The Private Paradox- Is Private D&O a “No-Brainer” ?

1. The Private Paradox-Is Private D&O a “No-Brainer” ? Lisa M. McGee- Moderator Chubb & Son David J. Hensler Hogan & Hartson LLP Brian Inselberg AIG - National Union Paul B. Nowak Alexander, Morford & Woo, Inc Eric Ross Specialty Lines, Beazley Group plc Robert Schueler Travelers Peter M.Trunfio Aon Risk Services, Inc.

2. The Private Paradox Agenda: Private landscape overview Claim and litigation trends Addressing claim trends in the underwriting process Buying trends Questions

3. Private Landscape Overview • Define D&O • Define Private Company • Define the Market • Define the Product • Define the Evolution

4. Claim and Litigation Trends • Private companies involving a majority or controlling shareholder and minority shareholders present serious risks of D&O exposure especially where there is • a buyout of minority shareholders by majority shareholder (e.g., Level3case) • a “freeze out” merger affecting minority shareholders (e.g., FTDcase) • a sale of company assets to entities controlled by majority shareholder (e.g., XO Communications litigation)

5. Claim and Litigation Trends Private company bankruptcies or insolvencies also present a high risk of D&O claims – special problems • multiple potential claimants – litigation trustees and creditors as well as shareholders • limited company assets shift focus to potential claims against D&Os • D&Os generally have no corporate indemnification because of the bankruptcy or insolvency

6. Claim and Litigation Trends • Family-owned businesses also present serious D&O litigation risks especially where • certain family–member shareholders are involved in running the business and others are not • certain family members become disaffected for either business or non-business reasons

7. Claim and Litigation Trends • Other common claims against private company D&Os include: • theft of intellectual property or trade secrets • tortious interference with contract • employee pirating • “going public” claims • antitrust claims

8. Coverage Requests • Multi product policies • Duty to defend vs optional • Side A requests • Severability • Panel counsel • Worldwide coverage • Third party coverage • Hammer clause/ settlement clause • Private security coverage • Risk management services

9. Addressing Claims in the Underwriting Process: • Bankruptcy • M&A • Family • Private Equity

10. Who Buys Private Company D&O? • Traditional Buyers • Emerging growth / start-up companies • Large private companies • Companies with outside board members • Companies with a claims history • New Buyers • Family owned companies with outside management teams • Employment practices liability buyers • Others

11. Typical Non-Buyers • Companies that are unaware of: • Exposures • Quality of the product • Value the coverage offers • Flexibility of the process

12. Why are Some Non-Buyers Changing Their Minds? • Successful Product • Broader Coverage • Package Policies • Carriers • Process • Efficient On-line Response • Customized Limit Alternatives • Pricing • Agents and brokers

13. What Can We Do Going Forward? • Understand the underwriting appetites • Continue to refine the process • Educate the client on the value of duty to defend

14. Questions?