Directors’ & Officers’ Liability 6th November 2007

Directors’ & Officers’ Liability 6th November 2007 Andrea Fuchs D&O Liability Insurance 2007

Agenda • Swiss Re • D&O Introduction and Overview • D&O Coverage Concept • D&O Exclusions • D&O Exposure Andrea Fuchs D&O Liability Insurance 2007

Swiss Re’s History 1863 1906 1910 1950-1956 1968-1976 1994 from 1995 1996-2001 Founding of the company San Francisco earthquake, Swiss Re establishes its reputation First branch office in New York Opening of offices in South Africa, Canada, Australia,Hong Kong Creation of several advisory and service companies in Asia and South America Refocus on core business – selling majority shares in several insurance companies Development of financial services offerings Strengthening of life and health business through several acquisitions Strengthening of market position in Asia Successful acquisition and integration of GE Insurance Solutions 2003-2004 2006 Andrea Fuchs D&O Liability Insurance 2007

Swiss Re’s Global Leadership Position Top ten professional reinsurers by premiums earned 2006 (USDm) P&C market share % L&H market share % Swiss Re 26 014 Munich Re 24 526 Berkshire Hathaway 11 051 Hannover Re 8 886 SCOR 4 520 RGA 4 346 Everest Re 3 853 Partner Re 3 667 Transatlantic Re 3 604 XL Re 3 151 12.0 11.9 6.3 4.3 1.4 -- 2.8 2.3 2.6 1.9 22.5 20.7 5.6 7.0 6.1 10.2 -- 1.1 -- 1.3 Andrea Fuchs D&O Liability Insurance 2007 Notes: Swiss Re & SCOR: pro forma full year impact of 2006 acquisitions Munich Re: excluding intra-group transactions of USD 1.9 bn Source: Swiss Re, Economic Research & Consulting

Swiss Re Germanymarket territory London Dublin Paris Munich Zurich Milan connection to Zurich additional connection to Zurich: South Africa, Israel Andrea Fuchs D&O Liability Insurance 2007 Madrid Rome

Mature markets and growth potential Premium as percentage of the GDP 2006 0,15 Switzerland Denmark Great Britain Luxemburg 0,12 Austria Germany 0,09 Iceland Norway Spain 0,06 France Italy Slovakia Greece Sweden Hungary Czech Republic Finland Croatia 0,03 Slowenien Romania Poland Bulgaria Litauen Ukraine Russia Andrea Fuchs D&O Liability Insurance 2007 0 0 7.000 14.000 21.000 28.000 35.000 Quelle: SR Business Information System, Economic Research & Consulting per capita GDP in Euro 2006

Who is a Director or Officer ? Overview Cov. Concept Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Who is a Director or Officer • “Director” means: Member of the Board of Management Member of the Supervisory Board • “Officer” means Managing Executive, e.g. Department Manager, Division Manager • Directors and Officers are personally liable to pay losses suffered by the Company, the shareholders or other third parties following an act which is either illegal, outside the Company's authority, beyond their power, or which evidences insufficient skill and care in managing the Company's affairs. Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Personal Liability of D&Os General principle: “Duty to apply the care of a prudent and conscientious company executive” In case of a deliberate or negligent failure to observe this duty the D&Os are jointly and severally liable. Difficult to distinguish from entrepreneurial discretion (business judgement rule) Andrea Fuchs D&O Liability Insurance 2007

What exposes D&Os ? Overview • Defective/not appropriate organisation and supervision • Improper Disclosure and Financial Reporting • Earnings Restatements, Write-offs • Public Offering of Securities • Acquisitions and Restructurings • Bankruptcy in a constantly changing environment with continuously increasing standards regarding legal compliance and corporate governance, socio-ethical behaviour. Cov. Concept Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Who files Suits ? Overview Cov. Concept Company Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Shareholders Who files Suits ? Overview Cov. Concept Shareholders & Creditors Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Who files Suits ? Overview • Employees • Government (Regulatory Agencies) • Clients • Competitors • etc. Cov. Concept Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Who is insured? Overview Cov. Concept Exclusions Exposure Who is insured ? Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Who is insured? • Directors • Officers Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Definition - Insured Persons • "Insured" means any past, present or future Director or Officer of the Company. • "Insured" shall also include any employee of the Company, but solely to the extent that such employee, whilst not duly appointed as a Director or Officer of the Company, is acting in the capacity of a Director or Officer of the Company or any employee who may by law be deemed to be a Director or Officer of the Company. Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Scope of Cover The Insurer grants insurance cover for claims for compensation made against an insured person by a third party or by the company on the basis of private-law provisions governing third party liability on the grounds of a breach of duty committed in the execution of his/her duties in the capacity of a director or officer. Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Definition – Loss • Loss means the amount which an Insured is legally and personally liable to pay on account of any Claim for • Defence Costs • Compensation • Loss does not include • taxes, contributions for social security and employee benefit programmes, civil or criminal fines or penalties, punitive or exemplary damages or the multiple portion of multiplied damages; Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Policy Triggers • The policy is triggered by a Claim made during the Policy Period: • “… the Insurer shall pay the Loss on behalf of the Insured resulting from any Claim first made against such Insured during the Policy Period as a result of a breach of duty committed during the Policy Period …“ Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Claims Made Trigger The temporal scope of coverage can be extended by • Retroactive Date Cover can be extended to breaches of duty committed before the inception of the insurance contract. • Extended Reporting Period (ERP)/Discovery Period Cover can be extended to claims reported to the insurer within the extended reporting period and based on a breach of duty committed during the policy period or the retroactive cover period • only at an additional premium • ERP shall terminate when a new D&O insurance is effected Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Policy Limit – Cost Inclusive • The Limit of Liability stated in the Schedule is the aggregate limit of the Insurer’s liability for all Losses arising out of all Claims made against all Insureds under all insurance coverages under this Policy combined during the Policy Period . • DefenceCosts are part of, and not in addition to, any Limit(s) of Liability stated in the Schedule, and the payment of Defence Costs by the Insurer shall reduce and may exhaust such applicable Limit(s) of Liability. Andrea Fuchs D&O Liability Insurance 2007

Prior Acts Exclusion Claims arising out of Wrongful Acts that were committed prior to the inception date of the policy are excluded. Policy period Wrongful Act Start Litigation Andrea Fuchs D&O Liability Insurance 2007

Prior & Pending Proceedings Exclusion Claims arising out of Pending or Prior Proceedings and Litigations before the inception date of the policy are excluded. Policy period Wrongful Act Start Litigation Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Personal Injury, Property Damages Exclusion • Claims • for bodily injury, sickness, disease, death, mental anguish, emotional distress or any other mental, emotional or physical injury of any person, or • for damage to or destruction of any tangible property, including the loss of use thereof; => Coverage only for Pure Financial Losses Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Professional Services Exclusion • Claims arising out of • performance of or failure to perform professional services, • breach of duty owed in a professional capacity, • providing professional advice, • or any act, error or omission relating thereto; Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Intentional Violation of Law& Fraud Exclusion • Claims arising out of, based upon or attributable to the committing in fact of any criminal, fraudulent act or omission or any wilful or intentional violation of any law by an Insured Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Personal Profit, Insider Trading Exclusion • Claims arising out of, based upon or attributable to • the gaining in fact of any profit or advantage to which an Insured was not legally entitled; or • profits made from the purchase or sale by an Insured of securities of the Company within the meaning of Section 16(b) of the U.S. Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law or common-law. Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Company vs. Insured Exclusion • Claims made by or on behalf of any Insured or the Company against Insured whether directly or derivatively. However, this exclusion shall not apply to: any shareholder derivative action brought in the name of the Company, without the solicitation, assistance, participation or intervention of any Insured or the Company; Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure US - Exclusions • US-Security Claims: Claims arising out of violations of the responsibilities, obligations, or duties imposed by the • U.S.A. Securities Act of 1933, or • U.S.A. Securities Exchange Act of 1934 • Employee Retirement Income Security Act of 1974 • Punitive Damages Andrea Fuchs D&O Liability Insurance 2007

Overview Cov. Concept Exclusions Exposure Other Exclusions • Employment Practice Liability (EPL) • Failure to maintain insurance • Products • Asbestos • Pollution • … Andrea Fuchs D&O Liability Insurance 2007

D&O Claims Overview D&O claims are of • low frequency • high severity • mostly settled out of court • D&O claims usually involve high defence costs and ask for expert know-how in various law complexes. Cov. Concept Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

D&O Claims - Examples • Deutsche Bank AG The former media entrepreneur Leo Kirch accused Rolf Breuer, former chairman of the board of the Deutsche Bank, of having contributed to the downfall of his corporation. In January 2006, the BGH confirmed that Breuer had made indiscrete comments regarding the creditworthiness of one of Kirch’s subsidiaries thereby making a breach of loyalty. Kirch sued for damages amounting to 1.6 m €. The lawsuit is still pending. source: www.organhaftpflicht.ch,Süddeutsche Zeitung 14.6.2007 Andrea Fuchs D&O Liability Insurance 2007

D&O Claims - Examples • Daimler Chrysler AG Kerkorian, whose investment company Tracinda was the largest single stockholder when Daimler and Chrysler consolidated in 1998, accused the German car manufacturer of having misled him with regard to the reason of the merger and presenting it as a “Merger of Equals”. This way Daimler could buy the Chrysler shares at a lower price than by a takeover. However a comment made by Jürgen Schrempp indicated that a takeover had been planned. In 2003 this case was settled with over US$ 300m. source: spiegel.online 19.9.2007, www.organhaftpflicht.de Andrea Fuchs D&O Liability Insurance 2007

What determines the Premium ? Overview • Assets size and asset distribution of the Company • Nature of business/activity of the Company • Financial Condition of the Company • Shares quoted on Stock Exchange and/or U.S.A. Stock Exchange • Ownership of Company / Major shareholders • Size of Equity determines sum insured • Applied “ILF” (Increased Limit Factor) Cov. Concept Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Special exposures Overview • US Exposure, especially US- listed companies • Start-up companies • Financial Institutions • High-tech companies • Companies in privatisation process Cov. Concept Exclusions Exposure Andrea Fuchs D&O Liability Insurance 2007

Questions ? Andrea Fuchs D&O Liability Insurance 2007

Directors’ & Officers’ Liability 6th November 2007