1. Steven H. Anderson Chairman - Marsh U.S. FINPRO Settlements and Trends in Directors and Officers Litigation

2. Marsh 2 Directors & Officers Liability The current environment for Directors and Officers Liability What the Private Securities Litigation Reform Act really did The impact of the Blue Ribbon Report How financial restatements changed the D&O insurance market Where will Sarbanes-Oxley take us? Outlook for the rest of 2004

3. The current environment for Directors and Officers Liability

4. Marsh 4 Senior Judge Warren Ferguson, 9th U.S. Court of Appeals “In this era of corporate scandal, when insiders manipulate the market with the complicity of lawyers and accountants, we are cautious to raise the bar of the PSLRA any higher than that which it requires under its mandates. The district court’s failure to accept plaintiff’s allegations as true and construe them in the light most favorable to the plaintiff does just that.”

5. Marsh 5 Senator Phil Gramm commenting on Sarbanes-Oxley “Provisions in the Bill that expand the ability of people to sue may have a positive effect on making people pay attention to their business but we all know based upon our legal system that this is going to be abused.”

6. Marsh 6 Wall Street Journal - August 12, 2002 Potential jurors were asked to respond to the following statement: Corporate executives will lie to increase their profits. 2001 - 30% agreed 2002 - 67% agreed

7. Marsh 7 CFO Magazine - August 13, 2002 Survey 17% of all respondents admitted to being pressured by their CEO to misrepresent their corporate results.

8. Marsh 8 Huron Consulting Group 330 U.S. companies restated their financial results in 2002. This is a record number, up from 270 in 2001. 185 of the restatements in 2002 came in the final five months of the year, following the passage of Sarbanes-Oxley.

9. Marsh 9 California Senate Bill 766/Flores - Securities Fraud Liability The Bill provides that a person may be found liable even if that person did not engage directly in market activity. The result is that board members would not have to have bought or sold stock or made any false statements directly. They would merely have had to have reviewed a false document sent out by the company.

10. Marsh 10 CFO Magazine - September 2002 CFO’s are now named in 74% of all shareholder securities claims Bill Lerach: “Who should pay back the loans made to corporate executives? How about the directors who authorized them in the first place.”

11. Marsh 11 Fortune - December 9, 2002 The Kings of Pain Team Up – Bill Lerach and A.G. Monks, founder of Institutional Shareholder Services (ISS), are targeting companies to force out certain directors or grant shareholders more rights. Pension Fund clients of Milberg Weiss will pay a contingency fee “kicker” to the law firm if directors and officers personally pay damages.

12. Marsh 12 National Economic Research Associates Frequency of shareholder claims has increased 137% over the past seven years (since the PSLRA) Severity has increased 459% over the past seven years (more than 5x D&O premiums paid into the market in 2001) Risk of financial restatement has increased 184% over the past six years

13. Marsh 13 Korn Ferry - recent survey 47% of potential directors have turned down an outside board position for liability reasons 49% of directors said that the lack of adequate D&O insurance would be a major factor in causing them to refuse to accept or continue board service

14. What the Private Securities Litigation Reform Act really did

15. Marsh 15 Be careful what you ask for... Since the adoption of the PSLRA, the average settlement of shareholder securities class action litigation has increased from $7.0 million in 1996 to $24.3 million in 2002. In 2003, there were 15 settlements averaging over $120 million in securities cases in which a pension fund served as lead plaintiff, compared to the average settlement of $7.5 million in the other 85 cases in which a pension fund did not serve as the lead plaintiff.

16. The impact of the Blue Ribbon Report

17. Marsh 17 Addressing the concerns about earnings management “Big Bath” restructuring charges “Cookie Jar” reserves Mergers and Acquisitions accounting Materiality (SAB 99) Improper revenue recognition (SAB 101)

18. How financial restatements have changed the D&O insurance market

19. Marsh 19 The battleground over coverage Rescission Severability (application and exclusions) Personal conduct exclusions (especially the dishonesty/fraud exclusion) What is a “loss” that is insurable? Addressing “tension” between the independent directors and those of the corporation

20. Where will Sarbanes-Oxley take us?

21. Marsh 21 It’s getting tougher to be a Director or Officer The number of SEC enforcement actions increased from 484 in 2001 to 598 in 2002 to 679 in fiscal year 2003. 199 of those filed in 2003 involved financial fraud or reporting violations. The number of Director and Officer bars sought by the SEC increased from 51 in 2001 to 126 in 2002 to 170 in 2003. Following Sarbanes-Oxley, the standard dropped from “substantial unfitness” to mere “unfitness”.

22. Marsh 22 It’s getting tougher to be a Director or Officer The SEC is taking a harder line on settlements in accounting fraud and in Reg FD cases. The SEC is suggesting that sanctions be imposed against companies that advance defense costs or indemnify Directors and Officers in some cases. Many attorneys expect that the certification rules and attestations as to internal controls and compliance will lead to more derivative claims against Directors and Officers.

23. Outlook for the rest of 2004

24. Marsh 24 Observations about the trends we are seeing Sarbanes-Oxley won’t help a lot in the short term The courts will have a lot more to say about executive behavior and D&O insurance Settlements of securities class actions will become increasingly fragmented, as pension funds and other institutional holders opt-out of class actions and file individual securities actions

25. Marsh 25 Observations about the trends we are seeing If you have a specific problem that can negatively impact your D&O renewal, find the person who is best positioned to address the issue and make that person available to your underwriters If possible, bring the CEO or CFO to the D&O renewal meetings with underwriters Companies that know their strengths and convince D&O underwriters that they execute effective corporate governance will get better deals than their peers

26. Marsh 26 Observations about what we are seeing You are going to read about some very large and complicated settlements More companies will disclose the results of D&O and Fiduciary Liability renewals Shareholders and companies will take an increasing interest in D&O insurance as a means of enhancing shareholder value and holding management accountable

27. Marsh 27 Observations about what we are seeing It’s getting better Premiums on the excess layers are already improving This will drive more primary competition Underwriters will become more flexible on key coverage terms