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HHooww MMaarrkkeettss WWoorrkkSSMM

Capabilities and Expertise

Can future productliabilities be quantified?

1

Potential mass tort liability can create financial uncertainty that can

damage a firm’s stock price, its future earnings and possibly its prospects

for survival. Consequently, corporations are under pressure to increase

awareness of their liability exposure. They need to determine where the

greatest risk lies for mass torts litigation—and which products, services

or processes are most vulnerable. A key question for any company: can

future product liabilities be quantified?

The clear answer is yyeess..

Product liability and mass

torts litigation are reaching

unprecedented levels in

corporate America, with

companies facing growing

exposure.

The clear answer is yes.

2

Mass torts take on

predictable patterns…

From this extensive experience, we have

developed valuable proprietary resources,

including asbestos claim databases that

provide information on average settlement

values by disease, state and plaintiff firms.

We have also compiled historical informa-

tion on labor statistics and turnover in nu-

merous occupations.

NERA economists can quickly synthesize

these resources to provide the critical infor-

mation companies need in order to assess

their present and future liability. We also

advise on how to manage the risk once it is

quantified, including estimating the size and

costs of a class for medical monitoring

purposes.

NNEERRAA eeccoonnoommiissttss bbrriinngg ttooggeetthheerrthe required disciplines—including econom-

ics, statistics, epidemiological modeling,

computer programming, accounting and

insurance allocation—to address the most

complex problems of assessment and valua-

tion of product liability claims. We also track

how claiming rates in various industries

have responded in the past to increased

publicity, including the effect of workplace

screenings and mass notification of

potential claimants.

Often retained by manufacturers targeted by

large class action lawsuits, NERA economists

have worked across a variety of industries

and product lines, including asbestos,

building products, automobiles and medical

devices.

Whether litigation is currently pending or

merely a future possibility...

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• Managing risk

• Unlocking valuable transactions held up

by issues of fraudulent conveyance

• Structuring and pricing liability

insurance

• Assessing when an insurance policy

would likely be exhausted

• Correctly sizing a possible trust

settlement

• Setting aside appropriate reserves

… and NERA economists are

highly skilled in identifying and

incorporating these patterns into

our forecasting techniques.

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Asbestos

Silica

Beryllium chemicals

Mixed dust

Mold

Tobacco

Firearms

Building products

Automobiles

Medical devices

Pharmaceuticals

focusour industry

3

4

OOuurr AApppprrooaacchh

Estimating future product liability is not

merely a matter of extrapolating recent

claims filings and recent dollars paid into

the future. Instead, NERA’s approach to fore-

casting recognizes that it is important to un-

derstand and model the processes that gen-

erated those claims. In doing so, we are able

to identify and incorporate the impact of

changes in factors affecting all defendants,

such as legislative reform, workplace screen-

ings and smoking habits. It also allows us to

tailor our forecast to the quite varied situa-

tions that defendants may face, such as

historical variation in their product sales by

region or a change in their own litigation

strategy.

Naturally, the level of detail and precision of

a forecast depends on the use to which it is

being put—a single probable estimate may

be optimal for assessing the adequacy of

reserves, while a range of estimates based

on alternative assumptions about, e.g., the

prospects of tort reform or the risks associ-

ated with taking cases to trial, may be

required to inform the Board of Directors

on future litigation strategy.

NERA has developed a proprietary method

to forecast product liability. We estimate the

size of the population potentially exposed to

a company’s product; apply epidemiological

dose/response models to predict levels of

valid diseases or product defects; use behav-

ioral economics to predict claims filed both

by those truly affected by the exposure, as

well as by those that have no valid impair-

ment; and, finally, use statistical analysis to

explain and extrapolate forward historical

settlement values.

This approach allows us to account for the

key factors driving the trends observed in

numbers of claims and average settlement

costs. We combine the highest levels of

rigor—to ensure accuracy and withstand

hostile scrutiny—with a sophisticated

cross-disciplinary approach.

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OOuurr iinnnnoovvaattiivvee,, pprroopprriieettaarryy tteecchhnniiqquueess iinncclluuddee::

• Analyzing medical or scientific

literature to assess the possibility of

diseases or the most likely pattern of

product defects

• Estimating the number and dollar

value of future claims

• Examining how publicity and

entrepreneurial tactics by plaintiffs’

attorneys may affect the rate of filing

among potential claimants

• Quantifying the likely effect of

alternative claims management or

litigation strategies

• Using databases to track claims and

settlements

• Incorporating industry-specific exposure

information and employee turnover rates

Rather than making simplistic assumptions

from historical claim trends, NERA incorpo-

rates both an estimate of the underlying popu-

lation, as well as epidemiological research. Us-

ing principles founded in economics, we then

forecast a filing rate that predicts how many

claims will arise from the population that has

been potentially exposed to a harmful product.

5

NERA’s approach to forecasting

future claims and liability is

holistic—it is not an actuarial

analysis.

NERA also provides forecasts based on

varying assumptions. We can assess liability

exposure based on the continuation of

today’s conditions or, alternatively, based on

a structural shift in the environment. Such

structural shift analyses take into account,

for example, possible legislative reform, a

change in defense strategy, or a change in

the political climate surrounding mass

tort suits.

OOuurr eeccoonnoommiissttss iinnccoorrppoorraattee iinnttoo tthheeiirr ffoorreeccaassttss::

• The defense strategy of the firm

subject to claims

• The political environment

• Legislative reforms

• Recent legal decisions

• National and state-specific trends in

filing rates and settlements

• Medical and other documentation

requirements by insurance carriers

Actual Claims Forecasted Claims

6

NERA economists have consulted on a variety of liability-related matters, ranging from the

highest profile, multi-billion dollar product liability case, to a quick assessment of potential

exposure prior to an acquisition, to a projection of the path by which a current trickle of claims

might escalate. We can take a sample of claims for a company and compile a detailed analysis,

including examining the validity of the medical criteria or product identification offered by

plaintiffs.

experiencescope of our

Estimated Present Value of Future Claims

Lung Cancer $540 m

Mesothelioma $1,280 m

Non-Malignants $1,500 m

Actual Claims Forecasted Claims

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Estimated Present Value of Future Claims

Lung Cancer $182 m

Mesothelioma $820 m

Non-Malignants $727 m

7

HHiigghhlliigghhttss::

• Silica

• Mixed dust

• Mold

• Asbestos

SSeelleecctteedd PPrroojjeeccttss::

NERA has reviewed claims databases of over

60 different asbestos defendants. We have

been retained by asbestos defendants, insur-

ance companies and companies contemplat-

ing the acquisition of a target with asbestos

exposure.

Estimated future asbestos health claims

against the NNaattiioonnaall GGyyppssuumm TTrruusstt. Testified

to such claims in U.S. Bankruptcy Court,

which subsequently adopted NERA’s findings

in a written decision.

Estimated the future silica-related liability

for TTyylleerr PPiippee’’ss bankruptcy plan.

Testified on behalf of BBaabbccoocckk && WWiillccooxx

regarding the reasonableness of historical

forecasts. The court credited NERA’s expert

testimony.

Forecasted the number of claims and future

liability of silica-related diseases for ssiilliiccaa

ddeeffeennddaannttss, including manufacturers of sili-

ca sand, protective work gear and producers

of iron cast pipes.

Estimated future asbestos liability to

establish an accounting reserve for GGeeoorrggiiaa--

PPaacciiffiicc.

Assessed the effect of alternative strategies

in relation to asbestos litigation on behalf of

FFeeddeerraall--MMoogguull.

NERA has reviewed claims

databases of over 60 different

asbestos defendants.

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From the highest profile, multi-

billion dollar product liability case…

8

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• Breast implants

• Pharmaceuticals

• Dalkon shield

• Heart shield

SSeelleecctteedd PPrroojjeeccttss::

Estimated the liquidated value of all present

and future product liability claims (includ-

ing breast implant claims) for DDooww CCoorrnniinngg

in U.S. Bankruptcy Court. In deciding that

the proposed Plan was adequately funded,

the Court adopted NERA’s analysis in

full, finding it to be “thorough, logical,

well-documented and credible.”

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• Hardboard siding

• Air and water pollutants

• Lead paint

SSeelleecctteedd PPrroojjeeccttss::

For various bbuuiillddiinngg pprroodduuccttss ccoommppaanniieess,

estimated the future liabilities associated

with hardboard

siding.

Estimated the

potential scope

of liabilities for

metal joints in

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experiencescope of our

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• Agent Orange

• Beryllium

• Latex

• Fen-Phen

• DES

SSeelleecctteedd PPrroojjeeccttss::

Analyzed the AAggeenntt OOrraannggee settlement as

part of the Marsh team appointed by Judge

Weinstein of the Eastern District of New

York and determined claims procedures,

including selecting the firm to handle

claims processing.

Estimated the potential third generation

liability for a major pphhaarrmmaacceeuuttiiccaall

mmaannuuffaaccttuurreerr.

Estimated future product liability exposures

for all products manufactured by a major

cchheemmiiccaall mmaannuuffaaccttuurreerr.

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• Tobacco

• Firearms

• Automobiles

SSeelleecctteedd PPrroojjeeccttss::

Analyzed whether the liquidated value of claims proposed by the

trustee of a bankrupt shipping company were reasonable for the

AAmmeerriiccaann CClluubb (an insurance syndicate); based on NERA’s analysis, the

court dismissed the trustee’s plan.

Analyzed the number of hhaannddgguunnss used in crime and their relation-

ship to the practices of manufacturers and dealers, on behalf of the

NAACP. NERA’s expert testimony was accepted by Judge Weinstein.

Quantified the litigation risk associated with ccoonnssuummeerr ccllaassss aaccttiioonn

ffrraauudd llaawwssuuiittss, including an estimation of filing and opt-out rates

and damage estimates.

Estimated the future contingent liabilities for an aauuttoo ppaarrttss mmaannuuffaacc--

ttuurreerr, as part of its decision-making process whether to develop and

market air bags.

to a projection of the path by

which a current trickle of claims

might escalate.

10

RReellaatteedd SSeerrvviicceess

IInnssuurraannccee AAllllooccaattiioonn

In addition to estimating the number and

dollar value of future claims against

companies, we are often asked to analyze

the effect of projected future claims on

insurance allocation.

We combine the highest levels

of rigor with a sophisticated,

cross-disciplinary approach.

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11

LLiittiiggaattiioonn MMooddeelliinngg

NERA’s litigation expertise extends beyond

the witness stand. We have also modeled

the litigation decision process itself, con-

structing models that compare the costs

and benefits to defendants of alternative

litigation strategies. For example, we can

compare expected outcomes under both an

aggressive defense of a lawsuit as well as an

early settlement. We have analyzed plaintiff

decisions to sue—both at the individual

claimant level, and, for class action suits, at

the level of the plaintiffs’ law firm.

CCooddiinngg IInnffoorrmmaattiioonn ffrroomm CCllaaiimmss FFiilleess

NERA experts are also proficient in all

aspects of capturing and coding information

from claims files. We have developed a

systematic process for coding hard copy

claims data into electronic databases. We

have coded large samples of personal injury

and property damage claims in a number of

areas, including asbestos, breast implants,

police incidence reports and food poisoning.

Information coded has included alleged

disease, doctors’ diagnoses, exposure site

information and plaintiffs’ smoking history.

Our rigorous sampling and statistical

techniques are used to support testimony

that a sample is representative of the

population as a whole.

For each coding project, we determine the

most cost-effective approach, design coding

protocols that establish clear rules (avoiding

error or bias introduced by human subjec-

tivity) and create systems of double-entry

and reconciliation to ensure accuracy. When

necessary, we manage teams of outside

personnel, operating on round-the-clock

shifts, to ensure the project is completed in

a timely and efficient manner.

12

AAbboouutt NNEERRAA

NERA Economic Consulting is an international

firm of economists who understand how mar-

kets work. We provide economic analysis and

advice to corporations, governments, law firms,

regulatory agencies, trade associations, and in-

ternational agencies. Our global team of more

than 600 professionals operates in over 20 of-

fices across North and South America, Europe,

and Asia Pacific.

NERA provides practical economic advice relat-

ed to highly complex business and legal issues

arising from competition, regulation, public

policy, strategy, finance, and litigation. Our

more than 45 years of experience creating

strategies, studies, reports, expert testimony,

and policy recommendations reflects our spe-

cialization in industrial and financial econom-

ics. Because of our commitment to deliver un-

biased findings, we are widely recognized for

our independence. Our clients come to us ex-

pecting integrity and the unvarnished truth.

NERA Economic Consulting (wwwwww..nneerraa..ccoomm),

founded in 1961 as National Economic Research

Associates, is a unit of the Oliver Wyman Group,

an MMC company.

CCoonnttaacctt IInnffoorrmmaattiioonn

NERA Economic Consulting

1166 Avenue of the Americas

34th Floor

New York, NY 10036

Tel: 212.345.3000

Fax: 212.345.4650

HHooww MMaarrkkeettss WWoorrkk SM

16

Visit www.nera.com to learn more about our practice areas and global offices.

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National Economic Research

Associates, Inc.

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