Directors & Officers Liability Insurance Prepared By: Raj Aujla Jardine Lloyd Thompson Canada Inc. Distinctive. Choice.
Disclaimer Please note that the content of this presentation is for information purposes only and is not intended to constitute legal advice and no warranty or promise is made with respect to the correctness or accuracy of this advice. Any opinion advanced by Jardine Lloyd Thompson Canada should not be used as a substitute for the advice of a suitably qualified legal advisor.
D&O Liability Trends Distinctive. Choice.
Who are claimants? Non Profit Private Public Company Company Organizations Direct Shareholder/ 0% 21% 69% Investor Suit Derivative Shareholder/ 3% 7% 65% Investor Suit Employment Related 73% 36% 15% Fiduciary 13% 14% 17% Regulatory 23% 14% 18% Other 27% 29% 6% Source: Towers Watson – 2011 Directors & Officers Liability Survey
U.S. Perspective Distinctive. Choice.
U.S. Perspective • Number of U.S. federal class action lawsuits filed Source: PWC: 2011 Securities Litigation Study 2012 116 June 2011 191 2010 174 2009 157 2008 209 2007 163
U.S. Perspective – allegation type Source: PWC: 2011 Securities Litigation Study 7% Accounting 39% 25% Non-Accounting: Disclosure Non-Accounting: M&A Non-Accounting: Other 29%
U.S. Perspective – accounting 2011 • Specific accounting issues 2010 Source: PWC: 2011 Securities Litigation Study Internal controls 62% 66% Revenue recognition 32% 26% Other 27% 7% Overstatement of 26% assets 34% Understatement of 16% liabilities & 20% expenses Estimates 14% 34% Purchase 8% accounting 0%
U.S. Perspective – industry Source: PWC: 2011 Securities Litigation Study INDUSTRY 2007 2008 2009 2010 2011 High Tech 25% 13% 11% 14% 23% Health 17% 11% 17% 21% 14% Business 5% 1% 3% 3% 3% services Retail 4% 1% 3% 2% 4% Financial 21% 47% 41% 22% 12% services Energy 2% 5% 3% 10% 11% Manufacturing 6% 6% 7% 3% 8% Other 19% 15% 13% 22% 25%
Settlement Statistics Source: PWC - 2011 Securities Litigation Study Year Average Settlement Median Settlement Total Settlement Value Value Value 2011 $51,200,000 $8,900,000 $3,431,600,000 2010 $30,000,000 $10,600,000 $2,944,300,000 2009 $34,000,000 $7,500,000 $3,160,300,000 2008 $51,500,000 $8,000,000 $4,639,100,000 2007 $29,400,000 $8,000,000 $6,810,500,000
“The endangered public company – the big engine that couldn’t” Source: The Economist, May 19, 2012 • Public companies – difficult decade – Battered by scandals – Tied up by regulations – Challenged by alternate corporate forms • Number of public companies - down 38% • IPO’s dropped from avg. 311/yr (1980-2000) to 81 (2011)
Canadian Securities Class Actions: 2011 Distinctive. Choice.
Canadian Class Action Trends Source: NERA Economic Consulting – Trends in Canadian Securities Class Actions: 2011 Update • 2011 – 15 new securities class action cases filed • 9 or 60% are “Bill 198” cases • December 31, 2011 – 45 active cases ($24.5 billion in outstanding claims) • 2 cases settled during the year • Since Bill 198 came into force in 2005 – 35 cases filed: � 10 settlements – total payments by defendants $100 million � 24 unresolved � 1 dismissed
2011 Bill 198 Cases Filed Alange Energy Corp. Armtec Infrastructure BCE Inc. Canada Lithium Corporation Cathay Forest Products * Eastern Platinum Limited North American Palladium Sino-Forest Corporation * Zungui Haixi Corporation *
Sino-Forest Corp. • Company came to Canada via RTO in 1994 • Muddy Waters LLC – alleged the company was “mutlibillion-dollar ponzi scheme” • Allegations of fraud, misleading statements � executives interests in suppliers • Thousands of documents requiring translations $$ • 3 rd party litigation funding
What does the future hold? • Industry: – Dually listed risks: premium increases – Canadian only listed: strong competition remains – Capacity remains strong • Government influence – M&A activity – Unified securities regulation (Securities Act) – rejected • Past ≠ Future
Contact: Raj Aujla: raujla@jltcanada.com Tel: 403-537-9262 Mobile: 403-808-3009
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