aggregate settlement amount in 2009  Even a higher than average settlement rate of 20% would produce only $600MM in settlements if all pending cases settled in 2009

What Next – contd.  Some law firms may move their focus to Canadian companies  Milberg LLP leading the charge  For first time since 1996, percentage of filings against foreign companies is greater then number of foreign companies listed on US exchanges  So far in 2009, 15% of cases name a foreign defendant, while only 13% of companies traded on US markets are foreign  Trend for escalating costs of defence  Complexity of cases  Novelty of legal theories  Multiple, simultaneous proceedings