Jonathan Samuelson, Harris Balcombe & Steve Thompson, KPMG

Number crunching:estimating trends in BusinessInterruption claimsJonathan Samuelson, Harris BalcombeSteve Thompson, KPMGCILA Conference: 14 September 2011

Agenda• Introduction- Jonathan Samuelson• The policy• Data• Introduction- Steve Thompson• Evidence• Litigation v insurance claims• Actuaries, accountants and astrologers• Wrap up© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.1

Jonathan Samuelson• Partner and Head of Business Interruption, Harris Balcombe LLP• Chartered Accountant (Ernst & Young) then film and TV industry• Loss assessing (claimant only). Specialising in large and/or complexbusiness interruption claims and product recalls for the last 20 years• Extensive experience of working with Forensic Accountants acting bothfor insurers and for claimants© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.2

The policyThe “other circumstances” clause in defining the Rate of Gross Profit andStandard Turnover“… to which [Rate of Gross Profit and Turnover before the damage] suchadjustment shall be made as may be necessary to provide for the trendof the business and for variations in or special circumstances affectingthe business either before or after the Damage or which h would haveaffected the business had the damage not occurred so that the figuresthus adjusted shall represent as nearly as may be reasonably practicalthe results which BUT FOR the Damage would have been obtainedduring the relative period after the Damage.”© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.3

Data• Historic performance© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.4

Data (continued)• Internal developments• New customers• New products• New locations• Lost customers• Changes in key personnel© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.5

Data (continued)• External developments• Economic conditions15% 1.5%1.0%0.5%GDP change (quarter on quarter)0.0%-0.5%-1.0%Q1 2000 0Q3 2000 0Q1 2001Q3 2001Q1 2002 2Q3 2002 2Q1 2003Q3 2003Q1 2004Q3 2004Q1 2005Q3 2005Q1 2006Q3 2006Q1 2007Q3 2007Q1 2008Q3 2008Q1 2009Q3 2009Q1 2010 0Q3 2010 0Q1 2011-1.5%-2.0%-2.5%-3.0%• Changes in competition• Government action• Technology© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.6

Data (continued)• Comparable businesses• Within the same group• Within the same sector• Comparable products• Within the same group• Within the same sector• Forecasts/budgets• Purpose• Accuracy• Weather/seasonality• Press searches• Etc etc!© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.7

Steve Thompson• Head of Dispute Advisory Services, KPMG’s Midlands Region• Audit and accountancy, then specialising in forensic accounting• Particular specialism in insurance claims and insurance related disputes• Sun Valley, Boots, United Biscuits, it Synergy Health• Advise policy holders and insurers• Expert witness background© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.8

Evidence• Quality• Authority• Independence• Timeliness• Benchmarking• Witness statements• Support from customers and suppliers• Joint visits to competitors and trade associations© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.9

Litigation v insurance claims• Litigation• Claimant v Defendant• Each advised by lawyers and forensic accountants as expert witnesses• Expert witnesses owe an overriding duty to the Court• Exchange of experts’ reports, either sequentially or simultaneously• Disclosure – by Claimant and Defendant. Favourable and adverse• Civil il Procedure Rules 1998 and the importance of proportionality• Insurance claims• Contract between policyholders and insurers - utmost good faith• Insurers appoint loss adjusters and sometimes forensic accountants• Policyholders ld sometimes appoint loss assessors and/or forensic accountants, t butoften appoint neither• Respective responsibilities of advisers• Reporting and disclosure© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.10

Actuaries, accountants and astrologers“.... as a method of providing a reliable guide [to future events], thepredictions of an actuary would be only a little more likely to be accurate(and would almost certainly be less entertaining) than those of anastrologer.”Lord Justice Oliver, Court of Appeal, Auty v National Coal Board, 1984© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.11

Actuaries, accountants and astrologers (continued)Accuracy• ActuariesForensicAccountants?•AstrologersLossAdjusters?LossAssessors?N.B: These are in alphabetical order only!Note: Not to scale!Entertainment© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.12

Wrap up• “Post hoc ergo propter p hoc”• After it therefore because of it• “It is impossible, so why bother?”• The aims are to:• express an opinion supported by evidence• ensure satisfactory performance of a contract• Balance of probabilities© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.13

Presenters’ contact detailsSteve ThompsonKPMG ForensicTel: 0121 609 5903steve.thompson@kpmg.co.ukJonathan SamuelsonHarris BalcombeTel: 07721 615141jonathan.samuelson@harrisbalcombe.com© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.14

© 2011 KPMG LLP, a a UK limited liability partnership, is a subsidiary ofKPMG Europe LLP and a member firm of the KPMG network of independentmember firms affiliated with KPMG International Cooperative ("KPMGInternational"), a Swiss entity. All rights reserved.The KPMG name, logo and "cutting through complexity" are registeredtrademarks or trademarks of KPMG International Cooperative ("KPMGInternational").