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The Credit Crisis: Getting Perspective October 2, 2008

The Credit Crisis: Getting Perspective October 2, 2008. Agenda – Getting Perspective. Industry Overview Securities Class Action Filings Underwriting Challenges Market Environment Client Concerns Closing Comments. Overview: Getting Perspective. Financial Services Overview

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The Credit Crisis: Getting Perspective October 2, 2008

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  1. The Credit Crisis: Getting PerspectiveOctober 2, 2008

  2. Agenda – Getting Perspective • Industry Overview • Securities Class Action Filings • Underwriting Challenges • Market Environment • Client Concerns • Closing Comments

  3. Overview: Getting Perspective • Financial Services Overview • $2B - $3B marketplace • Inherent Systemic Risk • 4th Industry Event • Estimated damages from current crisis $6B - $10B (1Q/2008)

  4. Number of Securities Class Action Filings 4

  5. SCA Filings: Getting Perspective • Securities Class Action Filings • Total SCAs up 41% YTD vs. ‘07 • Traditional SCAs up 25% • 118 Sub-prime/Credit related suits • 18 Auction Rate Securities (ARS) • 18 ERISA/401k Lawsuits

  6. Challenges: Getting Perspective • UnderwritingChallenges • Market tends to be reactive – years before truth comes out • Limited and outdated information • Aggregation still a problem • Difficult market to navigate – “catching falling knives” • Plaintiffs taking “two bites” at the apple

  7. Marketplace: Getting Perspective • Market Environment • Sixth year of softening market • Pricing back to ’02 levels • Side A – inverse relationship between price and risk • Economic conditions affecting many sectors • Still new capacity entering the market • Carriers purchasing less reinsurance

  8. Impact on Clients: Getting Perspective • FDIC seizures • Conservatorship • Insolvencies • Consolidation • Stock price drops • Balancing Rate Increases versus Internal Cost Cutting • Co-insurance • Captive participation • Cut back on insurance spending

  9. Clients Concerns: Getting Perspective • Rate increases • Retention increases • Restrictions to coverage • New Exclusionary language • Specific Litigation Exclusions • Broad interrelated language • Reduced capacity • Acquisition/Termination criteria in policies • Continuity of coverage • Replacing carriers – mid term or at renewals cycle • Runoff Rates

  10. Clients Concerns: Getting Perspective • Impact on carriers solvency and ratings – AIG, XL, Liberty • Maintaining carrier relationships • Continuity • Claims handling and paying ability • Employee retention at carriers • New capacity • Freedom Specialty • Iron shore • Catlin • Valiant

  11. CLOSING COMMENTS

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