Welcome to Advisen’s · 2016. 5. 10. · Welcome to Advisen’s Executive Risk Insights...
Transcript of Welcome to Advisen’s · 2016. 5. 10. · Welcome to Advisen’s Executive Risk Insights...
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Welcome to Advisen’s
Executive Risk
Insights Conference!
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Welcoming Remarks
David Bradford
Co-Founder & Chief Strategy Officer
Advisen
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Thank you to our Advisory Board Thomas Deer, Ogletree Deakins
Ziad Kubursi, CNA
Kevin M. LaCroix, RT ProExec [2016 Conference Chair]
Phil Norton, Arthur J. Gallagher
Gregory Spore, Marsh FINPRO
Robert Wolfe, Chubb
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Thank you to our Sponsors!
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Opening Remarks
Kevin M. LaCroix
Executive Vice President
RT ProExec
[2016 Conference Chair]
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Keynote Address
Paul Schiavone
Regional Head of Financial Lines
North America
Allianz
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Emerging D&O
Claims Risks
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Emerging D&O Claims Risks
Jim Blinn
EVP & Global Product Manager
Advisen
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Emerging D&O Claims Risks
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• General D&O Claims Trends
• Emerging Claims Trends
– Foreign Corrupt Practices Act (FCPA)
– False Claims Act
– Patent Infringement
Agenda
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D&O CLAIMS TRENDS General
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D&O Filings in the US
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Securities Class Action
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Securities Class Actions by Country
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Capital Regulatory Actions
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Merger Objection Cases
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Derivative Shareholder Action
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Average Settlement Value –
Derivative Shareholder Actions
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D&O CLAIMS TRENDS Emerging
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Drivers
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• Regulatory changes
• Plaintiff’s bar identifying new sources of revenue
• Response by corporate defense bar
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EMERGING CLAIMS TRENDS Foreign Corrupt Practices Act (FCPA)
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Foreign Corrupt Practices Act
• Prohibits businesses based or operating in the US
from gaining an unfair advantage in foreign
territories through bribes
• Extends to:
– Companies and their directors
– Employees
– Agents
• Often gives rise to shareholder litigation
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Case Study
Hyperdynamics • Subsidiary paid $130K for public relations and
lobbying services in Republic of Guinea
• Lacked sufficient documentation to identify the recipients of funds and to substantiate whether services were actually provided
• Fined $75K by DoJ
• Gave rise to – Securities Class Action Suit - pending
– Two Books & Records Demands
– Two Derivative Shareholder lawsuits - dismissed
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Case Study
Hewlett Packard
• Subsidiaries in Russia, Mexico and Poland had made improper payments to government officials over 10 year period
• Retained or obtained public contracts
• Settlement includes: – $32M in disgorgement and prejudgment interest
– $76M in fines and penalties
• Three derivative shareholder cases filed
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Case Study
Avon • Concealed more than $8M in improper payments to
Chinese government officials to obtain and retain business benefits
• Settlement includes: – $67M in disgorgement/prejudgment interest
– $68M in fines and penalties
• Gave rise to – Securities Class Action Suit - $62M Settlement
– One Books & Records Demand
– Three Derivative Shareholder lawsuits
– ERISA Class Action Suit - $6.25M Settlement
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EMERGING CLAIMS TRENDS False Claims Act
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False Claims Act
• Imposes liability on persons and companies
(typically federal contractors) who defraud
governmental programs
• Recent amendments have significantly
expanded the role of whistleblowers
– Increased financial incentives
– Reduced number of barriers to bring actions
• Largest recoveries related to healthcare fraud
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Anti-Kickback Statutes
• Prohibits the exchange of anything of value in an effort to induce the referral of federal health care program business
• Protects federal healthcare programs and patients from fraud or abuse
• Government has been actively pursuing violators of the statute, focusing particularly on merging healthcare entities and how their fees are being structured post-merger
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Coverage Issues
• Qui Tam actions excluded under Regulatory
Exclusion – Huron Consulting Group (public)
• Fines & Penalties exclusions
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Case Study
Omeros Corp
• Richard J. Klein, former CFO, filed wrongful
termination suit for whistle blowing
• Added qui tam allegations under False Claims
Act (no government intervention)
• Omeros agreed to pay Klein nearly $4M
• Carolina Casualty paid $12.5 million
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Case Study
Community Health Center of Buffalo
• Renee Ifrah sued for: – Discrimination in employment practices
– False statements in application for Federal grant assistance as well as retaliatory discharge
• Settlements: – $50k for employment discrimination
– $135k for false statements/retaliation
• Paid by RSUI Indemnity Company
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Case Study
DaVita Healthcare Partners
•Offered joint-venture deals to doctors and practices to not refer patients to DaVita’s competitors
•Kickbacks offered were masked as profits from joint-venture deals
•Resulted in a $389M settlement triggered by a whistleblower
•Derivative shareholder lawsuit - $7.3M settlement
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EMERGING CLAIMS TRENDS Patent Infringement
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Patent Infringement
• Covered under Title 35 of the United States
Code
• Prohibits the unauthorized use of a patented
invention
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Relevance to D&Os?
• D&Os usually not liable
• UNLESS there is evidence of deliberate acts by a
director and officer leading to the alleged
infringement
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Case Study
• Nanogen v. CombiMatrix – Former employee of Nanogen was accused of
misappropriating Nanogen technology and filing patent application for said technology under his name after moving to CombiMatrix
– CombiMatrix eventually settled for $20M in 2002
• CombiMatrix v. National Union – CombiMatrix’s D&O carrier National Union denied
coverage
– CombiMatrix sued and National Union was ordered to reimburse CombiMatrix for the full value of settlement, in addition to $2M in legal fees
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Other Cases
• American Century Services Corp - Patent
Infringement (American International Specialty
Lines Insurance Co.)
• MedAssets – Tortious Interference and Trade
Secret Misappropriation (Federal Insurance
Company)
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About Advisen Ltd. Advisen is leading the way to smarter and more efficient risk and insurance communities. Through its information, analytics, ACORD
messaging gateway, news, research, and events, Advisen reaches more than 150,000 commercial insurance and risk professionals at
8,000 organizations worldwide. The company was founded in 2000 and is headquartered in New York City, with offices in the US and
the UK.
+1 (212) 897-4800 | [email protected] | www.advisenltd.com
Leading the way to smarter
and more efficient
risk and insurance communities.
Advisen delivers:
the right information into
the right hands at
the right time
to power performance.
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The Buyer’s
Perspective
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The Buyer’s Perspective
Phil Norton Vice Chairman, Midwest Region
Arthur J. Gallagher
Stephanie Fisher Director of Risk Management & Insurance
Quanta Services
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15BSD\#28629A
© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™
Stephanie Fisher, Quanta Services – Panelist Phil Norton, Gallagher – Moderator
May 10, 2016
Risk Management Perspectives
on D&O
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© 2013 ARTHUR J. GALLAGHER & CO.
Strategic Planning
Page | 42
• Critical Tools:
Loss Benchmarking
Limits Analysis
Historical Loss Analysis
Exposure Modeling
• Policy Audit
Identify available enhancements
• Gap Analysis
• Terms / Conditions
• Program Updates
• Contract Language Customization
• State of the Market Design
• Manuscript Wording
• Analysis of program structure
PROGRAM DESIGN
POLICY ANALYSIS
LOSS QUANTIFICATION LOSS MITIGATION
• Loss control practices and procedures
• Claim analysis for internal trends
• Claim reporting procedures to carriers
• Use of outside law firms / panel counsel
• Role of Risk Mgmt Department in the D&O claims process
• Financial and business review
• Corporate policies and procedures
• Cash on Balance Sheet
• Employment Issues
• Inventories
• Acquisition Strategy
RISK IDENTIFICATION
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 43 15BSD\#28629A
Market Conditions Where do you look for Pricing Trends?
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 44 15BSD\#28629A
Market Conditions Are Claim Trends part of the Risk ID Process?
Overall claim frequency is trending down since 2011
220 Class Actions per year is the apparent “capacity” for the D&O plaintiffs bar.
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 45 15BSD\#28629A
Market Conditions Claim Trends – What can we learn from Mega Claims?
Recent Large D&O Settlements COMPANY VALUE YEAR
American International Group $960 million 2015
Bear Stearns $505 million 2015
Pfizer $400 million 2015
JP Morgan Chase $388 million 2015
General Motors $300 million 2015
Activision Blizzard, Inc. $275 million 2014
Golman Sachs Group $270 million 2015
Google $250 million 2015
Morgan Stanley & Co. $230 million 2015
Bank Of America $225 million 2015
Computer Sciences Corp. $190 million 2015
Puda Coal [China] $183 million 2015
Bank of New York Mellon Corp. $180 million 2015
Barclay's $178 million 2015
Fannie Mae $170 million 2015
Diversified Lending Group $163 million 2015
Duke Energy $146 million 2015
Freeport-McMoran $138 million 2015
Sprint Nextel $131 million 2015
Hewlett-Packard Company $100 million 2015
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 46 15BSD\#28629A
D&O Limits Analysis – Benchmarking
o Peer Analysis based on Advisen data
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 47 15BSD\#28629A
Modeling Traditional D&O Securities Risk Maximum Expected Loss: The maximum expected loss calculation attributes alleged loss to all shares traded during a given time period based on share volatility. This is an extremely conservative calculation, as it would assume a company’s willingness to pay an unfavorable jury verdict rather than work toward a much less costly settlement.
Total Expected Loss: The total expected loss calculation takes into account how much of the share value volatility should be attributed to the alleged wrongful act. It also takes into account that any settlement achieved will probably be a small percentage of any likely jury awards, and that a high percentage of these claims will be settled.
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 48 15BSD\#28629A
Historical Claims Analysis – How much does actual claims data matter to you in thinking about what D&O policy total limits to consider?
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 49 15BSD\#28629A
How important is Side-A? And how do you balance the purchase of Side-A limits versus total D&O Limits?
Excess A POLICY
Personal asset protection of the
directors and officers
Side A:
TRIGGER
Actions of Directors & Officers that are not
indemnified
PAYS On behalf of Ds&Os
RETENTION None
A
Corporate balance sheet protection for the
entity for Securities-related claims
Side C:
TRIGGER
Actions of entity for all claims
PAYS On behalf of entity for securities claims
RETENTION Applies
C
TRIGGER
Actions of Directors &Officers that are
Indemnified
PAYS On behalf of entity to fund
indemnification
RETENTION Applies
B
Corporate balance sheet protection for
indemnification obligations to the directors and officers
Side B: Excess Personal asset
protection of the directors and officers
Excess Side A:
TRIGGER
Actions of Ds&Os that are not indemnified and will
not be covered by any other policy
PAYS
On behalf of Ds&Os
RETENTION None
Excess A
difference in conditions
POLICY
Side A: Side C:
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 50 15BSD\#28629A
Carrier Selection – what metrics matter and how do you employ them in choosing carrier partners?
AM Best Financial Strength
A++ A+ A A-
Fin
anci
al S
ize
XV
Berkshire Hathaway
Chubb Philadelphia
Travelers
Allianz Arch AXIS
Berkley Everest
Hartford HCC
Munich Re Nationwide
Swiss Re Zurich
AIG Aspen AWAC CNA
Endurance Liberty Mutual
Lloyd’s of London Markel
XL
XIV Great American C.V. Starr Ironshore
QBE
XIII RSUI Argo
Crum & Forster
XII Old Republic Beazley
XI RLI Hiscox
Navigators
X OneBeacon IX
VIII VII VI V
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 51 15BSD\#28629A
Premium Analysis, Appetite and Fairness of Retention Change in Program Cost vs. Rate per $Mil
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© 2015 ARTHUR J. GALLAGHER & CO. | BUSINESS WITHOUT BARRIERS™ 52 15BSD\#28629A
Sample Foreign Local D&O Risk Assessment Regulatory Score = summarizes indemnification, admitted paper, tax, compulsory, enforcement, local marketplace and
claims.
Business Trends = reflect the propensity of multi-nationals to have significant operations and buy local policies in the country.
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The Buyer’s Perspective
Phil Norton Vice Chairman, Midwest Region
Arthur J. Gallagher
Stephanie Fisher Director of Risk Management & Insurance
Quanta Services
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Globalization of D&O
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Globalization of D&O
Jennifer O’Neill
Regional Head of International
Insurance Programs
Allianz
(Moderator)
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Globalization of D&O • Jennifer O’Neill, Regional Head of International Insurance
Programs, Allianz (Moderator)
• Brian Botkin, Head of Multinational, Global Financial Lines, AIG
• Nick DeStefano, VP – Underwriting Counsel, Argo Pro
• Jeroen van Kwawegen, Partner, Bernstein Litowitz Berger &
Grossmann LLP
• Carol Zacharias, Senior Vice President, Underwriting Counsel, QBE
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Globalization of D&O
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Afternoon Break
Coming up next…
“EPLI Spotlight”
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Thank you to our Sponsors!
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EPLI Spotlight
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EPLI Spotlight
Thomas Deer Shareholder
Olgetree Deakins
(Moderator)
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EPLI Spotlight • Thomas Deer, Shareholder, Ogletree Deakins
(Moderator)
• Carrie Kurzon, Claims Consulting Director, CNA
• Phil Rhodes, Senior Vice President, Financial Lines, AIG
• Kelly Thoerig, SVP, EPL Coverage Leader, Marsh
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EPLI Spotlight
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Privacy and Network
Security Issues
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Privacy and Network Security Issues
Chris Rafferty
Senior Vice President
Aon
(Moderator)
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• Chris Rafferty, Senior Vice President, Aon (Moderator)
• Nick Economidis, Underwriter, Beazley
• Mickey Estey, Senior Vice President, E&O/Cyber/Media,
RT ProExec – RT Specialty
• Douglas Greene, Partner, Lane Powell
Privacy and Network Security Issues
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Privacy and Network Security Issues
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Closing Remarks &
Reception
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