1. RMG107 Contract Certainty – An Imperative or an Impossible Dream April 26 th, 2006 8:00am – 9:30am

2. Introduction Roger Gillett ACE Risk Management International A Brokers Point of View Alan Waring Crump International Ltd. A Lawyers Viewpiont Kim Wilkerson Attride-Stirling & Woloniecki A Risk Managers Perspective Diane Labrador Intel Corporation

3. RMG107 – CONTRACT CERTAINTY – AN IMPERATIVE OR AN IMPOSSIBLE DREAM A Brokers Point of View Presenter: Alan Waring Crump International Ltd.

4. Overview Overview of Contract Certainty and Current Performance Expectations. Most wordings are not agreed to prior to inception. Creates uncovered claims, errors and omissions, massive legal bills etc… Why…? Fingers pointed in all directions. Underwriters – not flexible, treaties, slow, best terms issue. Brokers – slow, not demanding, poor planning – time frames. Clients – expect a lot, push for best wording – creates delays.

5. Current Performance Expectations Clients expect more … however there has to be dramatic change. Contract Certainty is achieved by the complete and final agreement of all terms (including signed lines) between the insured and insurers before inception. * The full wording must be agreed before any insurers formally commit to the contract. * Policy issued within 30 days. ( *Definitions used for London Market business.)

6. Current Performance Expectations Insurer/Broker Standard Wordings – Clients do not want it. Best terms being mandated by most insurance carriers. Barriers to improving … something has to give. Insurers need to change most – Insurer resource and mind set … biggest obstacles to contract certainty … brokers more agile. (AIRMIC Client Survey 1/06) Clients/Broker must meet with underwriters 3-4 months prior to meetings. Complete policy wording in submission – no need to overtweak wordings. Statement from client/broker in submission saying they will not accept Best Terms wording.

7. Comparison by Major Markets Comparison - London, Bermuda and the U.S.A. FSA, the Market Reform Group, Sarbanes, Spitzer, Bermuda Monetary Authority Regulating The Insurance Carriers, Brokers and Clients Multiple markets on large risks with different regulations and procedures. Creates conflict.

8. Comparison by Major Markets London market – Financial Service Authority Well ahead of the pack – Exceeded the first industry target (poor history) 65% of all contracts agreed during December were certain, target was 30% 85% is year end target (set 4/05) Contract Certainty Code of Practice and checklist – 250 have formally signed their agreement. Seminars, communications, training courses, etc....... Code of practice set for legacy policies Per the FSA, no more deal now, detail later. USA- Spitzer & Sarbanes Oxley Focus on premium, income, transparency & marketing Less on Contract Certainty Bermuda - Very few mandates to date Following the US and London Insurance Carriers taking the lead (ACE Bermuda) Bermuda Monetary Authority – no visible role

9. RMG107 – CONTRACT CERTAINTY – AN IMPERATIVE OR AN IMPOSSIBLE DREAM A LAWYERS VIEWPOINT 4 Propositions on Contract Certainty Presenter: Kim Wilkerson Attride-Stirling & Woloniecki

10. Propositions 1.Its the last agreed contract that counts – so get it right the last time 2.An agreed and timely issued policy will not cure all disputes – but will go a long way 3.The rush to certainty brings its own challenges 4.The more innovative the product, the less likely certainty is achievable

11. PROPOSITION NO. 1 Its the last agreed contract that counts – so get it right the last time The relationship of binder/slip v policy The legal status of these contractual documents One lesson from WTC

12. THE BINDER SR International v World Trade Center Properties LLC An insurance binder is a unique type of contract. While not all the terms of the insurance contract are set forth in the binder, a binder is a present contract of insurance… Ell Dee Clothing v Marsh, 247 NY 392 396 (1928) A binder is a short method of issuing a temporary policy for the convenience of all parties, to continue until the execution of the formal one. Lipman v Niagara Fire Insurance Co., 121 NY 454, 548 (1890) The New York Court of Appeals has made it clear that when a binder is signed, the contract of insurance is closed and the binder becomes in effect the same as a regular insurance policy…

13. THE SLIP London Market Practice Prima facie, an insurer in the London market is committed to a risk when he scratches a slip ERC Frankona Reinsurance v American National Insurance Company [2005] EWHC 1381 (Comm) When the policy has been issued it is the policy and not the slip which constitutes the contract between the parties Where there is no subsequent policy or wording, the slip stands alone.

14. PROPOSITION NO. 2 An agreed and timely issued policy will not cure all disputes – but will go a long way Governing Law Clauses (or the lack thereof) – Express Yourself!! US service of suit + no express law = $$$

15. PROPOSITION NO. 3 The rush to certainty brings its own challenges The use of standard agreements and clause books Dornoch v Royal Sun Alliance Longmore J: The concept of business common sense

16. PROPOSITION NO. 3 Dornoch v Royal Sun Alliance business common sense The Question: In interpreting the meaning that should be given to words in a contract, why cant judges just apply the business common sense meaning, which is after all, surely what the parties would have intended?

17. The Answer: Longmore J: Attractive as the proposition is in general, there are dangers in judges deciding what the parties must have meant when they have not said what they meant to say for themselves. This is particularly dangerous when the parties have selected off the shelf or the precedent book a clause which turns out to be unsuitable for its purpose

18. PROPOSITION NO. 4 The more innovative the product, the less likely certainty is achievable.?? Cat Bonds/Industry Loss Warrants Insurance??? Proper Contractual Framework even more necessary

19. RMG107 – CONTRACT CERTAINTY – AN IMPERATIVE OR AN IMPOSSIBLE DREAM A Risk Managers Perspective Presenter: Diane Labrador Intel Corporation

20. Key Points Painful Lessons –A Surprise Legal Review Internal Expectations –Governance –Collectibility Risk Managers role- Change (& enforce) the expectation –Setting the expectation –Process Discipline –Vendor Accountability –Legal Certainty

21. Practical Considerations Communications Incentives –Broker Scores points for on time policy delivery –Insurer is acknowledged/recognized with a kudo /other positive reinforcement Disincentives –Loss of points/penalties for every day outstanding –Installment premium payments (1/2 down; remainder on delivery) Other Tricks: –Visible tracking mechanism: email diary notification issued to all program participants ( 14 days to renewal, 13 days, 12…) –Weekly notice to broker/insurer of lack of delivery, with an escalation to management chain

22. Ideal : Use of Technology Model: digital version of the policy is provided at date of renewal –Pre-renewal Working sessions (ex. on line Net meeting) tracking changes/modifications. –Set aside items where parties disagree, and set up separate time line to complete them –Direct involvement of RM team, not defaulted to the broker

23. RMG107 – CONTRACT CERTAINTY – AN IMPERATIVE OR AN IMPOSSIBLE DREAM An Underwriters Perspective Presenter: David Cash Endurance

24. Contract Certainty – An Underwriters Perspective In considering Contract Certainty two items dominate the discussion 1.Document Certainty :– Delivery of a completed contract within a reasonable [30 day] period of time. 2.Coverage Certainty :– Delivery of a contract that provides the RM with certainty as to the extent and interpretation of coverage. Depending upon the coverage being provided both items can present challenges to the client, broker and insurer

25. Impediments to Achieving Contract Certainty 1.Complexity of Coverage :– 3 rd Party Liability vs. Named Peril coverage. 2.Competition on the Basis of T&Cs :– This has long been considered desirable both for clients and insurers. 3.Large Scale Syndication :– Layering represents a best practice as respects pricing, but not coverage certainty. 4.Dynamic Exposures and Unsettled Law :– This is particularly significant for the risks and covers most likely to generate contract certainty issues.

26. Underwriters perspective on current situation 1.Undesirable :– The lack of pre agreed and standardized wordings has many undesirable implications for insurers: Inability to estimate costs and to risk manage Increased legal risk to insurer Adversarial relationships with clients Operational Inefficiency 2.Unsurprising :– While not desirable, this situation is unsurprising. Large risk insurance has always been very difficult area in which to create standards There are natural trade offs for clients on this issue

27. Achieving Reasonable Contract Certainty 1.Understand the Trade Offs :– For key covers, be willing to trade price for continuity and service. Expect the same from your insurers 2.Consistent Approach to Purchasing Coverage :– Underwriters value consistency, it allows them to take positions on risks they could not do for new clients. 3.Better Information :– Improve the quality of disclosure to underwriters. Where non standard coverage is sought be prepared to provide an economic analysis in support of request.

28. RMG107 Contract Certainty – An Imperative or an Impossible Dream April 26 th, 2006 8:00am – 9:30am