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

1. W CAS Annual MeetingIs It a Small World After All?Presentation by Sean WhelanNovember 2004

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?

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

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

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

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

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

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

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.