Terrorism Risk Insurance Program

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					 Terrorism Risk
Insurance Program
            Terrorism Risk Insurance Program
                               Purpose


• Address Insurance Market Disruptions

• Ensure Availability and Affordability of Commercial P&C
  Terrorism Coverage

• Provide Transition Period

• Stabilize and Build Capacity in Private Market

• Strengthen Overall Economy




                                                            2
                Terrorism Risk Insurance Program
                                         Overview



                                               Certifies Act of Terrorism Resulting in
                                                 Damage > 5M*
                                                                 IN
                       Secretary of
                        Treasury                        United States
                                                        U.S. Missions
                                                        U.S. Air Carriers
                                                        U.S. Vessels
                                                                 FOR
           Secretary                  Attorney          Specified Commercial Lines
              of                      General
             State                                      Workers Compensation

*Program Trigger $100M                                                             3
              Terrorism Risk Insurance Program
                       Lines Excluded

     • Medical Malpractice               • Commercial Auto
     • Reinsurance                       • Burglary & Theft
     • Life & Health                     • Surety
     • Crop                              • Farm Owners Multi Peril
     • Financial Guaranty                • Professional Liability*
     • Flood




*NAIC SERFF Uniform P&C Matrix: Professional E + O Liability         4
        Terrorism Risk Insurance Program
                   As Amended


•   All Acts of Terrorism Covered
•   Extended 2014
•   Insurer Deductible 20%
•   Insurer “Co Pay” 15%
•   Program Trigger $100M
•   $100B “HARD” Cap on losses
•   3% Cap Surcharge Mandatory Recoupment
    Eliminated


                                            5
                Terrorism Risk Insurance Program
                              Regulations

•   1st   Final Rule
    -      Provides key definitions, such as “Act of Terrorism,”
           “Insurer,” and “Affiliate”
    -      Identifies lines of Commercial Property & Casualty
           Insurance included in the Program
• 2nd Final Rule
    -      Make available requirements
    -      Disclosure requirements
• 3rd Final Rule
    -      State residual market mechanisms



                                                                   6
           Terrorism Risk Insurance Program
                       Regulations

• 4th Final Rule – Claims

  -   Speed with which TRIP will act on a request for
      reimbursement.

  -   Payment of allocated loss adjustment expenses.

  -   Level of documentation required to support a claim.

  -   Unique data elements required in reporting.

  -   Advanced payments.



                                                            7
                 Terrorism Risk Insurance Program
                              Regulations

•      5th Final Rule - Litigation Management
Follows Requirements of Act
       -   Exclusive Federal cause of action
       -   Preserves government subrogation rights
       -   Federal funds not used to pay punitive damages

Presidential Memorandum*
       -   Advance approval of Secretary of Treasury for proposed
           settlements of Federal causes of action
                  > $ 2M personal injury or death
                  > $ 10M property damage
    *2005 Extension Act reaffirms Presidential Memorandum           8
                 Terrorism Risk Insurance Program
                                 Regulations

•   6th Final Rule - Affiliation Determination

    -   Affiliations frozen after first trigger event


•   7th Final Rule
    -   Implements 2005 changes mandated by Congress

    -   Clarifies multiple events not cumulative to reach trigger event

    -   NAIC Model Forms: Safe Harbor




                                                                          9
                   Terrorism Risk Insurance Program
                                    Regulations


•     8th Final Rule (Interim Guidance)

      -   Implements 2007 Extension Act Changes

      -   Mandatory Make Available Requirement (foreign and domestic)-Any
          offers made on or after 12/26/07*

      -   Disclosure of CAP on Insured losses by first offer, purchase or
          renewal for policies issued after 12/26/2007

      -   Disclosure of Premium Amount
          -       Offer, Purchase, Renewal of Policy
          -       Must Match the Offer


                                                                            10
*Insurer 90 day compliance window (March 31, 2008)
           Terrorism Risk Insurance Program

                     Regulations



• 9th Final Rule - $100B Cap Proration



• 10th Final Rule - Recoupment of Federal Payments




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               Terrorism Risk Insurance Program

                       Claims Process/Forms


1.   Initial Notice of loss/Registration
2.   Certification of loss
3.   Schedule A – DEP & Insurer deductible
4.   Schedule B – Certification of Compliance
5.   Schedule C - Bordereau




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            Terrorism Risk Insurance Program

                     Bordereau Formats


• Excel

• Comma delimited text file

• Pipe delimited text file

• Online manual completion




                                               13
           Terrorism Risk Insurance Program
                          Claims Process




• www.treas.gov/trip
        - Links to:

  • TRIP Claims Manager

  • Register Treasury Payments




                                              14
           Terrorism Risk Insurance Program
            Security & Best Practices Review


• Claims Facility utilizes well proven security
  architecture tools and protocols

• Security Accreditation issued by Treasury in October
  2004 after extensive review by Booz Allen Hamilton

• 2005 Deloitte audit concluded plans and procedures
  “support the operation of an effective and efficient
  TRIP Claims Facility.”




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                Terrorism Risk Insurance Program
                     Claims Payments



                              TRIP Claims
 1. Company                    Contractor
     Submits
   Certification
   of Loss with           2. Reviews COL for
    Bordereau           Accuracy/Recommends
                               Payment                  4. TRIP Office
                                                      Approves Payment

                                        Reg. Acct #
                        3. Co.
Insurance Co.         Establishes                        5. Treasury
                      Segregated        Payment         Issues Funds
                        Account

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Terrorism Risk Insurance Program
  Aggregate Industry Retention


     2003      $10.0B
     2004      $12.5B
     2005      $15.0B
     2006      $25.0B
     2007      $27.5B



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                         Terrorism Risk Insurance Program

                                        Recoupment Example



                        Discretionary          $40B Insured Loss              Assumptions
                        Recoupment
                                                                              Loss occurs 2008
                           $12.5B
                                                                              100 Insurers Impacted

                                                $27.5B                        TRIA covered DEP 100
                                               Industry Aggregate Retention   Insurers = $30B
                         Mandatory
Trip
Pays $28.9B
                        Recoupment                                            20% Deductible = $6.0B
                          $16.4B*                                             15% Coinsurance = $5.1B

                                                                              100 Companies Pay $11.1B


                                               $11.1B Paid by 100 companies



                                               Program Trigger Event $100M
                                                                                                        18
* 16.4B plus 33% (5.4B) = 21.8B Total Recoupment – PAYGO
                 Terrorism Risk Insurance Program
                 Accelerated Recoupment – Pay Go


Event Date                                 Collections Completed

Prior 12/31/2010                                 9/30/2012

1/1/2011 – 12/31/2011      35% 9/30/2012         9/30/2017

After 1/1/2012                                   9/30/17




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                                        Terrorism Risk Insurance Program
                                        Terrorism Premium as Percentage
                                        of Property Premium, by industry


                        Energy                                                                        8.03%
        Habitational/Hospitality                                                                   7.65%
                         Media                                                        6.07%
                   Real Estate                                               5.09%
                         Utility                                            4.94%
                     Education                                           4.76%
                Transportation                                           4.76%
              Food & Beverage                                            4.69%
                  Public Entity                                     4.20%
          Technology/Telecom                                     4.02%
                         Retail                                3.75%
          Financial Institutions                           3.56%
                    Healthcare                          3.31%
                Manufacturing                          3.10%
                  Construction                 2.36%

                              0%   1%     2%       3%          4%           5%       6%       7%    8%        9%

                                                                                                                   20
Marsh, Inc.
                                         Terrorism Risk Insurance Program
                                                            Take-Up Rate Rising



                                                                                         58.00%   59.00%



                                                                               48.00%
                                                         46.20%
                                        44.20%                      44.00%



                      32.70%


      23.5%




      2003:II          2003:IV           2004:I           2004:II   2004:III   2004:IV    2005     2006


                                                                                                           21
2006 Marsh Marketwatch Report; Insurance Information Institute
                    Terrorism Risk Insurance
                             STUDIES

  WHO                        WHAT                           WHEN

PWG                    Availability/Affordability    9/30       2010/2013
Financial Markets      Terrorism Insurance



GAO                    Availability/Affordability
                       Insurer NBCR Losses                  12/26/08




GAO                    Specific                             6/26/08
                       Market Capacity Constraints
                       Availability/Affordability
                       Insurance/Reinsurance



                                                                       22
            Terrorism Risk Insurance Program

                  TRIP 2009 Objectives



•   Final Interim Guidance 2007 Renewal
•   Final Recoupment Regulations
•   Final Proration Regulation
•   Regulation: Final Netting ?
•   Claims Readiness Testing



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                                  Terrorism Risk Insurance
                    Government Sponsored Insurance Program



Government Subsidized                                Not Government Subsidized
1)    National Flood Insurance Program               1)   National Vaccine Injury Compensation
2)    Federal Crop Insurance                              Program
3)    Insurance for Catastrophic Nuclear Accidents   2)   Pension Benefit Guaranty Corporation
4)    Service-Disabled Veterans Insurance                 Insurance
5)    Veterans’ Mortgage Life Insurance
                                                     3)   Overseas Private Investment Corporation:
6)    National Credit Union Share Insurance
                                                          Political Risk Insurance
7)    Federal Deposit Insurance Trust Funds
8)    Social Security Insurance Trust Funds          4)   Aviation War Risk Insurance
      a.    Federal Hospital Insurance Trust Fund    5)   Maritime War Risk Insurance
           (Medicare)
      b. Federal Old-Age and Survivors Insurance     6)   Arts and Artifacts Indemnity
           Trust Fund
      c. Federal Disability Insurance Trust Fund
9)    Railroad Retirement Program
10)   Fishermen’s Guaranty Fund


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