WW CAS Annual Meeting Is It a Small World After All? Presentation by Sean Whelan November 2004

W 2 Overview Focus on Professional Liability lines, but with implications for other liability lines Discuss “local” and “global” issues affecting frequency and severity Are there any “universal” truths?

W 3 Products Discussed Directors’ & officers’ liability Lawyers’ professional liability Accountants’ professional liability Architects’ and engineers’ errors & omissions Medical malpractice #1 issue for all Professional Liability lines is data availability/sources

W 4 Directors’ & Officers Liability Local issues: –European companies more and more own substantial US operations (Ahold, Daimler Chrysler, and Vivendi) –France does not accept “claims made” policies; has not been tested Global issues: –Severity seems to be limited only by the policy limits provided Well over 90% of all dollars paid are for full policy limits losses –Frequency: “Classic” frequency has been stable –Between 2.5 to 3.0 per 100 traded public companies “One off” industry events have become commonplace –Need to develop appropriate model to handle contagion risk –Venue shopping To the extent that there are US investors, this will become preferred venue Evaluation: D&O is a product that needs to be evaluated globally

W 5 Lawyers’ Professional Liability Local issues: –Distinction needs to be made between large and small practices –Coverage for smaller firms differs by country (and in the US and Canada, by state/province) Aggregate versus no aggregate limit Claims made versus occurrence Loss adjustment expense inside versus outside the policy limit –Ability to sue for costs in a frivolous law suit differs Global issues: –Underwriting criteria of a good firm hold up across borders Identify conflicts Engagement/disengagement letters Computerized docket systems, etc. –The Clifford Chances of the world are practicing in all venues –Due to their size, there is high correlation with D&O trends (12 month delay) Evaluation: LPL is a “glocal” product

W 6 Accountants’ Professional Liability Local issues: –Distinction needs to be made between large and small practices –Coverage for smaller firms differs by country (and in the US and Canada, by state/province) similar to LPL –Substantial population uninsured Global issues: –Underwriting criteria of a good firm hold up across borders similar to LPL –Frequency can be pegged to a percentage of D&O claims Follows D&O by about six months –Severity can be pegged to percentage of D&O claim severity Uncertainty of D&O severity is greatest concern APL limits have tended to create natural ceiling except in AA example –Difference between US “rules” based and European “spirit” based systems may be brought together over recent rash of financial scandals –Firms that are involved in “local” audits of global public companies are exposed to global issues Evaluation: APL is a “glocal” product

W 7 Architects’ & Engineers’ E&O Local issues: –Each state/province/country licenses A&Es Different standards apply –Many governments do not require insurance Required to work on government projects or by project owners –Substantial population uninsured –Frequency has been stale as a percentage of revenue Global issues: –Global firms developing projects across borders –Project duration has increased, increasing latency –New technology is being employed: CAD etc. –Environmental, mold and asbestos issues Technology, court, and legislation seems to be siding with profession Evaluation: A&E is a local product with universal issues

W 8 Medical Malpractice Local issues: –Each state/province/country licenses physicians Micro geography issues, e.g. Philadelphia –Insurance is generally required to practice –Coverage issues abound –Healthcare payer systems are radically different dependent on locale Substantial driver of frequency Global issues: –Risk management programs can and do work. e.g. Anesthesiologists example –Application of new medicines and new technology –Healthcare across borders Physical: Transporting patients across borders Metaphysical: Internet medicine –Evaluation: Med Mal is a local product with universal issues

W 9 “Universal” Truths A good risk is a good risk regardless of locale Global professions yield global exposures and require global analysis –Need to eliminate silos within organizations to identify issues Economic drivers of industry sectors exposing the profession also drive loss frequency (or absence of loss frequency) Emerging risks and phantom risks abound for all professions –Need to create an early warning system for emerging risks across borders to ensure timely and appropriate response.