Bank Director Conference Presentation


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D&O presentation on the perceived risk of your banking institution.

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Bank Director Conference Presentation

  1. 1. Directors & Officers Liability: Understanding Your Institution's Perceived Risk Profile Dennis Gustafson, SVP & Financial Institutions Practice Leader
  2. 2. Agenda <ul><li>Introduction of A H & T </li></ul><ul><li>D&O Risk Evaluation related to: </li></ul><ul><ul><li>Regulatory Exposures </li></ul></ul><ul><ul><li>Mergers & Acquisitions </li></ul></ul><ul><ul><li>Loan & Asset quality </li></ul></ul><ul><ul><li>Peer benchmarking </li></ul></ul><ul><ul><li>Securities Litigation filings by Industry </li></ul></ul><ul><li>D&O coverages & enhancements </li></ul>
  3. 3. About A H & T Insurance <ul><li>A H & T was established in 1921 with headquarters in the DC metro, Seattle, and NY metro areas. </li></ul><ul><li>Privately held, Employee owned and Independent full service insurance brokerage and risk management consultant. </li></ul><ul><li>In June, 2010 a team including the Financial Institutions Practice Leader and Management Liability Practice Leader moved to create the AH&T Northeast office managing Public Company D&O for the entire country. </li></ul><ul><li>AH&T is a national leader providing solutions for Directors & Officers insurance and risk management programs to over 700 D&O clients. AH&T has also been recognized in the independent Tillinghast Towers-Perrin Directors & Officers Liability insurance survey as one of the top ten D&O insurance brokers in the nation for the last 14 years. </li></ul><ul><li>The Financials Institutions Practice at AH&T Insurance focuses on providing Management Liability solutions for community and regional banks with three basic principals: </li></ul><ul><ul><li>Knowledge : With years of experience in the underwriting, brokerage, claims, and legal fields we have assembled a team of subject matter experts obtaining the best-in-class terms and conditions. </li></ul></ul><ul><ul><li>Leverage : We obtain the most competitive pricing by leveraging the volume of placements with the Insurance Carriers that focus in the Banking Industry. These carriers include, but are not limited to Chubb (A++), Travelers (A+), ACE (A+), Hartford (A), Zurich (A), CNA (A), One Beacon (A), and Chartis (A) formerly AIG . </li></ul></ul><ul><ul><li>Service : AH&T has been an Employee owned company since 1921 so every employee is completely vested in providing unparalleled responsiveness and professionalism. </li></ul></ul>
  4. 4. D&O Underwriter evaluation- Regulatory exposure <ul><li>Regulatory Exposure is still the single largest risk exposure </li></ul><ul><li>FDIC updated their Professional Liability Lawsuits page ( ) to reflect that the number of lawsuits that it has authorized has been increased. While FDIC has up to 3 years for tort claims and 6 years for breach of contract claims, the site states that most investigations are completed within 18 months. </li></ul>
  5. 5. When is a Bank considered a ‘Regulatory Risk’ <ul><li>Any open regulatory agreement </li></ul><ul><li>Open & Consent Order </li></ul><ul><li>C&D </li></ul><ul><li>MOU (relating to asset quality, earnings, or capital, not so much for Bank Secrecy) </li></ul><ul><li>Severe degradation of asset quality following a regulatory exam or audit where the expectation would be a regulatory restriction on the following exam. (Texas north of or close to 100% or Tier 1 capital ratio <4%) </li></ul><ul><li>Qualities of an institution taken off the Regulatory risk category include Tier 1 Capital/total loan > 6%, Positive ROA 3 quarters, Classified loans <= 45% </li></ul><ul><li>D&O Policy considerations: </li></ul><ul><ul><li>Lack of Regulatory Exclusion </li></ul></ul><ul><ul><li>Named Insured = Holding Company </li></ul></ul><ul><ul><li>Side A Non-Rescindable language </li></ul></ul><ul><ul><li>Insured vs. Insured Carve-backs </li></ul></ul><ul><ul><li>Cancellation clause </li></ul></ul>
  6. 6. Mergers & Acquisitions <ul><li>In the banking sector, there was an uptick of M&A activity unrelated to receiverships and the projection is for greater M&A activity in 2011. </li></ul><ul><li>Of the 177 new securities class actions filed during 2010 (all industry groups), 37 of these lawsuits were related to mergers or acquisitions (including going private transactions, management buyouts, and/or allegations of proxy violations) </li></ul><ul><li>23 of these cases were filed in the year’s second half. These merger objection cases were a significant part of the increased number of filings in the year’s second half. </li></ul><ul><li>Underwriting considerations include % of shareholder votes against the M&A in addition to evaluation of dissenting shareholders </li></ul><ul><li>D&O Policy considerations: </li></ul><ul><ul><li>Mid-term acquisition threshold % </li></ul></ul><ul><ul><li>Discovery provisions </li></ul></ul><ul><ul><li>Change of Control provisions </li></ul></ul><ul><ul><li>Cancellation provision </li></ul></ul><ul><ul><li>Existence of an M&A exclusion </li></ul></ul>
  7. 7. Loan & Asset Quality
  8. 8. Peer Benchmarking: D&O Survey results
  9. 9. D&O Survey results- continued Average rate for $5M <ul><li>Financial Institutions showed the highest premium rate for $5M in limits </li></ul><ul><li>Financial Institutions the only industry where more respondents reported an increase in premium during the last renewal. When reviewing the data at the next level, we do see a shift in that dynamic for Q4 renewals. </li></ul>
  10. 10. Bank Specific Survey results Assets: Premium Rate for $5M
  11. 11. Securities Litigation filings – Industry Overview <ul><li>Industry Trends: </li></ul><ul><li>Another method of analyzing claims trends is to review the number of securities class action filings by industry as that compares to the industry universe. The attached heat map is provided by Cornerstone and it shows what industries are being named as a percentage of the universe for the last ten years. </li></ul>
  12. 12. Directors & Officers Coverage discussion <ul><ul><li>Top 10 D&O Coverage enhancements </li></ul></ul><ul><ul><li>Named Insured = Holding Company </li></ul></ul><ul><ul><li>Try to get defense costs carve-back to the Regulatory exclusion </li></ul></ul><ul><ul><li>Limit Definition of Application to filings for just the past 12 months. </li></ul></ul><ul><ul><li>Update Definition of Claim to include informal investigations </li></ul></ul><ul><ul><li>Investigative Costs sub-limit </li></ul></ul><ul><ul><li>Order of Payments </li></ul></ul><ul><ul><li>Side A Non-Rescindable language and limit the imputation of knowledge (severability) </li></ul></ul><ul><ul><li>Update definition of Company to include Debtor in Possession </li></ul></ul><ul><ul><li>Insured vs Insured carve-backs for: </li></ul></ul><ul><ul><ul><li>Creditor Committee </li></ul></ul></ul><ul><ul><ul><li>Bankruptcy Trustee </li></ul></ul></ul><ul><ul><ul><li>Whistleblower, old Board member, foreign equivalent </li></ul></ul></ul><ul><ul><li>Limit when Insurance carrier can cancel policy </li></ul></ul><ul><ul><li>Limit the threshold of the conduct exclusions (fraud & personal profit) to the ‘final adjudication’ standard. </li></ul></ul>Side A Insurance protects the individual Directors & Officers for claims where the Insured company can not indemnify the D&O’s in scenarios such as insolvency and derivative actions.
  13. 13. <ul><li>Primary Contact </li></ul><ul><li>Dennis Gustafson, SVP & Financial Institutions Practice Leader </li></ul><ul><li>p: 973.286.3572 </li></ul><ul><li>c: 917.846.5548 </li></ul><ul><li>e: [email_address] </li></ul><ul><li>Secondary Contact </li></ul><ul><li>Michael Tomasulo, SVP & Directors & Officers Practice Leader </li></ul><ul><li>p: 973.286.3570 </li></ul><ul><li>e: [email_address] </li></ul><ul><li>Account Manager </li></ul><ul><li>Jonathan Maio </li></ul><ul><li>p: 973.286.3571 </li></ul><ul><li>e: [email_address] </li></ul><ul><li>Claims Director </li></ul><ul><li>Rick Hirschoff, MA, MSW, SCLA </li></ul><ul><li>p: 703.737.2259 </li></ul><ul><li>e: [email_address] </li></ul>Contact Information