FIRST QUARTER Quarterly Index of D&O Pricing Q through Q Base Year: 2001 = 1.00

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1 Quarterly D& O Pricing Index FIRST QUARTER 2010 Each quarter, Aon s Financial Services Group (FSG) publishes a pricing index of Directors and Officers liability (D&O) insurance that tracks premium changes relative to the base year of ,2 In the first quarter of 2010, the average price for $1 million in coverage limits decreased 13.6 percent from the fourth quarter of 2009, with the Index moving from 1.18 to It is not uncommon to see large fluctuations from quarter to quarter due to the mix of business renewing at different times of the year. Traditionally, the fourth quarter contains many large commercial and financial institution accounts whose increased exposure significantly impacts the Q4 Index value. A more significant result is that pricing decreased 15.7 percent in Q as compared with Q Since D&O policies are typically written for a 12-month period, this year-over-yeaapproximation of renewal pricing and a more meaningful indicator of renewal results in the quarter. We comparison is a close generally associate claims frequency with price fluctuations. After an uptick in frequency beginning around the middle of 2007, we have seen renewal price increases in two of the last six quarters (with Q1 and Q showing only modest decreases in pricing) after 20 consecutive quarters of price decreases. Another comparison is to look at only those programs that renewed in both Q and Q On that basis, pricing decreased 13.6 percent. This is not a significant difference to the reference in the previous paragraph, but it does smooth out some of the volatility at the Sector and Industry Group level due to differences in the composition of the samples from one year to the next. Quarterly Index of D&O Pricing Q through Q Base Year: 2001 = D&O Pricing Index -15.7% Q Q Index Value Q1 Q2 Q3 Q4 Q

2 S&P Financials sector improves along with almost everyone else! Q1 of 2010 proved to be an excellent quarter for buyers of D&O insurance in every single S&P industry sector with the exception of Consumer Staples. Consumer Staples saw an increase of 16.3 percent due to abnormal renewal activity in and out of the quarter. After seeing rates increase for the better part of the past five quarters, the S&P Financials sector saw a pricing decrease of 31.1 percent year-over-year (the second year-over-year decrease since Q2 2008). Cumulatively, the other nine S&P sectors were down 13.0 percent for the quarter. The decreases by industry sector ranged from -5.7 percent for Health Care to percent for Utilities (excluding Consumer Staples). With securities class action (SCA) claims frequency abating over the last year and a mini-bull market run from March 2009 through March 2010, this is not a surprise. Quarterly Index of D&O Pricing: S&P Financials sector vs. All Other S&P sectors Q through Q Base Year: 2001 = 2.66 S&P Financials Sector -31.1% Q Q All Other Sectors (as a group) -13.0% Index Value S&P Financials Sector All Other S&P Sectors Q Q Q Q Q3 Q4 Q Limits & Deductible Purchasing Trends In Q1 2010, our clients on average purchased 3.2 percent more limits than the previous year s renewal. As stated in past quarters, clients decisions to increase or decrease limits may be related to one or more of the following factors: 1) D&O claims frequency, 2) D&O claims severity, 3) changing pricing environment, and 4) risk tolerance of individual directors and officers. This modest increase in limits is likely most correlated with point three above. We also monitor deductible changes within our book of business. During the quarter, 3.6 percent of D&O program deductibles increased, with those clients retaining more risk, and 1.2 percent of deductibles decreased, with those clients transferring more risk to carriers. Overall, deductibles were fairly stable (95.2 percent remained unchanged) for the quarter. The Myth of Claims Severity For many quarters we have commented on the correlation between SCA claims frequency and D&O insurance pricing. As this is our first report of the new decade, we thought it would be interesting to report upon the relationship between SCA claims severity and D&O insurance rates, and the feeling of many that the size of D&O settlements impacts the pricing of D&O policies.

3 D&O Pricing vs. SCA Severity D&O Settlements: 2000 through Q All Industry Pricing Index Average SCA Severity $* ecurities Class Action Severity (in Millions) S Q110 * Excludes settlements of $1B or greater Source: Aon FSG; Stanford Law School Securities Class Action Clearinghouse as of May 3, 2010 While the first few years of the new millennium showed a potentially interesting trend of D&O rates increasing along with SCA settlements soaring, it becomes quite obvious that in the last 6+ years things changed. The average SCA settlement has increased by 41 percent since 2003, while D&O rates have decrease d by 35 percent, proving little-to-no correlation between severity and D&O pricing. Clearly the severity of claims settlements takes a back seat to frequency when it comes to pricing D&O insurance. The following chart overlays SCA claims frequency with Aon s D&O Pricing Index. Obviously, this graph shows a strong correlation between pricing and frequency since Quarterly Index of D&O Pricing vs. SCA Claims Frequency 1999 through Q Base Year: 2001 = 160.0% 497 D&O Pricing Index Percentage Ch ange vs. Va lue on 12/31/ % 80.0% 40.0% 0.0% Securities Class Action Litigation (Year-end)* 152** -40.0% Baseline: 12/31/2001 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q * Source: Aon FSG; Stanford Law School s Securities Class Action Clearinghouse as of May 1, These totals include IPO Allocation, Analyst, and Mutual Fund filings. ** Projected year-end securities class action filings for 2010.

4 D&O Securities Class Action Claims Activity According to Stanford Law School s Securities Class Action Clearinghouse, there were 38 federal securities class actions filed in Q1 2010, down 25.5 percent from the 51 filings reported in Q As pricing moves with frequency changes, this is a very favorable fact for D&O insurance buyers. In 2009, 87 (49.2 percent) federal securities class actions were filed against companies in the financials sector as compared with 113 (50.7 percent) in However, only 18 (48.6 percent) filings were against financials sector companies in Q1 2010, perhaps, signaling an end to the litigation explosion for financial services firms. As of Q1 2010, the settlement value of the average D&O securities class action was $23.16 million (excluding settlements of $1 billion or greater), a decrease of approximately 25.7 percent from the preceding three-year average settlement value of $31.18 million. This is the fourth consecutive quarter showing a decrease in the average settlement value over the three-year average (with Q down 9.9 percent, Q down 18.7 percent, and Q down 18.0 percent). This trend is not expected to continue. Insurers Report First Quarter Results While three of the five largest providers of D& O insurance 4 posted combined ratios 5 under 100, all five posted combined ratios that we re worse than Q One of the mitigating factors to D&O rate increases is the industry s overall under writing performance. In that regard, industry loss ratios remain at historically low levels. All five insurers posted positive Net Income, with only one of the five posting a decrease in Net Income f rom a year ago. P& C Combined Ratio Net Income/(Loss) in millions Insurer Q Q Q Q % Change ACE Limited (NYSE: ACE) 92.8% 87.5% $755 $ % American International Group (NYSE: AIG) 102.5% 96.7% $2,099 ($5,133) NM Chubb Corporation (NYSE: CB) 93.6% 88.1% $464 $ % Hartford Financial Services Group (NYSE: HIG) 91.7% 89.9% $319 ($1, 209) NM XL Capital Limited (NYSE: XL) 100.5% 92.1% $128 $178 (28.1%) Source: Corporate earnings reports: ACE, AIG, Chubb, Hartford, and XL Increased Market Capacity In the past we ve talked about the effect supply & demand has on D&O pricing. When D&O prices spiked dramatically in 2002 and 2003, a number of new carriers entered the D&O market (the Class of 2003 ). This increased capacity served to relieve the pressure on D&O pricing in subsequent years. During the past two years, the theoretical capacity available to any one buyer of D&O insurance increased just over 16 percent (up 11 percent in 2008 and up 5 percent in 2009). D&O capacity is up another 1.7 percent in Q This new capacity increases competition and serves to keep pricing down. Unlike 2003, one of the main reasons for the dramatic increase in capital this time around is the dislocation of talent resulting from the recent financial turmoil at several of the major insurers. A large number of underwriting professionals have moved from established underwriting companies to start-up facilities. The resulting increase in capacity and competition has served, and will likely continue to serve, as an additional deterrent to major D&O price increases.

5 Bankruptcy Filings vs Claims Filings Quarter Bankruptcy Filings Claims Filings Q Q Q Q Total Q Bankruptcy Filings Retreat In the past we ve also discussed the correlation between banktrupty filings and D&O pricing. While not every bankruptcy filing results in D&O litigation, an increase in bankruptcy filings tends to lead to increased D&O litigation. Historically, companies filing bankruptcy have experienced significant increases in their D&O premiums. According to Bankruptcydata.com, 6 in 2008 and 2009 the number of first quarter bankruptcy filings were 45 and 95, respectively. In Q1 2010, however, that number dropped significantly to 29, indicatin g that the flood of bankruptcy activity during 2008 and 2009 may be ebbing. As such, we would expect t o see both a corresponding reduction in related securities class action filings, and relief on the upward pressure that bankruptcies place on D&O pricing. Public and Major Company Bankruptcy Filings 2001 through Q Annual Totals 3 mo. Totals Securities Class Actions* Average = 189 number of SCA filings ( ) N umber of Bankruptcy Filing s ** ** Number of Securities Class Action Filings Source: Bankruptcydata.com Public and Major Company Database as of May 1, * Source: Stanford Law School s Securities Class Action Clearinghouse as These totals exclude IPO Allocation, Analyst, and Mutual Fund filings. ** Projected year-end securities class action filings for of May 1, Summary In summary, here are some final observations for First Quarter 2010: claims frequency decreased 25.5 percent from Q1 2009; claims severity decreased 25.7 percent from the preceding three-year average; bankruptcy filings decreased 69.5 percent from Q1 2009; D&O insurance capacity increased 1.7 percent in Q1 2010; D&O pricing decreased 15.7 percent year-over-year from Q1 2009; Q1 pricing for the financials sector decreased year-over-year for the second consecutive quarter (down 31.1 percent from Q1 2009). These facts bode very well for buyers of D&O insurance through the remainder of The pricing environment for D&O insurance is currently at historically low levels, or soft, as referred to in the insurance vernacular. While the financials sector saw prices harden during the financial crisis, even that sector seems to be in a recovery mode. As long as there is adequate capacity in the marketplace, insurer loss ratios remain low, and securities class action frequency abates or remains stable, prices will continue to be favorable to D&O insurance buyers for the remainder of 2010.

6 1 The Quarterly D&O Pricing Index is compiled using the proprietary policy data of Aon s Financial Service Group (FSG). The D&O Pricing Index is currently comprised of policy information on over 5,750 D&O programs for publicly traded companies between January 1, 2001 and March 31, The Index represents the weighted average cost of $1,000,000 of D&O insurance (Total Premium / Total Limits). The average rate per million of limit includes D&O placements (A/B/C Coverage), Side A only (non-indemnifiable loss) placements, and Side A DIC (difference-in-conditions) placements. Programs with blended coverage (e.g. a shared limit for D&O and Fiduciary Liability combined) are excluded from the Index. While the Index data includes a small number of foreign companies that trade on a U.S. exchange, the majority of the companies are U.S. issuers traded on U.S. exchanges. As such, the data is representative of the U.S. D&O market and not the global D&O market. FSG first produced the Quarterly D&O Pricing Index in Q The base year (2001) is the average price per million for $1,000,000 of D&O coverage costs for the 2001 calendar year. 2 In the first quarter of 2008, FSG began adding S&P s Compustat company data to our proprietary policy data. Some companies previously included in our pricing index are not included in this S&P data, primarily foreign issuers not traded on U.S. exchanges and some smaller U.S. companies (e.g. OTC:BB). These companies have been removed from the D&O Pricing Index which resulted in some minor changes to prior results. We do not view these changes as material to the overall results of the Index. Aon Contacts: Michael D. Rice, II National Practice Leader, Financial Services Group p: e: mike.rice@aon.com Peter M. Trunfio National Knowledge Management Practice Leader, Financial Services Group p: e: peter.trunfio@aon.com 3 Stanford Law School s Securities Class Action Clearinghouse (as of May 1, 2010). These totals include IPO Allocation, Analyst, and Mutual Fund filings. 4 The top five insurers as measured by written premium. 5 Combined Ratio is defined as Loss Ratio 7 + Expense Ratio + Dividend Ratio. It measures the percentage of premium used to cover losses, expenses and policyholder dividends. If the combined ratio is below 100 percent, the company is operating at an underwriting profit. If the ratio is above 100 percent, the company is dependent on Investment Income to earn a profit. (Source: Highline Data LLC 2008) 6 Bankruptcydata.com s Public and Major Company Database includes more than 2,800 public and major company bankruptcy filings dating back to This database includes: public company filings dating back to 1986 as well as selected private company filings with public debt or debt that [they] have deemed significant and newsworthy dating back to Loss Ratio is defined as (Losses + Loss Expenses Incurred) divided by Net Premiums Earned. Loss Ratio is a component of the Combined Ratio measuring the percentage of premium dollars used to settle claims. This measure can be affected significantly by changes in estimates of losses from prior years. (Source: Highline Data LLC 2008) About Aon Aon Corporation (NYSE: AON) is the leading global provider of risk management services, insurance and reinsurance brokerage, and human capital consulting. Through its more than 36,000 colleagues worldwide, Aon delivers distinctive client value via innovative and effective risk management and workforce productivity solutions. Aon's industry-leading global resources and technical expertise are delivered locally through more than 500 offices in more than 120 countries. Named the world's best broker by Euromoney magazine's 2008, 2009 and 2010 Insurance Survey, Aon also ranked highest on Business Insurance's listing of the world's largest insurance brokers based on commercial retail, wholesale, reinsurance and personal lines brokerage revenues in 2008 and A.M. Best deemed Aon the number one insurance broker based on brokerage revenues in 2007, 2008, and 2009, and Aon was voted best insurance intermediary, best reinsurance intermediary and best employee benefits consulting firm in 2007, 2008 and 2009 by the readers of Business Insurance. For more information on Aon, log onto About Aon s Financial Services Group Aon s Financial Services Group is the premier team of executive liability brokerage professionals, with extensive experience in representing buyers of complex insurance products including directors and officers liability, employment practices liability, fiduciary liability, fidelity, and professional liability insurance. Aon s Financial Services Group has over $2.4 billion in annual premium under management, has assisted with claim settlements in excess of $3.5 billion, and uses its unmatched data to support the diverse business goals of its clients.