Casualty Actuarial Society ___________________________________ In - - PDF document

Terroris ism Ri m Risk In sk Insur surance Pr Program Overview

Casualty Actuarial Society “In Focus: Government in Insurance” October 4-5, 2010

James P Brown Senior Analyst US Treasury Department

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Terroris ism Ri m Risk In sk Insur surance Pr Program Terrorism Risk Insurance Act (“TRIA”)

• Enacted and signed into law November 2002

Created Terrorism Risk Insurance Program (“TRIP”)

• Extended in 2005
• Reauthorized 2007 until EOY 2014

History

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• Address Insurance Market Disruptions
• Ensure Availability and Affordability of Commercial

P&C Terrorism Coverage

• Provide Transition Period
• Strengthen Overall Economy

Purpose

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• Part of Domestic Finance Office in Treasury

Department

• Headquartered in Washington, DC
• Small Staff
• 4 Professionals with over 130 cumulative years
• f Insurance Experience
• 2 Administrative Personnel
• Outsourced: Claims, System and Audit Functions

Office

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Terrori rism R sm Risk isk In Insu surance Pr Program Stand-by Reinsurance Mechanism which:

• Pays “federal share” of incurred losses resulting

from certified terrorist event

• Assures insurer compliance with TRIA
• Timely Assesses and report potential losses
• Oversees implementation and collection of

“recoupment fees”

• Communicates with insurance industry stake

holders Functions

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Terroris ism Ri m Risk In sk Insur surance Pr Program m

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

Secretary of State Secretary of Treasury Attorney General

*Program Trigger $100M

Trig igger

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• All Acts of Terrorism Covered
• Insurer Deductible 20%
• Insurer “Co Pay” 15%
• $100B “HARD” Cap on losses

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TER TERROR ORISM SM RISK SK INSURA NSURANC NCE E PR PROG OGRAM

• Medical Malpractice
• Commercial Auto
• Reinsurance
• Burglary & Theft
• Life & Health
• Surety
• Crop
• Farm Owners Multi

Peril

• Financial Guaranty
• Professional

Liability

• Flood

Coverage Ex Excluded

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TERR TERRORISM SM RISK SK INSU SURANCE PR E PROGRAM

• Nuclear
• Biological
• Chemical
• Radiological
• Punitive Damages

Ex Exclusions

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• Make Terrorism Coverage Available
• Respond to Data Calls
• Accurately and Completely Adjust and Report

Claims

• Collect Recoupments

Insurer Obligations

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• Terrorism Impact on availability has been minimized
• “Take-up” rate is increasing from 25% of businesses

at the inception of the program to 61% in 2009*

• Premiums have decreased from $37 per M in 2008 to

$25 per M in 2009*

• Some Reinsurers Reentering Market

*The Marsh Report Terrorism Risk Insurance 2010

TRIA Impact

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• Dearth of Data
• Modeling More Useful for Exposure

Management than Rate Making

• Policy limits, Frequency Expectations,

Concentration of Risks and Market Pressures Key Elements in Premium Setting Pricing

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Terroris ism Ri m Risk In sk Insur surance Pr Program

• Presidential Commission
• Report on NBCR
• World Events

Horizon

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