“Macroeconomics and the D&O Marketplace”

“Macroeconomics and the D&O Marketplace” RIMS New York Chapter Breakfast Meeting D&O Insurance Trends: Back to the Future! October 15, 2009 CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Severity: Federal Securities D&O Class Action Litigation Severity:Securities Class Action LitigationD&O Settlements 2000–2009(dollars in millions) * Includes settlements of $1B or greater ** Excludes settlements of $1B or greater Source: Aon FSG, Stanford Law School Securities Class Action Clearinghouse as of 09/29/2009 Note: Past settlement values are subject to change. While settlement information generally reflects settlements as of the date a settlement is announced, as additional parties reach settlements and they become final, the past settlement values and dates occasionally change. Aon FSG adjusts settlement figures in this chart to reflect the changes. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Frequency: Federal Securities D&O Class Action Litigation “Bursting of Tech Bubble” Average* = 224 number of claims per year (1998—2002) “2nd Longest Bull Market” “Recession” Source: Stanford Securities Class Action Clearinghouse as of 09/29/2009. * The average excludes the 312 IPO Allocation Allegations in the year 2001. ** (Projected year-end total ) CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

D&O Pricing Index Comparables D&O Pricing vs. Claims Frequency vs. Market Indices Q1 2002 – Q2 2009  Base year: 2001 Frequency = Stock performance + 1 year CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

D&O Pricing Index Comparables D&O Pricing vs. Claims Frequency vs. Market Indices Q1 2002 – Q2 2009  Base year: 2001 Frequency = Stock performance + 1 year * Source: Stanford Law School's Securities Class Action Clearinghouse as of 09/29/2009. These totals include IPO Allocation, Analyst, and Mutual Fund filings. ** Projected year-end securities class action filings for 2009. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Facts of Interest Quarterly Index of D&O Pricing Q1 2002 – Q2 2009  Base year: 2001 • Insurers give back 56% • Rates now at 2000 levels Source: Aon Financial Services Group Quarterly D&O Pricing Index. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Facts of Interest Duration of Federal Securities Class Actions (Average years from lawsuit filing through settlement hearing) • Claims filed in 2000 likely settled in 2003 • Claims filed today likely to settle in 3-4 years Source: RiskMetrics Group-Security Class Action Services * As of 08/2005 CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Frequency: Federal Securities D&O Class Action Litigation Source: Stanford Securities Class Action Clearinghouse as of 09/29/2009. ** (Projected year-end total) CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Severity: Federal Securities D&O Class Action Litigation Severity:Securities Class Action LitigationD&O Settlements 1997–2008(dollars in millions) • Claims settled in 2003 were 39% smaller than claims settled in 2008 • Claims filed in 2008 likely to settle for $55-$60 million 3.5 years from now • Legal costs at 20%-25% of settlement value * Includes settlements of $1B or greater ** Excludes settlements of $1B or greater Source: Aon FSG, Stanford Law School Securities Class Action Clearinghouse as of 09/29/2009 Note: Past settlement values are subject to change. While settlement information generally reflects settlements as of the date a settlement is announced, as additional parties reach settlements and they become final, the past settlement values and dates occasionally change. Aon FSG adjusts settlement figures in this chart to reflect the changes. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Observations – 2000 vs. 2008 • 2000 unprofitable D&O underwriting year for Markets • 2000/2001 underwriting results led to violent price upswing in 2002/2003 • 2000 claim frequency similar to 2008 • Severity is up dramatically since 2000 • 2008 premium volume similar to that of 2000 • Rates at same levels • Number of insureds fairly constant • 2008 likely to be poor D&O underwriting year • Underwriter perspective; industry diversity/concentration is the key CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Potential Mitigator - Dismissal Rates Status of Securities Class Action Cases by Year Filed (1996 — 2008) Source: Cornerstone Research, Securities Class Action Filings, 2008: A Year in Review CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Potential Mitigator - D&O Capacity (01/01/09) Up by 11% from 1/1/08 * New entrants to the market with $35M more in capacity. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Potential Mitigator – Industry Combined Ratios Source: Insurance Services Office, Inc. (ISO) As of September 29, 2009 CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Carrier/Buyer Behavior CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

D&O Pricing Index – Renewal Results Quarterly Change in D&O Pricing: Year-Over-Year Q1 2002 – Q2 2009  Base year: 2001 20 consecutive quarters of price decreases Source: Aon Financial Services Group Quarterly D&O Pricing Index. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Renewal Results by Industry D&O Pricing: by S&P Sector and S&P Index Quarterly Change (Year-Over-Year): Q2 2009 vs. Q2 2008 Source: Aon Financial Services Group Quarterly D&O Pricing Index. BEST WORST CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

D&O Pricing Relativity by Industry Sector D&O Pricing Relativity: by S&P Sector and S&P Index % Difference vs. All Other Sectors, or vs. All Other Indexes: Q2 2009 BEST WORST Source: Aon Financial Services Group Quarterly D&O Pricing Index. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Limit Purchasing Decisions Percentage change of total aggregate limits purchased by public companies in the quarter vs. the prior year. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

Deductible Purchasing Decisions Percentage of deductible changes for public companies in the quarter vs. the prior year. CONFIDENTIAL / FOR DISCUSSION PURPOSES ONLY

“Macroeconomics and the D&O Marketplace”