Directors and Officers Liability Survey			 2011 Summary of Results
Directors and Officers Liability Survey2011 Summary of ResultsTable of ContentsIntroduction	                              ...
Introduction		                     Welcome to the 2011 Directors and Officers (D&O) Liability Survey, the 33rd in a series...
2011 Survey Highlights•• 25% of public companies and 14% of private/            •• Twice as many respondents (20%) conside...
Figure 1. Participation by business class0%                   5%                   10%        15%        20%              ...
Excluding charities and nonprofits, the largest group      Figure 3. Participation by sizeof respondents — representing ro...
Figure 6. Number of participants by size*                                                            In reviewing the numb...
Once again, the larger the company, the more likely            coverage. This represents a 12% increase over 2010it was to...
Policy Limits                      Survey respondents represented a broad range                   When focusing solely on ...
When turning our attention to public company             $9.9 billion asset range (Figure 14). Again, the toprespondents, ...
Once again, a significant portion of all public                insurance program increased in 2011 over 2010              ...
Public companies were slightly more likely to change               private/nonprofit. However, more private/nonprofitsthei...
Primary D&O Insurance                      Consistent with last year, the majority of participants           Nonprofit (32...
“Private companies and “                                                            Figure 22. Primary limit shared or ble...
When asked about the most important aspects of                      suggested that the scope of coverage available to     ...
Excess D&O InsuranceOver three-quarters of respondents (77%) indicated                               Figure 27. Most impor...
Figure 28. Excess Side A coverageDid your organization purchase an excessSide A or Side A DIC policy?                     ...
Figure 31. Excess Side A coverage by market capitalizationPublic organizations only                                       ...
Claims                      Nearly two-thirds of survey participants indicated                 As you might expect, larger...
The lion’s share of claims continues to comefrom shareholders (both direct, with 45% ofrespondents reporting these, and de...
The survey also found that nearly two-thirds (65%)                        Direct shareholder/investor suits once again    ...
Appendix ALiability Survey		Insurance Market Summary					Company              Contact                                  Cap...
Company                  Contact                                Capacity   (in millions)   Comments CODA (Corporate Office...
Company                         Contact                         Capacity   (in millions)      CommentsAlterra USA         ...
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends
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Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends

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The 2011 Directors and Officers (D&O) Liability Survey tracks D&O coverage purchasing patterns. This 33rd in a series of studies conducted by Towers Watson provides organizations with critical structure and cost information for D&O insurance programs.

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Towers Watson Directors and Officers Liability: 2011 Survey of Insurance Purchasing Trends

  1. 1. Directors and Officers Liability Survey 2011 Summary of Results
  2. 2. Directors and Officers Liability Survey2011 Summary of ResultsTable of ContentsIntroduction 2 Excess D&O Insurance 15 Figure 26: Excess limits 152011 Survey Highlights 3 Figure 27: Most important aspects of excess insurer versus primary D&O insurer 15Participant Profile 4 Figure 1: Participation by business class 4 Side A Only 16 Figure 2: Participation by ownership 4 Figure 28: Excess Side A coverage 16 Figure 3: Participation by size — Total revenues 5 Figure 29: Impetus for purchase of excess Side A policy 16 Figure 4: Participation by size — Total assets 5 Figure 30: Excess Side A coverage by asset size — Private organizations only 16 Figure 5: Participation by size — Market capitalization 5 Figure 31: Excess Side A coverage by market Figure 6: Number of participants by size 6 capitalization — Public organizations only 17 Figure 7: International operations by ownership 6 Figure 32: Amount of excess Side A limits purchased Figure 8: International local policy purchases 6 by asset size 17 Figure 9: Purchase of local policies by asset size 7 Figure 33: Amount of excess Side A limits purchased by asset size — Private organizations only 17 Figure 10: D&O inquiries 7 Figure 34: Amount of Side A limits purchased by market Figure 11: Prevalence of independent policy review 7 capitalization — Public organizations only 17Policy Limits 8 Claims 18 Figure 12: Total limits by asset size 8 Figure 35: D&O claims during the last 10 years 18 Figure 13: Total limits by asset size — Figure 36: D&O claims in the last 10 years by ownership 18 Private organizations only 8 Figure 37: D&O claims in the last 10 years by asset size 18 Figure 14: Total limits by asset size — Public organizations only 9 Figure 38: Types of claims in the last 10 years 19 Figure 15: Total limits by market capitalization — Figure 39: Types of claims in the last 10 years by Public organizations only 9 ownership 19 Figure 16: Total limits by business class 10 Figure 40: Satisfaction with handling of D&O claim 20 Figure 17: Change in total limits of liability in Figure 41: Top D&O liability concerns 20 D&O insurance program 10 Appendices 21 Figure 18: Change in limits of liability for primary D&O policy 11 Appendix A: D&O Libility Survey — Insurance Market Summary 21 Figure 19: Change in premium paid for primary D&O policy 11 Appendix B: Insurance Placement, Reinsurance Intermediary Services and Insurance Program Reviews 36Primary D&O Insurance 12 Figure 20: Primary D&O insurance program structure 12 Figure 21: Primary D&O insurance program structure by ownership 12 Figure 22: Primary limit shared or blended with other coverages 13 Figure 23: Independent director liability 13 Figure 24: Number of endorsements on primary D&O insurance policy 13 Figure 25: Most important aspects of D&O insurance coverage 14 Directors and Officers Liability Survey: 2011 Summary of Results 1
  3. 3. Introduction Welcome to the 2011 Directors and Officers (D&O) Liability Survey, the 33rd in a series of studies conducted by Towers Watson. The 2011 survey was conducted online from October 18 through November 28, 2011. A total of 401 organizations that purchase D&O liability insurance participated in the survey. Consistent with last year, the respondents in this survey were insurance buyers. In an effort to provide more meaningful data, we broke several of our responses into two respondent categories, public and private/nonprofit. Where appropriate, and when we felt the information conveyed a material change, we also included comparisons to the 2010 survey. From traditional securities class action litigation, M&A-related activity, derivative actions, or threats from a wide range of regulatory or law enforcement agencies, directors and officers — and the companies they represent — are under scrutiny from a wide array of potential claimants. Moreover, the costs to defend these lawsuits continue to escalate. It is against this backdrop that we continue to focus our survey on the purchasing patterns surrounding D&O coverage. Our survey did not capture information about other lines of coverage (e.g., employment practices liability and fiduciary liability). Similar to previous years, we have also provided a directory of insurers that write D&O coverage. Sincere thanks once again to those who participated in this year’s survey, as well as to Dan Bailey of Bailey Cavalieri, and Kevin LaCroix of OakBridge Insurance Services for their continued contributions to this survey. It is because of your support and participation that we are able to offer this unique report on D&O liability insurance. We hope you enjoy reading our report as much as we have enjoyed putting it together. Lawrence A. Racioppo Executive Liability, Towers Watson larry.racioppo@towerswatson.com2 towerswatson.com
  4. 4. 2011 Survey Highlights•• 25% of public companies and 14% of private/ •• Twice as many respondents (20%) consider nonprofit respondents indicated that they pricing the most important factor when selecting increased the total limits of liability in their D&O an excess insurer, compared with 10% of program at renewal. respondents that consider pricing the most important factor when choosing a primary insurer.•• Regulatory claims once again topped the list of top three D&O liability concerns, with an 81% •• Nearly 20% of respondents that reported having response rate, edging out 2010’s 78% response. a D&O claim were dissatisfied with the insurers’ handling of their claims.•• The number of directors and officers who inquired about the amount and scope of coverage •• Less than half (47%) of respondents conducted increased significantly in 2011. Over two-thirds an independent review of their D&O policies in (69%) made an inquiry in 2011, compared with the past two years. 57% in 2010. •• All dollar amounts reported are in U.S. dollars.•• 18% of private organizations reported an increase in their primary D&O policy premium, though the increase is partly attributable to the fact that 11% reported a limit increase.•• The scope of coverage for directors was considered the most important aspect of an organization’s D&O program, yet very few firms actually purchased insurance dedicated to independent/outside directors. Directors and Officers Liability Survey: 2011 Summary of Results 3
  5. 5. Figure 1. Participation by business class0% 5% 10% 15% 20% Participant ProfileAerospace and Defense The 401 respondents in our 2011 survey represent 2 all major industries and service sectors. TheAutomobiles and Transport Equipment top three business classes represent 43% of all 1 participants. The financial services — insuranceCharities and Nonprofits sector had the largest showing, with an 18% 3 participation rate, followed closely behind byCommunications manufacturing, with a 14% showing. Rounding 4 out the top three were respondents in the energyEnergy and Utilities and utilities business sector (11%). The next tier 11 of respondents had an 8% share, with a 3% rateFinancial Services, excluding Insurance shared by five sectors (Figure 1). 8Financial Services — Insurance Public companies garnered the largest share of 18 respondents (56%) when broken out by ownership,Food Beverage compared with 22% for private companies, and 16% 3 for charities and nonprofits (Figure 2).Government and Education 6 Figure 2. Participation by ownershipHealth Care, excluding Pharmaceuticals 8 6%Health Care — Pharmaceuticals 1 16% 56% PublicHigh Technology 22% Private 3 16% CharitiesManufacturing 56% and nonprofits 14 22% 6% OtherNatural Resources 4Professional and Business Services 3Property and Construction 1Retail and Wholesale 5Transportation 3Other 24 towerswatson.com
  6. 6. Excluding charities and nonprofits, the largest group Figure 3. Participation by sizeof respondents — representing roughly a third of all Total revenuesparticipants, whether measured by total revenues, 0% 10% 20% 30% 40%total assets or market capitalization — was onceagain in the $1 billion – $4.9 billion range (Figures 3, $10 billion or more4 and 5). 19 $5 billion to $9.9 billionThis group of companies had an average size of 16$4.25 billion in revenues, with 19% posting revenue $1 billion to $4.9 billionof $10 billion or more and 14% reporting total 34revenue of less than $250 million (Figure 3). $500 million to $999 millionWhen measured by total assets, respondents 9averaged $5.07 billion, with a full 30% claiming $250 million to $499 million$10 billion or more and 10% reporting less than 8$250 million (Figure 4). Less than $250 million 14Total market capitalization averaged $5.3 billion,with 30% reporting $10 billion or more and a smaller Average: $4,254 million n=325 (excluding charities and nonprofits)5% reporting less than $250 million (Figure 5). Figure 4. Participation by size Total assets 0% 10% 20% 30% 40% $10 billion or more 30 $5 billion to $9.9 billion 13 $1 billion to $4.9 billion 33 $500 million to $999 million 8 $250 million to $499 million 6 Less than $250 million 10 Average: $5,070 million n=314 (excluding charities and nonprofits) Figure 5. Participation by size Market capitalization* 0% 10% 20% 30% 40% $10 billion or more 30 $5 billion to $9.9 billion 14 $1 billion to $4.9 billion 37 $500 million to $999 million 9 $250 million to $499 million 5 Less than $250 million 5 Average: $5,311 million n=197 *Public organizations only Directors and Officers Liability Survey: 2011 Summary of Results 5
  7. 7. Figure 6. Number of participants by size* In reviewing the number of participants, the $1 billion — $4.9 billion group was by far the largest,0 50 100 150 with a total of 104 when measured by total assetsLess than $250 million and 110 from a revenue standpoint. This group was 30 followed by respondents with $10 billion or more, 46 represented by 95 participants when measured by$250 million to $499 million assets and 63 by revenue. The smallest grouping 20 was in the $250 million — $499 million range, with 26 20 participants in this asset range and 26 within$500 million to $999 million this revenue bandwidth (Figure 6). 25 Excluding charities and nonprofits, 56% of 29 participants indicated they have international$1 billion to $4.9 billion operations. Over two-thirds (68%) of our public 104 company respondents reported having international 110 operations. Charities and nonprofits, conversely,$5billion to $9.9 billion were far less likely to have international units, 40 with 83% without an international presence. When 51 all participants including charities and nonprofits$10 billion or more are considered, there is a reverse shift, with just 95 over half (51%) responding that they do not have 63 international operations (Figure 7). Assets Revenue Public companies indicated they are much more*Excluding charities and nonprofits likely to purchase a local policy in a foreign jurisdiction. Of the 68% of public companies with international operations, 39% responded thatFigure 7. International operations by ownership they purchase local policies. Only 17% of private Yes No companies that have international units purchase such local policies (Figure 8). Nonprofit 17% 83% Private 38% 62% Public 68% 32% All groups, excluding charities and nonprofits 56% 44% All groups (total respondents) 49% 51%Figure 8. International local policy purchasesDoes your organization have international operations? Do you purchase localpolicies in foreign jurisdictions? Private Public 17% 32% Yes, and 39% purchase 62% local policies 21% Yes, but do not purchase local policies No international 29% operations6 towerswatson.com
  8. 8. Once again, the larger the company, the more likely coverage. This represents a 12% increase over 2010it was to purchase local policies. Fifty-three percent (57%), and in our view is a reflection of the level ofof all respondents purchased local policies driven concern directors and officers have in ensuring theirby companies with an asset size of $10 billion or personal assets are protected (Figure 10).more (63%), and $5 billion to $9.9 billion (59%) In spite of a heightened interest in coverage, the(Figure 9). These results continue to demonstrate the majority of companies participating in the surveystrides organizations have made in understanding (53%) have not conducted an independent reviewthe complexities and exposures when conducting of their policies in the past two years. Of thosebusiness outside of the United States. Moreover, participants that conducted a review, 45% completedthey also signify the importance of all insurers being the process through a law firm and 36% through aable to offer a product to address such exposures. broker (Figure 11).Interestingly, more respondents reported receivingan inquiry about their level of D&O coverage. Duringthe past 12 months, 69% of respondents’ directorsor officers asked about the amount and scope ofFigure 9. Purchase of local policies by asset size Yes No Less than $250 million 0% 100% $250 million to $999 million 35% 65% $1 billion to $4.9 billion 55% 45% $5 billion to $9.9 billion 59% 41% $10 billion or more 63% 37% All size groups, excluding charities and nonprofits 54% 46% All groups (total respondents) 53% 47%Figure 10. D&O inquiries Figure 11. Prevalence of independent policy reviewDuring the past 12 months, has a director or officer of your In the past two years, have you conducted an independentcompany inquired as to the amount and scope of coverage? review of your D&O liability policy? 2011 21% Yes, through a law firm 21% 17% Yes, through 31% another broker 8% Yes, through a 53% consultant 69% 17% 1% Yes, through another third party 8% 53% No Yes 1% No 2010 43% 57% Directors and Officers Liability Survey: 2011 Summary of Results 7
  9. 9. Policy Limits Survey respondents represented a broad range When focusing solely on our private company of public, private and nonprofit organizations. The respondents, the average dropped substantially, average in total policy limits for respondents, excluding to $36.3 million. Again, the average was bolstered charities and nonprofits, was $98 million. When considerably by larger private company respondents. all participants were considered, the average limit Those with $10 billion or more averaged $135 million dropped to $86.9 million. Companies with $10 billion in total policy limits, and those in the $5 billion – $9.9 or more in assets reported average limits of $187.5 billion category reported $63.3 million (Figure 13). million, and those with assets of between $5 billion and $9.9 billion reported an average of $115.1 million in total limits (Figure 12). “Survey respondents represented a broad range of public, private “ and nonprofit organizations.” Figure 12. Total limits by asset size Participants First Third reporting quartile Median quartile Average Less than $250 million 30 $ 5.0 $ 10.0 $ 15.0 $ 11.9 $250 million to $999 million 45 10.0 25.0 50.0 32.8 $1 billion to $4.9 billion 104 28.2 55.0 100.0 64.8 $5 billion to $9.9 billion 40 75.0 120.0 150.0 115.1 $10 billion or more 95 100.0 175.0 255.0 187.5 All size groups, excluding charities and nonprofits 333 250.0 65.0 150.0 98.0 All groups (total respondents) 399 $ 20.0 $ 50.0 $125.0 $ 86.9 Figure 13. Total limits by asset size Private organizations only Participants First Third reporting quartile Median quartile Average Less than $250 million 18 $ 2.8 $ 5.5 $ 11.3 $ 8.3 $250 million to $999 million 22 10.0 10.0 20.0 16.2 $1 billion to $4.9 billion 27 20.0 30.0 50.0 35.9 $5 billion to $9.9 billion 3 55.0 60.0 75.0 63.3 $10 billion or more 10 40.0 102.5 163.8 135.0 All size groups (private organizations only) 88 $10.0 $ 20.0 $ 45.0 $ 36.38 towerswatson.com
  10. 10. When turning our attention to public company $9.9 billion asset range (Figure 14). Again, the toprespondents, the average total policy limit was two respondent ranges, $5 billion – $9.9 billion, and$126.8 million, roughly four times the average for $10 billion and more, had the highest total limits,private companies. The average for companies with with respective averages of $137.5 million and$10 billion or more in asset size was $203 million, $227.4 million (Figure 15).and $123.7 million for those in the $5 billion –Figure 14. Total limits by asset sizePublic organizations only Participants First Third reporting quartile Median quartile Average Less than $250 million 10 $ 8.8 $ 12.5 $ 22.5 $ 16.7 $250 million to $999 million 20 41.3 50.0 70.0 55.0 $1 billion to $4.9 billion 69 45.0 75.0 110.0 80.6 $5 billion to $9.9 billion 35 100.0 125.0 150.0 123.7 $10 billion or more 79 110.0 200.0 300.0 203.0 All size groups 222 $ 50.0 $100.0 $175.0 $126.8 (public organizations only)Figure 15. Total limits by market capitalizationPublic organizations only Participants First Third reporting quartile Median quartile Average Less than $250 million 10 $ 8.8 $ 15.0 $ 35.0 $ 25.7 $250 million to $499 million 9 27.5 40.0 65.0 47.8 $500 million to $999 million 17 45.0 60.0 72.5 65.5 $1 billion to $4.9 billion 73 60.0 100.0 122.5 96.3 $5 billion to $9.9 billion 28 101.3 127.5 190.0 137.5 $10 billion or more 60 160.0 200.0 300.0 227.4 All size groups 222 $ 50.0 $100.0 $175.0 $126.8 (public organizations only) Directors and Officers Liability Survey: 2011 Summary of Results 9
  11. 11. Once again, a significant portion of all public insurance program increased in 2011 over 2010 and private companies participating in the (Figure 17). Last year we reported as a “combined” survey reported increasing the total limits of figure, which showed 21% had increased their D&O liability in their D&O program. A quarter of public limits. The wide range of exposures facing directors companies indicated that they increased their D&O and officers continues to play a major role in the insurance coverage, while 14% of private/nonprofit purchasing decision. organizations indicated that the limits in their D&O Figure 16. Total limits by business class Participants First Third reporting quartile Median quartile Average Aerospace and Defense 8 $10.0 $ 50.0 $220.0 $101.3 Automobiles and Transport Equipment 4 77.5 140.0 412.5 210.0 Charities and Nonprofits 13 7.5 10.0 40.0 22.6 Communications 15 72.3 150.0 200.0 145.5 Energy and Utilities 46 93.8 140.0 200.0 148.4 Financial Services, excluding Insurance 32 20.0 29.0 90.0 80.8 Financial Services — Insurance 70 10.0 25.0 71.3 62.6 Food and Beverage 10 48.8 92.5 131.3 93.0 Government and Education 23 5.0 15.0 30.0 24.3 Health Care, excluding Pharmaceuticals 32 11.3 30.0 75.0 46.5 Health Care — Pharmaceuticals 6 43.8 97.5 212.5 118.3 High Technology 12 68.8 137.5 225.0 159.6 Manufacturing 56 41.3 75.0 136.3 87.7 Natural Resources 15 20.0 60.0 120.0 105.0 Professional and Business Services 10 10.0 17.5 42.5 31.5 Retail and Wholesale 20 30.0 60.0 123.8 87.8 Transportation 13 35.0 70.0 117.5 93.8 Other 14 18.8 67.5 125.0 97.0 All business classes (total respondents) 399 $20.0 $ 50.0 $125.0 $ 86.9 Figure 17. Change in total limits of liability in D&O insurance program Compared to your previous D&O insurance program, have the total limits of liability in your D&O insurance program increased, decreased or stayed the same? Private/Nonprofit Public 3% 1% 1% 14% 5% 25% Increased Stayed the same Decreased Not sure 82% 69%10 towerswatson.com
  12. 12. Public companies were slightly more likely to change private/nonprofit. However, more private/nonprofitstheir primary D&O policy limits. For instance, 13% experienced a slightly greater increase in premiumsof public companies increased coverage, compared (18%) compared with public companies (14%). Thewith 11% for private/nonprofits. A decrease was 18% figure is particularly noteworthy when viewed inposted by 3% of public companies and 1% of conjunction with Figure 18. Only 11% (of the 18%)private/nonprofits (Figure 18). can be attributable to a primary limit increase, which is interesting, as it signals a potential hardening inThe majority of both public and private respondents the private/nonprofit segment with insurers lookingreported a change in premium paid for their primary to drive rates (Figure 19).D&O policy, though more were able to achievea pricing decline — 62% for public and 35% forFigure 18. Change in limits for primary D&O policyCompared to your previous primary D&O policy, has your D&O limitincreased, decreased or stayed the same? Private/Nonprofit Public 1% 3% 1% 11% 13% Increased Stayed the same Decreased Not sure 88% 83%Figure 19. Change in premium paid for primary D&O policyCompared to your previous D&O policy, did the premium paid for yourprimary insurance policy increase, decrease or stay the same? Private/Nonprofit Public 1% 1% 14% 18% 35% Increased Stayed the same 23% Decreased 62% Not sure 46% Directors and Officers Liability Survey: 2011 Summary of Results 11
  13. 13. Primary D&O Insurance Consistent with last year, the majority of participants Nonprofit (32%) and private (19%) organizations in the 2011 survey (60%) reported a primary were also far more likely to respond that they program structure inclusive of traditional Side were not sure how their primary D&O program was A/B/C coverage. Twenty percent of organizations structured, compared with their public company conveyed a Side A/B structure. Once again, only 6% counterparts (5%). While this represents a slight of respondents reported maintaining a Side A-only improvement over the 2010 figures, insurance structure (Figure 20). brokers and management liability consultants need to continue educating the private and nonprofit buyer about their D&O coverage (Figure 21). Figure 20. Primary D&O insurance program structure How is your primary D&O insurance program structured? 1% 13% 6% 20% 6% Side A only 20% Side A/B only 60% Side A/B/C 1% Other 13% Not sure 60% Figure 21. Primary D&O insurance program structure by ownership P articipants Side A/B Side A reporting S ide A/B/C only only Other Not sure Nonprofit 66 44% 17% 6% 1% 32% Private 88 49% 26% 5% 1% 19% Public 223 70% 18% 7% 0% 5% All groups (total respondents) 401 60% 20% 6% 1% 13%12 towerswatson.com
  14. 14. “Private companies and “ Figure 22. Primary limit shared or blended with other coverages Is your primary D&O limit shared or blended with other coverages (e.g., EPL, fiduciary)? nonprofits are more likely to share or blend ancillary expo- Private/Nonprofit 1% Public 2% sures than public companies.” 14% Yes 44% Private companies and nonprofits are more likely No to share or blend ancillary exposures than public Not sure 55% companies. A notable 44% of private companies and nonprofits share or blend their D&O program 84% with other coverages, such as employment practices liability (EPL) or fiduciary liability policies. Far fewer public companies (14%) reported using such a strategy (Figure 22). Figure 23. Independent directorship liability (IDL) While the vast majority of survey participants do Does your organization purchase D&O liability insurance not purchase D&O liability insurance that covers that covers only independent/outside (excluding inside) directors? only independent/outside directors, public Private/Nonprofit Public companies are more likely to buy such coverage, 1% 1% or to at least consider the option. Seven percent 7% of public companies purchased insurance for 10% independent directors, compared with 1% of Yes private/nonprofits. Another 10% are considering No but considering this additional coverage (Figure 23). No and not considering Brokers and risk professionals continually work towards creating comprehensive D&O programs 83% 98% that provide best in class coverage. As such, it is not uncommon to have multiple enhancement endorsements added to a policy. Careful consideration should be given when drafting Figure 24. Number of endorsements on primary D&O insurance policy such language. At times, multiple “enhancement How many endorsements are on your primary D&O insurance policy? endorsements” may be added to a policy that modifies the same policy provision(s). Conflicting Private/Nonprofit Public language within the endorsements may present issues in the event of a claim. This phenomenon prompted Towers Watson to ask respondents about 19% 14% 4% the number of endorsements on their primary D&O 29% 2% 38% Less than 10 policy. Generally speaking, it is certainly reasonable 7% Between 10 and 20 for a primary D&O policy for a public company to 6% Between 21 and 30 contain more endorsements than that of a private/ 10% 13% Between 31 and 40 nonprofit organization. Regardless of the number More than 40 of endorsements on a given policy, all policies and 25% 33% Not sure endorsements should be carefully reviewed to avoid any conflicting language that could add needless complexity when faced with a claim (Figure 24). Directors and Officers Liability Survey: 2011 Summary of Results 13
  15. 15. When asked about the most important aspects of suggested that the scope of coverage available to D&O coverage, respondents from public and private/ directors was their primary focus, very few actually nonprofit companies were in agreement — with the purchased insurance dedicated to independent/ scope of coverage for directors leading the way outside directors, as reported in Figure 23. As a with 75% and 50%, suggesting this was the most practical matter, the D&O purchasing decision is important aspect of their companies’ D&O coverage. oftentimes made within the risk management or These figures far outweighed those that reported similar function inside an organization. As a result, protecting the needs of corporate officers (7% and all constituents (directors, officers and the 6%, respectively) or protecting the organization organization itself) are often considered when (12% and 29%, respectively) as most important constructing a D&O program (Figure 25). (Figure 25). What is most interesting about the figures above is that although the vast majority of respondents Figure 25. Most important aspects of D&O insurance coverage Ranking for aspects of D&O insurance coverage on a scale of 1 to 4, where 1 is most important and 4 is least important (top three rankings) Private/Nonprofit 45 0% 20% 40% 60% 80% 100% Scope of coverage for directors 25 50 32 12 94 Scope of coverage for officers 23 6 50 36 92 Scope of coverage for the company 29 10 39 78 Competitive pricing 15 7 14 36 18 Public 16 45 0% 20% 40% 60% 80% 100% Scope of coverage for directors 75 17 6 98 Scope of coverage for officers 7 72 16 95 Scope of coverage for the company 12 8 48 68 Competitive pricing 5 4 30 39 18 Ranked first Ranked second Ranked third 5 49 45 6 25 47 9 23 50 7 8 27 3914 towerswatson.com
  16. 16. Excess D&O InsuranceOver three-quarters of respondents (77%) indicated Figure 27. Most important aspects of excess insurer versus primary D&O insurerthat, in addition to primary D&O coverage, excess Rank the following aspects of your excess insurer on a scale of 1 to 6, where 1 is most important and 6 is least important (top three rankings).limits are purchased through at least one additionalinsurer (Figure 26). Primary D&O insurerThe most important aspects of D&O insurers were 0% 20% 40% 60% 80% 100%ranked in the same order by both primary andexcess purchasers, with financial strength, breadth Financial strengthof coverage offered and pricing rounding out the top 36 22 19 77three. However, the degree of importance for each Breadth of coverage offereddiffered somewhat. For instance, while an insurer’s 34 25 18 77financial strength ranked as the most important Competitive pricingcomponent for both primary and excess insurers, 10 18 26 54breadth of coverage offered by a primary insurer Claims paying reputationranked as most important for 34% of respondents, 22 52 11 18with pricing the most important factor only 10% of Knowledge/understanding of your businessthe time. However, when considering their excess 9 12 13 34insurer, the importance of pricing doubled, with Volume of D&O premium written20% of respondents reporting that price was of 4 2 6greatest importance. The fact that organizationsare more inclined to select an excess insurer onpricing foremost is noteworthy. Selecting excess Excess insurerinsurers based on pricing can be dangerous. In fact, 0% 20% 40% 60% 80% 100%we have seen many examples over the past fewyears whereby poorly constructed excess programs Financial strengthhave made excess D&O coverage inaccessible to 39 26 17 82companies. Pricing, while important, should be Breadth of coverage offeredconsidered only after a careful review of the breadth 25 24 20 69of coverage offered (Figure 27). Competitive pricing 16 20 22 25 67 Claims paying reputationFigure 26. Excess limitsIn addition to your primary D&O limit, are excess 12 18 23 53limits purchased through at least one additional insurer? Knowledge/understanding of your business 3 9 11 23 Volume of D&O premium written 23% 11 4 6 77% Yes Ranked first Ranked second Ranked third 23% No ycilop ssecxe na gnisahcrup esohT :esab rerusni ssec=E 903 x n 77% Directors and Officers Liability Survey: 2011 Summary of Results 15
  17. 17. Figure 28. Excess Side A coverageDid your organization purchase an excessSide A or Side A DIC policy? Side A Only Fifty-seven percent of respondents purchased an 10% excess Side A or Side A difference-in-conditions (DIC) policy (Figure 28). When asked what was the 57% Yes main impetus driving the purchase decision, 71% 33% No cited breadth of coverage, a significant increase 33% 57% 10% Not sure over the 45% response in 2010. Such a meaningful increase demonstrates that organizations understand the myriad benefits a comprehensive Side A program offers. Protection against bankruptcy, both for the underlying insurer and for the respondent’s organization, also experienced a sizable increase in responses, with 15% and 12% increases,Figure 29. Impetus for purchase of excess Side A policy respectively (Figure 29).What was the main impetus for the purchase of the excess Side A policy?0% 10% 20% 30% 40% 50% 60% 70% 80% As you might expect, the larger the organization, the more likely it is to purchase Side A coverage.Breadth of coverage For private organizations specifically, the majority 71 of firms with total assets in excess of $1 billion 45 purchased excess Side A coverage. Conversely, overConcern about large loss three-quarters of smaller firms with under $250 47 million in assets reported not doing so (Figure 30). 45 From a market capitalization standpoint, over three-Protection against bankruptcy of underlying insurer quarters of public company respondents (78%) 42 purchased excess Side A coverage, and purchase 27 of this coverage was well represented irrespectiveProtection against bankruptcy of your organization of size (Figure 31). 40 28 For all respondents, the average amount of excess Side A limits purchased was $46.1 million. TheBoard member required it largest average of $92.5 million was represented 24 29 by companies with $10 billion or more in assets (Figure 32). The average limit for all privatePremium savings organizations was more modest at $19.8 million 10 (Figure 33). When measured by market capitalization, 9 the average for 174 public companies was $54.6Other million, with larger companies (in the $10 billion-plus 6 range) posting an average of $114.6 million 8 in excess Side A limits purchased (Figure 34). 2011 2010 18Figure 30. Excess Side A coverage by asset size 15Private organizations only 8 Participants reporting Yes No Not sure 15 Less10 $250 million than 18 5% 78% 17% $250 million to $999 million 22 27% 50% 23% $1 billion to $4.9 billion 27 52% 48% 0% 15 $5 billion to $9.9 billion 13 3 67% 33% 0% $10 billion or more 10 60% 30% 10% All size groups 10 88 34% 55% 11% (private organizations only) 516 towerswatson.com 10 8
  18. 18. Figure 31. Excess Side A coverage by market capitalizationPublic organizations only Participants reporting Yes No Not sure Less than $250 million 10 50% 30% 20% $250 million to $499 million 9 78% 11% 11% $500 million to $999 million 17 82% 18% 0% $1 billion to $4.9 billion 73 82% 17% 1% $5 billion to $9.9 billion 28 93% 7% 0% $10 billion or more 60 78% 20% 2% All size groups (public organizations only) 223 78% 18% 4%Figure 32. Amount of excess Side A limits purchased by asset size Participants First Third reporting quartile Median quartile Average Less than $250 million 6 $ 8.8 $10.0 $ 16.3 $11.7 $250 million to $999 million 24 10.0 12.5 23.8 16.5 $1 billion to $4.9 billion 70 10.0 15.0 25.0 22.4 $5 billion to $9.9 billion 31 25.0 30.0 50.0 37.1 $10 billion or more 74 30.0 70.0 101.3 92.5 All size groups, excluding 215 10.0 25.0 50.0 48.2 charities and nonprofits All groups (total respondents) 231 $10.0 $25.0 $ 50.0 $46.1Figure 33. Amount of excess Side A limits purchased by asset sizePrivate organizations only Participants First Third reporting quartile Median quartile Average Less than $250 million 1 $20.0 $20.0 $20.0 $20.0 $250 million to $999 million 6 4.5 7.5 11.3 8.0 $1 billion to $4.9 billion 14 5.0 10.0 20.0 12.5 $5 billion to $9.9 billion 2 10.0 30.0 50.0 30.0 $10 billion or more 6 22.5 37.5 62.5 44.2 All size groups 30 $ 5.0 $15.0 $25.0 $19.8 (private organizations only)Figure 34. Amount of Side A limits purchased by market capitalizationPublic organizations only Participants First Third reporting quartile Median quartile AverageLess than $250 million 5 $ 7.5 $10.0 $ 20.0 $ 13.0$250 million to $499 million 7 10.0 15.0 20.0 16.4$500 million to $999 million 14 10.0 20.0 30.0 21.4$1 billion to $4.9 billion 60 10.0 25.0 38.8 29.6$5 billion to $9.9 billion 26 23.8 35.0 70.0 53.8$10 billion or more 47 50.0 75.0 133.1 114.6All size groups 174 $15.0 $30.0 $ 65.0 $ 54.6(public organizations only) Directors and Officers Liability Survey: 2011 Summary of Results 17
  19. 19. Claims Nearly two-thirds of survey participants indicated As you might expect, larger companies were more they have not had any claims against their D&O susceptible to claim activity. Nearly half (48%) of liability policy in the last 10 years (Figure 35). participants with $10 billion or more in assets Nonprofits were most likely to report claims in the faced claims over the last decade, followed by the last 10 years (48%), followed by public companies $5 billion – $9.9 billion range, with 43% reporting (36%) and private companies (17%) (Figure 36). claims (Figure 37). Figure 35. D&O claims in the last 10 years Has your organization had any claims against its D&O liability policy during the last 10 years? 34% 34% Yes 66% No 66% Figure 36. D&O claims in the last 10 years by ownership 0% 10% 20% 30% 40% 50% Nonprofit 48 Private 17 Public 36 All groups (total respondents) 34 5 Figure 37. D&O claims in the last 10 years by asset size 5 0% 10% 20% 30% 40% 50% Less than $250 million 17 $250 million to $999 million 21 $1 billion to $4.9 billion 19 $5 billion to $9.9 billion 43 $10 billion or more 48 518 towerswatson.com
  20. 20. The lion’s share of claims continues to comefrom shareholders (both direct, with 45% ofrespondents reporting these, and derivative, with42% of respondents reporting these) (Figure 38).Employment-related matters continued to be theprimary source of claims for private and nonprofitorganizations, with EPL-related claims reported by36% and 73% of these respondents, respectively(Figure 39).Figure 38. Types of claims in the last 10 yearsThose organizations having claims during the past 10 years0% 10% 20% 30% 40% 50%Direct shareholder 45 46Derivative shareholder 42 40Employment 32 30Regulatory 19 16Fiduciary 15 21Other 15 15 2011 2010Figure 39. Types of claims in the last 10 years by ownershipThose organizations having claims during the past 10 years Direct shareholder/ D erivative shareholder/ investor suit investor suit Employment-related Regulatory Fiduciary Other Nonprofit 0% 3% 73% 23% 13% 27% Private 21% 7% 36% 14% 14% 29% Public 69% 65% 15% 18% 17% 6% All groups (total respondents) 45% 42% 32% 19% 15% 15% Directors and Officers Liability Survey: 2011 Summary of Results 19
  21. 21. The survey also found that nearly two-thirds (65%) Direct shareholder/investor suits once again of respondents to the 2011 survey were satisfied represented the greatest source of concern for with their insurers’ handling of their D&O claims, an respondents, with 36% citing it as their greatest increase from 56% last year. However, nearly 20% concern. However, regulatory claims once again of respondents reporting having a D&O claim were topped the list with an 81% response rate once again dissatisfied with how insurers handled (combined first, second and third rankings), a slight their claim. Such a large percentage is disappointing increase over the 78% reported in 2010 (Figure 41). and suggests that claim handling is an area that should be top of mind for insurers interested in improving their level of service (Figure 40). Figure 40. Satisfaction with handling of D&O claim How satisfied were you with your D&O insurer’s handling of the claim? Those organizations having claims during the past 10 years 2011 2010 19% 20% Satisfied Neutral Dissatisfied 16% 56% 65% 24% Figure 41. Top D&O liability concerns Ranking for the following types of claims on a scale of 1 to 5, where 1 is the greatest concern to the organization and 5 is the least concern (top three rankings) 0% 20% 40% 60% 80% 100% Regulatory 2011 21 24 36 81 2010 19 26 33 78 Direct shareholder/investor suit 2011 36 19 13 68 2010 41 16 11 68 Derivative shareholder/investor suit 2011 14 25 19 58 2010 10 24 19 53 Fiduciary 2011 10 16 23 49 2010 12 19 19 50 Employment-related 2011 19 16 9 44 2010 18 15 18 51 Ranked first Ranked second Ranked third20 towerswatson.com
  22. 22. Appendix ALiability Survey Insurance Market Summary Company Contact Capacity (in millions) CommentsABA Insurance Gina Juhnke, Product Manager 2011 $15 Writes commercial banks and thrifts.Services, Inc. ABA Insurance Services, Inc. 5910 Landerbrook, Suite 100 Mayfield Heights, OH 44124 800-274-5222 e-mail: GJuhnke@abais.comACEACE Bermuda Jeffrey Jabon 2011 $50 All segments and classes of business, Senior Vice President including public, private, partnerships, Head of Professional Lines sporting organizations, not-for-profit ACE Bermuda Insurance Ltd. and financial institutions. Excess 17 Woodbourne Avenue follow-form all lines (for Side A, see P.O. Box HM 1015 CODA). Manuscript (bespoke) policies Hamilton HM 08 Bermuda available for complex risk solutions. 441-295-5200 $50 million minimum attachment. e-mail: jeffrey.jabon@ace.bm Bermuda representative and web: www.acegroup.com or international brokers. www.acebermuda.comACE International Ben Ingram, Senior Vice President 2011 $25 ACE International writes international Nicholas Small accounts, excluding U.S.- International FI Underwriting Manager headquartered corporations, with a ACE International capacity of $25 million primary or ACE Building excess. ACE will consider all classes 100 Leadenhall Street of accounts, including financial London EC3A 3BP institutions. Local underwriters and 011-44-20-7173-7972 local language policy forms in most 011-44-20-7173-7973 international countries. e-mail: ben.ingram@ace-ina.com nick.small@ace-ina.com web: www.aceltd.comACE USA Tim O’Donnell, President 2011 $25 All segments and classes of business, ACE Professional Risk including public, private, not-for-profit 140 Broadway and financial institutions. Retail New York, NY 10005 brokers. Writes on Illinois Union 646-458-7004 paper. 646-458-6880 (fax) e-mail: timothy.o’donnell@acegroup.com web: www.aceprofessionalrisk.com Directors and Officers Liability Survey: 2011 Summary of Results 21
  23. 23. Company Contact Capacity (in millions) Comments CODA (Corporate Officers & Jeffrey Jabon 2011 $75 All segments and classes of business, Directors Assurance) Deputy Chairman including public, private, partnerships, Chief Underwriting Oficer sporting organizations, not-for-profit Senior Vice President and financial institutions. Side A/ ACE Bermuda Insurance Ltd. DIC (Difference-in-Conditions, “drop- 17 Woodbourne Avenue down” cover), Premier Personal Asset P.O. Box HM 1015 Protection for Directors & Officers (no Hamilton HM 08 Bermuda Corporate Reimbursement) as well 441-278-6615 as Corporate Governance exposure e-mail: jeffrey.jabon@ace.bm coverage for Independent Directors, web: www.acegroup.com or Executive Officers Only coverage, and www.acebermuda.com Retiring(ed) Director & Officer coverage; all for non-indemnified risks, global or otherwise. Manuscript (bespoke) policies available for complex risk solutions. No minimum attachment, primary Side A can be stand-alone or unique policy architecture can be structured to sit parallel to B/C cover and applicable retention-allowing CODA’s broad Side A coverage to be expanded upward throughout follow- form tower. Bermuda representative and international brokers. Westchester Specialty Joseph Casey 2011 $15 All classes. Wholesale brokers. President Professional Risk Side A $25 ACE Westchester Specialty 500 Colonial Center Parkway, #200 Roswell, GA 30076 678-795-4258 678-795-4150 (fax) e-mail: joseph.casey@acegroup.com web: www.acewestchester.com AEGIS Karen P Larson, Vice President . 2011 $35 Utilities, energy, related energy and AEGIS Insurance Services, Inc. public power. 1 Meadowlands Plaza E. Rutherford, NJ 07073 201-508-2804 e-mail: karenlarson@aegislimited.com web: www.aegislimited.com Alterra Alterra Insurance Ltd. James C. Gray, EVP & CUO 2011 $15 Excess AB, ABC, Side A and Side A DIC. Alterra Insurance Ltd. No excluded classes. Side A $25 Alterra House 2 Front Street Hamilton HM 11 Bermuda 441-296-8800 441-296-8811 (fax) e-mail: Jim.Gray@alterra-bm.com web: www.maxbermuda.com22 towerswatson.com
  24. 24. Company Contact Capacity (in millions) CommentsAlterra USA Daniel G. Gamble, Managing Director 2011 $15 All classes. Alterra USA Side A $25 55 Broadway, Suite 2101 New York, NY 10006 212-898-6622 646-300-4104 (mobile) e-mail: daniel.gamble@alterra-us.comAmerican Safety Insurance Peter McKeegan, Vice President 2011 $5 (D&O and Primary or Excess: D&O/EPL/FiduciaryServices, Inc. Professional Liability Group E&O) — Public, Private, Partnerships or 101 Hudson Street, Suite 3606 Nonprofit for virtually all classes Jersey City, NJ 07302 other than Financial Institutions. Both 201-830-2264 standard and/or difficult-to-place risks 201-830-2279 (fax) considered. e-mail: peter.mckeegan@amsafety.com Miscellaneous Professional, Insurance web: www.amsafety.com Agents and Select Lawyers, Technology E&O and A&E are also available on both a Primary and Excess basis. Contact Vince.McGee@amsafety.com for E&O products.Arch InsuranceArch Insurance (U.S.) John A. Rafferty 2011 $25 All classes. One Liberty Plaza, 53rd Floor New York, NY 10006 (646) 563-6364 e-mail: jrafferty@archinsurance.comArch Insurance Bermuda Matt Smith, Vice President 2011 $25 All classes. Underwriting Manager Executive Assurance Arch Insurance Bermuda 11 Victoria Street, 4th Floor Victoria Hall P O. Box HM 129 . Hamilton HM 11 Bermuda 441-278-9268 441-278-9276 (fax) e-mail: matt.smith@archinsurance.bm web: www.archinsurance.bmAspen Insurance Group Fred Cooper 2011 $25 •• Commercial and Financial Institutions Aspen Specialty •• Primary and Excess 101 Hudson Street, 36th Floor • D&O Jersey City, NJ 07302 • Side A (646) 502-1022 • Employment Practices (646) 502-1020 (fax) • Fiduciary Liability e-mail: Fred.Cooper@AspenSpecialty.com • Private Equity web: www.aspenspecialty.com • Private Company Coverage Directors and Officers Liability Survey: 2011 Summary of Results 23

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