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Chubb’s Department of Financial Institutions

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1 Chubb’s Department of Financial Institutions
“DFI for DBU” April 7, 2010 Hello everyone and welcome to Chubb’s first Webcast for the commercial developing business unit. Today, we’re going to describe to you what is a

2 On the Call … Tim Usher-Jones
Underwriting Officer, Department of Financial Institutions And my name is Tim Usher-Jones, I am the underwriting officer and team leader for our Financial institutions group.

3 Presentation Overview
Reasons to Pursue F.I.’s Classification of Financial Institutions The Products Underwriting Criteria Asset Manager Focus Topical Industry Trends and Regulation Questions In the next 30 minutes, I would like to; Goals - growing our new and profitable products Give you Reasons to Pursue F.I.’s Talk about the different types of Financial Institutions The Product Solutions we have Talk about our base Underwriting Criteria and minimum premiums Focus on our new product for the segment that is most relevant to you - Asset Manager Focus Topical Industry Trends and Regulation Questions

4 CHUBB SPECIALTY INSURANCE (CSI) STRUCTURE
Three departments working together, separated by client type

5 Why Pursue Financial Institutions?
Growth Industry Cross-Selling Opportunities Few Competitors DFI Quotes 80% of New Submissions Knowledgeable Partner We’ve already decided why we are committed to the business and it is for many of the same reasons. This is certainly a growth indusrty, and as the largest FI market in Canada, we’ve seen out business grow and double in the last five years. Some of this is because of cross=selling, to clients as well as their competitors and the companies that they buy (such as portfolio companies of a private equity firm) After this presentation you may have more competitors, but it is still a relatively unknown space. We are here to help in that regard.

6 Classification of Financial Institutions
1. Depository Institutions Banks, Finance Companies, Credit Unions, Trust Companies, Mortgage Companies, Leasing Companies 2. Financial Management Firms Investment Advisors, Stockbrokers, REITs, Mutual Funds, Wealth Managers, Venture Capital Firms, Investment Bankers 3. Insurance Providers Insurance Companies, Reinsurance Companies 4. Service Organizations Exchanges, Financial Intermediaries, Funds Transfer Organizations, SRO’s Four main types of FI’s Formerly it was made up of banks, almost 50% of our book. Now, because of regulations I will mention, there is a much larger presence of Financial management firms- Investment Advisors and Fund/portfolio managers, as well as insurance companies, REITS, transfer agents, and exchanges.

7 DFI Product Overview Employee Practices Liability
Fidelity Bonds Automobile Boiler & Machinery Kidnap & Ransom Mail Insurance Umbrella & Excess Computer Crime Integrated Risks Alternative Risk CyberSecurity Venture Capital Asset Protection Trust Company E&O Insurance Company Professional Liability Forefront by Chubb for Insurance Co’s Excess Policy Mutual Fund Professional Liability Not For Profit D & O Directors & Officers Liability Fiduciary Liability General Liability Business Income Errors and Omissions Liability Property Workers’ Compensation Builders Risk Wrap -up Liability Captives Banker’s Professional Liability BrokerEdge Family Office Pak ForeFront By Chubb ForeFront By Chubb For Investment Advisors If this list looks too big for the page, imagine knowing all of these forms. The top one

8 DFI Product Overview Employee Practices Liability
Fidelity Bonds Automobile Boiler & Machinery Kidnap & Ransom Mail Insurance Umbrella & Excess Computer Crime Integrated Risks Alternative Risk CyberSecurity Venture Capital Asset Protection Trust Company E&O Insurance Company Professional Liability Forefront by Chubb for Insurance Co’s Excess Policy Mutual Fund Professional Liability Not For Profit D & O Directors & Officers Liability Fiduciary Liability General Liability Business Income Errors and Omissions Liability Property Workers’ Compensation Builders Risk Wrap -up Liability Captives Banker’s Professional Liability BrokerEdge Family Office Pak ForeFront By Chubb ForeFront By Chubb For Investment Advisors If this list looks too big for the page, imagine knowing all of these forms. The top one

9 DFI Underwriting Criteria
Targeted Financial Institutions must possess the following characteristics: Desired nature of Operations High quality of management Proven track record Minimum equity of $1M Profitable operating history Proven risk management procedures Favourable Litigation/ Loss History

10 The Opportunity The business of managing investments is riskier and more complex than ever: Varied business models such as Mutual Fund Managers that own distribution, stand-alone Investment Advisory firms and finally Investment funds that are structured as trusts versus corporations Outside the Canadian Banks, very few large independent asset managers left, but many small private firms Dynamic regulatory environment, increased scrutiny National Instrument November Independent Review Committee National Instrument September 28, national registration regime for financial management firms and individuals Use this slide to speak to current market conditions, needs, etc. AND THAT THEIR FOCUS SHOULD BE ON THE BIGGEST SPACE- ASSET MANAGERS, INVESTMENT ADVISORS AND BROKERS Varied business models such as Mutual Fund Managers that own distribution, stand-alone Investment Advisory firms and finally Investment funds that are structured as trusts versus corporations Outside the Canadian Banks, very few large independent asset managers left, but many small private firms Dynamic regulatory environment and increased scrutiny from regulators, clients, and investors 1. National Instrument became effective November and requires investment funds which are reporting entities to establish an Independent Review Committee 2. National Instrument comes into force September 28, 2009 and will put in place a national registration regime for financial services firms and individuals

11 The Opportunity (cont’d)
Rapidly evolving products, structures and distribution channels of the asset management industry Mergers and acquisitions activity has meant several mid-sized firms are gone and we are left with a handful of large asset managers that manufacture and distribute investment product Global marketplace means clients can be non-Canadian, firms often own subsidiaries in foreign jurisdictions as well as set up off-shore funds Asset management firms and their investment funds need proven insurance coverage that can easily adapt.

12 ForeFront for Investment Advisors
Insuring Agreements: Employment Practices Liability Fiduciary Liability Directors and Officers Liability Investment Advisors E & O Liability Outside Directorship Liability Sources of Loss Include: Statutory Liabilities Wrongful Termination Breach of Fiduciary Duty Breach of Investment Objectives

13 VCAP (Venture Capital Asset Protection)
Insuring Clauses: Management Liability Coverage (D&O) Management Indemnification Coverage (SIDE A) Errors and Omissions Coverage (E&O) Sources of Loss Include: Breach of Contract Tortious Interference Oppressive Conduct Breach of Offering Memorandum

14 CANCAP (Canadian Capital Asset Protection Professional Liability)
E&O Coverage For: Small to Mid-Sized Canadian Financial Institutions that offer a variety of financial services All directors, officers and employees (past and present) Separate Tower of Insurance for Approved Persons For claims arising out of Services such as: Fiduciary/Trust Dept Investment Advisor/Fund Mgmt Lending Broker/Dealer Activities Funds Transfer Distribution of Life Insurance and Mutual Fund Products Investment Banking

15 Minimum Premium/Deductible Thresholds

16 Product Highlight: AMP
Asset Management ProtectorSM by Chubb

17 Asset Managers need insurance that is:
Designed for their industry Customizable to how they want to structure their insurance coverage Flexible enough to respond to their individual business model Able to address numerous combinations of asset management structures and their foreign equivalents Easily and seamlessly adaptable to operational changes during the policy period Easy to work with and easy to understand Backed by a strong carrier with claims expertise in their industry Asset managers like most: Flexible enough to respond to their individual business model Customizable to how they want to structure their insurance coverage Easy to adapt to firm and operational changes Designed for their industry Backed by strong carrier with claims expertise in their industry Producers like most: Flexible structure Ability to customize Tailored for the industry Enhanced coverage features Easier to work with

18 Target Markets Registered Investment Advisors Portfolio Managers
Fund managers/sponsors Mutual Funds Pooled Funds Private Funds/Hedge Funds Investment companies and funds domiciled outside Canada. Product is available in US and Canada (US in states where filed and approved)

19 The Coverage Solution A flexible, modular liability insurance policy that helps protect firms and funds from their most critical professional and management liability exposures: Professional Liability (Errors and Omissions Liability) Directors and Officers (D&O) Liability Employment Practices Liability Fiduciary Liability Chubb is introducing a new portfolio style product for asset managers and funds. Built off of our experience and expertise insuring asset managers and funds for more than 30 years Supported by Chubb’s industry expertise, claim service, multinational capabilities, and financial strength, Asset Management Protector is the premier choice for the asset management insurance buyer. (note: this product is intended to replace 40ACT+, etc. for new business)

20 Coverage: Broad Definition of Professional Services
In Professional Liability Coverage Part, definition includes: In addition to investment advisory and management services, asset allocation services; fiduciary capacity as respects third party plans; selection of outside managers and service providers; publication of written material Insuring clauses include vicarious liability

21 Coverage: Independent Review Committee (IRC) – NI 81-107
Automatic $1,000,000 additional dedicated excess limit for Independent Review Committee (IRC) members, with option to purchase further additional limit.

22 Typical Claim Scenarios
Claims by clients for breaches of investment guidelines Prospectus liability claims against mutual fund directors, advisers, and service providers Formal regulatory investigations into alleged trading violations Claims alleging failure to disclose risks or conflicts of interest Claims for failure to perform due diligence in the selection and oversight of sub-advisers or outside funds Improper valuation of fund assets

23 Asset Manager Relevant Regulations
National Instrument

24 NI 31-103 Categories of Registration
Three general categories; Dealers Investment (IIROC), Mutual Fund (MFDA), Scholarship Plan, Exempt Market, & Restricted Dealers Portfolio Manager (Adviser) Investment Fund Managers By now your clients should have already filed registration, so this is meant to be a high-level overview of the categories. DEALERS- applies to investment dealers (IIROC membership), mutual fund dealers (MFDA membership), scholarship plan dealers, exempt market dealers (formerly Limited Market Dealers and more), & restricted dealers - with only some limited exemptions (Note: EMDs do not apply in BC, Alberta or Manitoba). These are new categories, but really the last three are newest and many exemptions will be applied or attempted. This is obviously the riskiest of the 3 go-forward registration categories, due to their typically larger base of employees, their even larger sales forces of independent Agents/RRs (can sometimes label in the hundreds or even more). There are current insurance requirements in place for Dealers from the IIROC (formerly the IDA) and MFDA member firms already have limit requirements tied to their client assets (caps out at $25 million). ADVISER - Portfolio Manager’s are in the business of advising others in securities (applies to the old Investment Counsel/Portfolio Manager - IC/PM designation) INVESTMENT FUND MANAGER - (applies to the Fund Manufacturer/Sponsor) Often firms will have adviser arms, as well as dealers to distribute the securities.

25 Insurance Requirements
Minimum: Investment Dealers $500K or $200K for Type 1 (IIROC-400.4) Mutual Fund Dealers $50K per Approved Person up to $200K, $500K for Level 4 (MFDA Rule 4.4) Scholarship Plan, Exempt Market, and Restricted Dealers $50K per employee up to $200K Portfolio Managers $50K no access to client assets or $200K Investment Fund Managers $200K These are the up to date insurance requirements, but please contact either the CSA, IIROC, or MFDA directly for the exact guidelines, and most financial institutions will be aware of their bonding requirements. The IIROC registered firms will continue to their obligations under the current structure, as a minimum of $500,000 limit unless you are a Type 1 Introducing Broker in which case the minimum reduces to $200,000, and this is all laid out in IIROC regulation 400.4 Similarly, the MFDA has requirements that depend on the level of dealer within their internal ruberics from 1-4, with level 4 dealers only requiring up to $500,000 in minimum limit, otherwise there is similar minimums to the other classes of dealers, Scholarship plans, the New Exempt Market Dealers and Restricted Dealers, $50,000 per Approved Person/agent or employee up to $200,000. Portfolio Managers – Advisers that do not hold or have access to client assets must maintain a bond of $50,000 for each clause, if they do hold or have access to client funds, the amount of insurance ranges from the lesser of $200,000 or one percent of the adviser’s assets or assets managed up to a maximum of $25,000,000. The same applies to Investment Fund Managers Note that Scholarship Plan dDealers, and EMD’s who are existing LMD’s or not do not have to comply until September 28, 2010 under a “Transition”. The same applies for Investment Fund Managers. Maximum: Formula based on 1% of total assets or assets under management, up to $25 Million.

26 Implementation Timeline
September 28, Registration March 28, 2010 – Meet Insurance Requirements September 28, 2010 – New Categories “Transition” and meet Insurance Requirements: Investment Fund Manager, Exempt Market Dealers and Scholarship Plan Dealers In a few days these firms were required to register under one of the 3 large (or 8 total) categories. There are immediate responsibilities including establishing compliance systems, record retention, complaint handling systems, etc. December 28 (not on slide) there is a requirement to designate and apply for the registration of a UDP- Ultimate Designated Person, usually the CEO, and CCO- Chief Compliance Officer who must submit an annual report to the UDP. March must meet the new insurance requirements, so this is the most important date to remember from our perspective. September 28 of next year all new categories including Investment Fund Manader, and former Limited Market Dealers and others in the business of trading prospectus-exempt securities, will be required to register as an exempt market dealer (EMD). The firms would have applied for this registration on September 28, Many of these firms will already have insurance in place through their previous OSC registration.

27 Solution This is an opportunity for client introduction and to demonstrate knowledge We can accommodate full $25M limit requests Chubb is the #1 writer of fidelity bonds in North America (SFAA) There are some areas of clarity needed in the regulation, and we have been in touch with the OSC directly to get a response. Two primary areas are how often the formula will be calculated for insurance requirements based on assets– will it be at the beginning of the period, after a material change, at the end of each year/quarter/trading day? Also, what is the definition of ‘custody’ in reference to client assets? This will have a significant impact on the limit required by many advisory firms. Despite these questions, we have the ability to write the maximum possible limit of $25 million in house. We are the #1 writer of fidelity bonds in North America according the SFAA, an independent third party, the Surety & Fidelity Association of America (SFAA).. We also have the largest FI underwriting team in Canada. This is a significant part of our book and we are very much open for business on financial fidelity lines. Given our size and expertise in this field, we can accommodate rush placements in hours– which is the nature of many regulatory bond requests.

28 Why Chubb? Unprecedented Claims Philosophy dedicated to superior claims services Chubb’s DFI team is comprised of more than 145 professionals in 46 branches worldwide Chubb’s superior Financial and Claims Ratings: S&P- AAA Moody’s- Aa1 A.M. Best- A++ Brand recognition, Insuring asset managers for more than 30 years The good thing for us is that Financial Istitutions UNDERSTAND credit and counterparty risk

29 How Do I Contact Chubb? Product Information and Applications:
submissions or questions to: General questions and enquiries: Product Information and Applications: Step on, which you are familiar with, :

30 How Do I Submit Business?
1.Send your submission to: Specify what coverage(s) you are looking to place. 3. The submission will be reviewed and you will be asked to confirm the following DBU criteria… Submitting a Risk – the steps are simple, but if you have any questions along the way, don’t hesitate to contact us by phone or . Step 2 – specific what coverage or coverages you are looking to place. Although we do not have a cutoff date for submissions, industry standard is days prior to effective date. This ensures that there is enough time for appropriate underwriting of the account. Step 3 – the submission will be reviewed and you will be asked to confirm the following DBU criteria..

31 What Happens Next? CanChubbQuote@chubb.com
Our DBU inbox is checked throughout the day by a dedicated member of Developing Business Unit team. Within hours of receipt, the submission will undergo a pliminary review and you will be asked to confirm the Developing Business Unit criteria via . Upon confirmation from you that the risk meets the this criteria, we will reserve market for this submission. At this point we will also assign an underwriter to begin the analysis and review of this account. You will receive notice of market reservation and the name and contact information for the assigned underwriter or underwriters for this risk. At this point you can contact the assigned underwriter. As a reminder, although this risk has meet the Developing Business Unit submission criteria, our standard underwriting guidelines and appetite will still apply.

32 CHUBB INSURANCE COMPANY OF CANADA Department of Financial Institutions
QUESTIONS? CHUBB INSURANCE COMPANY OF CANADA Department of Financial Institutions Questions?


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