September 9, 2004

Dear Colleague:

The past fiscal year has been extremely busy for the ANA staff and management team. These past 12-months, ending August 31, 2004 have yielded a mixed bag of favorable and unfavorable results. Following is an overview of last year’s activities and a look at what lies in store for the year ahead.

On the plus side, we saw an end to litigation in both the LeBoeuf and Citibank cases. The resulting settlements yielded a very useful distribution of cash and credit notes. Both cases were originated by the ANA under the direction of our previous Chairman Richard Rosenblatt. In the past five years these cases have demanded considerable ANA staff time and resource support, especially by Jeff Peterson. Eugene Goldman, Esq. was instrumental in his role as liaison with Class counsel in the Citibank case. It is fair to say that without the consistent support of the ANA, neither case would have ended up as well as they did. We hope that in the near future we will be able to disclose in detail the considerable obstacles and issues that our staff and attorneys surmounted to get these cases to settle and pay off in a timely manner.

On the down side, we had to continue the coordination of legal defenses against Lloyd’s efforts to have US courts recognize and enforce judgments obtained in the UK in 1998. We have conducted these defenses in twenty-five (25) states, and more than thirty-eight (38) jurisdictions over the past six years. Organizing and financing these defenses was a monumental undertaking. Despite extensive preparation at the national level, coupled with capable and creative counsel at the local level, we have been unable to overcome the position of the federal judiciary that we are (a) bound by Lloyd’s General Undertaking, (b) must submit all matters to UK courts for adjudication and (c) that the UK courts’ procedures and findings are unquestionable. The result has been that US courts have uniformly recognized Lloyd’s UK judgments against Names.

Although Lloyd’s has won most legal battles over the right to use their UK judgments here, they have effectively lost the war when it comes to enforcing those judgments. Lloyd’s failure to realize significant recoveries from Names via their litigation-based collection efforts in the US is testimony to the efficacy of ANA management’s strategic planning. While the primary goal of ANA defenses was to block Lloyd’s right to collect, the secondary objective was to minimize what they would collect in the worst case scenario. Confirming what we ascertained from our extensive survey of ANA members’ collectibilitiy in 1998, and conveyed to Lloyd’s senior management in numerous discussions held between 1998 and 2004, Lloyd’s has only been able to collect around 20 cents on the dollar from ANA members as a whole. A few members have had to pay their UK judgment plus interest in full, but most have paid only part of the bill or nothing at all.

Letter to ANA Members
Page two / 09-09-04

In hindsight, the ANA’s Litigation Defense Plan minimized an individual defendant’s legal fees by spreading the overall costs of litigation among dozens of members in numerous states. While the defenses did not yield an outright victory for Names, they delayed the overall process for more than 6-years, bought time for members to get cash in hand from the LeBouef and Citibank case settlements, allowed members who were so inclined to purchase credit notes to satisfy their judgments with Lloyd’s, enabled many to get their affairs in order and created a net loss for Lloyd’s financial recovery efforts against ANA members.

Due to issues of privelege and ethics, we may never be able to fully reveal the details of how these defense cases were artfully financed and managed. Suffice it to say that members owe a debt of thanks to the ANA Litigation Committee, Board and staff along with a team of more than 25 law firms overseen by Ted Grippo, Esq. for fulfilling their respective duties defending against Lloyd’s judgments.

Possibly the biggest story of the year is the discussions the ANA conducted with Lloyd’s executives during the period May through July 2004. Because Lloyd’s agreed they would "take a commercial decision" on a creative and most logical proposal for settlement designed by Jeff Peterson and approved by Ted Grippo and the Litigation Committee, it was agreed that Jeff and Ted would travel to London to work out a resolution of all the remaining nineteen (19) collection actions that were, at the time, pending. This proposal, if agreed, would have saved both Lloyd’s and our affected members considerable sums of money and would have ended the ongoing collection cases. Although Lloyd’s in-house attorneys professed to like the plan and said our projected collectablity figures matched theirs, they required considerable personal financial disclosures from members in advance of reaching agreement. We had neither the right nor any desire to provide that information, and the discussions ultimately collapsed. Both Jeff and Ted deserve our thanks for an heroic effort.

There were some favorable by-products of the failed effort to reach a global resolution of the defense cases:

• We clarified once and for all the issue of whether a commercial resolution could be reached with Lloyd’s;
• Even though a settlement was not achieved, nearly all members who wanted to acquire credit notes have done so and are satisfying their judgements with Lloyd’s on a discounted basis. The bright spot with credit notes is Names who would otherwise have had to pay Lloyd’s in full, get to discharge their obligation to Lloyd’s at cents on the dollar while enriching their fellow Names, instead of Lloyd’s;
• Those who were only going to contribute some or all of their litigation winnings to fund their share of the ANA settlement pot, have now either filed for bankruptcy or have maintained their uncollectible posture; and
• Less than ten (10) defense cases remain unresolved. Most of them will be concluded one way or another in the next 60-days.

Letter to ANA Members
Page three / 09-09-04

During this most recent fiscal year we have also been implementing a major project that was discussed at our 2003 Annual Meeting in Chicago. Part of this project involved going public with the true agenda behind the most recent reorganization of Lloyd’s. We are continuing this project into the new fiscal year, since we know it is a sensitive issue for Lloyd’s in its dealings with regulators, auditors and policyholders. We have learned from comments made by Lloyd’s executives and counsel that they are painfully aware of the ANA’s leadership role in this effort. Lloyd’s has surely not forgotten the part the ANA played in bringing the Citibank and LeBeouf cases to a favorable conclusion, and the role we continue to play in educating US insurance executives and regulatory officials about Lloyd’s.

One major responsiblitity we have going forward is the need to keep a close eye on the Equitas situation. This problem will continue to be important to all former members of Lloyd’s, whether they have settled or not. Our goal is to ensure that ANA members are both the best informed Names in the world on this subject, and the most prepared to mobilize as a group to respond to a deterioration in Equitas’ financial position. We will discuss this issue in more detail in future letters and NewsFlashes.

It has been gratifying for me to witness the hard work and dedication of our volunteers, staff and attorneys during the past year. I join the Board of Directors in thanking you for the opportunity to serve you and for your continued, loyal support of the ANA.

Very truly yours,

J.F. Shettle, Sr.
Chairman