SARIMS D&O Liability Market Update

1. SARIMSD&O Liability Market Update November 3, 2009 Valerie Cusano

2. 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”

3. 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

4. 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

5. 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

6. 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 • 1st time we have seen claims involving options backdating and credit crisis

7. 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

8. 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

9. 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

10. 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