1. 2008 D&O Symposium Symposium International D&O: Global Exposures

2. 2 Disclaimer It is the responsibility of the insured to determine the legal requirements, if any, of a policy in any given jurisdiction. Nothing herein should be interpreted as, or relied upon, as rendering legal or tax advice on this or any other issue. Insureds are strongly encouraged to seek independent counsel. Coverage may not be available in all jurisdictions. Any product information is only an example or summary. For actual terms and conditions, please refer to the policy in question.

3. 3 Introduction: The Changing Nature of D&O Liability Historically:  N.American companies have purchased a global policy protecting all D’s & O’s worldwide.  Very few purchased locally-admitted policies.  D&O was not a mandatory class of insurance (until Romania recently).  Little D&O claims activity outside the US, against US-based companies  This approach provided premium savings and simplified administration.

4. 4 Introduction: The Changing Nature of D&O Liability Today, companies are having to re-examine the adequacy of this approach, due to:  Recent legislative & regulatory developments;  Enhanced regulatory oversight and scrutiny;  Rising litigation outside the US.

5. 5 Today’s Panel Format Evolving Liability & Exposure Trends Outside the US “But I thought the policy was a global policy” – Coverage Implications Implications for Getting it Wrong Solutions: Structuring a Global D&O Program.

6. International D&O: Global Exposures MODERATOR: Sarah Robson, Managing Director Marsh Suzan Friedberg, Assistant Vice President American International Underwriters Edward Smerdon, Partner Reynolds Porter Chamberlain, LLP Vincent Vandendael, Global Practice Leader Financial Lines Zurich Carol Zacharias, Senior Vice President ACE USA

7. 7 Evolving Liability & Exposure Trends Outside the US

8. 8 Corporate governance demands growing: Revised companies acts and related laws increase directors’ duties and liabilities—  1990: Ireland  1991, 2000: Israel  2001: Australia, Israel  2003: Italy; France; Spain; EU prospectus directive directive  2004: EU transparency directive; South Africa  2005: Israel  2006: Mexico; China; United Kingdom  2007: Japan; S. Africa Liability Environment

9. 9 UK changes:  Codified director duties;  Derivative actions may be based on negligence, not just fraud;  Indemnification of defense costs permitted in derivative actions, subject to repayment if not exonerated;  Indemnification permitted in a third party action;  ‘MD&A’ discussion must include future threats and trends. Liability Environment

10. 10 Spain changes:  Codification of director duties;  Directors liable to company, creditors and shareholders for breach of duties;  Joint and several liability of directors; independent director requirements;  Comply or explain. Liability Environment

11. 11 Israel changes:  Codified director duties;  Board must have 2 outside directors, one of which has accounting and financial expertise;  Board must establish the number of inside directors that must have accounting and financial expertise. Liability Environment

12. 12 China changes:  Codified director duties;  Requires public companies to have independent directors;  Permits regulators to remove directors who breach duties;  Permits shareholder, company and investor claims against directors for breach of duties;  Imposes joint and several liability on directors for breaches. Liability Environment

13. 13 Mexico changes:  Codified director duties;  25% of board must be independent. Liability Environment Liability Environment

14. 14 Court Access:  Many new company laws expressly permit derivative and shareholder actions;  “Group actions”: Italy, England, Wales, Sweden, Norway, Spain, Germany, Portugal, UK, Netherlands (debating: France, Denmark, Finland, Ireland);  Contingency fees: Italy (and advertising); “Success fees”: UK, Sweden;  Germany: Share ownership 1% (10% ’05);  Defense funding companies. Liability Environment

15. 15 USA-based company D&O claims:  Bank, money laundering, Russia  Fortune 500, oil-for-food, United Kingdom  Investment bank, Italy  Bank, Italy  Investment bank, Italy  Fund, South Korea  Fortune 500, employee information, France  Tech company, contract payments, Asia Liability Environment

16. 16 Non-USA claims: Non-USA claims:  Banks  Transportation companies  Manufacturers  Pharmaceuticals  Airlines  Insurers  Technology companies  Fund managers Liability Environment

17. 17 Trends:  Increasing duties and accountabilities  Growing ease of access to courts  Beginnings of litigation, often regulatory Liability Environment

18. 18 “But I thought the policy was a global policy” – Coverage Implications

19. 19 Coverage Implications Why is this an issue now, this was not an issue 4-5 years ago? Doesn’t my US D&O policy provide all the necessary coverages on a Global basis? Isn’t this a problem for the Insurer? This isn’t the problem of the broker or client, or is it? Why can’t I have ONE US policy to take care of my Global needs – there are no claims outside the US anyway? What is an Admitted Country? What is a non- Admitted Country?

20. 20 Coverage Implications (cont’d) Is my US “Global” Policy really Global? I have a Global Liberalization clause, Global Titles Clause, surely this protects me? Is D&O Cover compulsory? How does the lack of international local policies impact the payment of Claims? Can Insurers pay directly into countries like – Brazil, Russia, India, China?

21. 21 Take Aways Times have changed, ONE D&O policy is no longer sufficient for Global Companies - License and Tax Cover Implications  Insured versus Insured  Defense costs outside the limit  Extended reporting period  Investigation costs outside the limit  Indemnification Question is not “If this must be done“ but “how “

22. 22 Implications for Getting it Wrong

23. 23 Implications for Getting it Wrong Taxes Fines & penalties Criminal sanctions Freezing of assets License revoked + Jail time in certain jurisdictions…

24. 24 Solutions: Structuring an Appropriate Global D&O Insurance Program

25. 25 Key Questions Covered in This Section What are the needs and buying attitudes of the policyholders? What are the solutions available today, how do they work, and what are their relative benefits / drawbacks? Are there any myths about the Global D&O issue? Can we ignore the problem and hope it goes away? What are the future challenges for the D&O insurance industry?

26. 26 Establishing Need and Buying attitude of Clients Checklist Where are the Policyholder’s subsidiaries? Are any of them in “restricted” territories? If so, what are the legal requirements there? What are the realistic exposures there? What is the Policyholder’s reason for buying the Policy - main board or global cover?

27. 27 Options Include 1.Master Program with Local Policies 2.Free Standing policies in all territories 3.A combination of both 4.Cover the Parent for indemnifying the local subsidiary etc 5.Others 6.Do nothing? (after appropriate due diligence)

28. 28 Insured’s Parent & Subsidiaries Director Local or EU Passport Policy Director Insured’s Local Subsidiary USA Insurer D&O coverage for non-indemnified acts (“Side A”) Entity coverage for indemnified acts (“Side B”) Entity coverage for securities claims (“Side C”) Entity coverage for corporate indemnification payment Corporate Indemnification Corp. Indemnification Cover

29. 29 Factors relevant to the Options 1.Reliability / safety 2.Cost 3.Administrative burden

30. 30 Conclusions There is no one-size-fits-all solution; Look beyond the surface when evaluating the exposure and treatment; Must balance Compliance & Coverage; Select insurer and broker carefully; Further change is inevitable – insurance solutions will continue to evolve.

31. 31 Questions?