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PLUS Western Canada Directors and Officers Liability February 8, 2007

PLUS Western Canada Directors and Officers Liability February 8, 2007. Agenda. Favourable D&O Liability Insurance Marketplace Negative Pressures on D&O Marketplace Market Dynamics How Underwriters Can Distinguish Themselves. D&O Insurance Market. D&O Market – Favourable Factors. Claims

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PLUS Western Canada Directors and Officers Liability February 8, 2007

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  1. PLUS Western Canada Directors and Officers Liability February 8, 2007

  2. Agenda • Favourable D&O Liability Insurance Marketplace • Negative Pressures on D&O Marketplace • Market Dynamics • How Underwriters Can Distinguish Themselves

  3. D&O Insurance Market

  4. D&O Market – Favourable Factors • Claims • Legal • Capacity • Coverage • Pricing

  5. NEGATIVE FORCES ON MARKETPLACE

  6. D&O Insurance Market – Negative Factors • Increase in financial restatements • Increase in settlement amounts in US • Bill 198 litigation commenced: IMAX • Options

  7. OPTIONS

  8. Hot Topics: Options Backdating • Spring-loading Options • Bullet-Dodging • Must report failure to comply in annual proxy statement • Backdating is not illegal, but optics?

  9. Options Backdating: Perception is Everything • “Backdating strikes everyone as the ultimate unfair ploy, which is essentially taking an award and adjusting it so you can make more money,''-- Ann Yerger, executive director of the Washington, D.C.-based Council of Institutional Investors, an organization of large pension funds • “It's an egregious abuse of executive privilege, it's an abuse of shareholders, and at a time when folks are upset about executive pay levels, to know that some of this has been rigged is particularly upsetting.''-- James Cox, law professor Duke University • “It's a question of knowingly betting on a race that's already been run."-- James Cox

  10. The Perils of Backdating Companies found to have engaged in impermissible options backdating face several risks, including: • SEC Investigations and Federal Criminal Prosecutions • Accounting Restatement Risk and Reduced Net Profits • Potential Criminal as well as Civil Lawsuits • Regulatory Risk and Tax Implications • Management Credibility Risk • The shareholder suits are generally derivative suits, but a few have been accompanied by stock-drop suits as well

  11. Options Backdating: Canadian Context • Time Period Restrictions • Reporting Grants NOTE: US reporting

  12. Critical D&O Insurance Purchasing Issues

  13. Critical Purchasing Issues • Purchasing Decision is changing: • Directors/Trustees involvement • Potential conflicts • Third Party Reviews and Advice • D&O coverage gaining in importance over price

  14. How Underwriters Can Distinguish Themselves • Coverage and Price! • Understand Evolving Market Dynamics • Ask Thoughtful Questions • Alternatives • Policy Documentation • Long Term Commitment

  15. THANK YOU Catherine Richmond Willis Canada Catherine.Richmond@Willis.com (604) 605-5611

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