Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA)

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1 Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) 13 th Annual ACI-NA Insurance & Risk Management Conference January 13, 2012 Stephen P. Dinsdale Senior Vice President, ACE USA

2 Any opinions or positions expressed in this presentation are the presenter s own and not those of any ACE company. The information, material and descriptions contained herein are intended only as a general overview of certain types of insurance or insurance-related services. The description(s) of insurance coverages, policies or services herein shall not amend, modify, replace, alter, or otherwise changes the terms, conditions, limits, provisions, exclusions or endorsements contained in any policy issued by the insurance companies of ACE USA. Please consult your insurance professional and/or policy for precise terms, limits, exclusions and conditions. The description(s) and material(s) contained herein shall not provide a basis for a legal relationship between ACE USA and any potential or existing customer and gives no cause to anyone for claims, demands, assertions or other rights towards ACE USA or the insurance companies of ACE USA, either on a contractual or on a non-contractual basis. A portion of this presentation has been made available with the kind permission of Aon Corporation. The content of this presentation will be available on the ACI-NA website. 2

The description(s) of insurance coverages, policies or services herein shall not amend, modify, replace, alter, or otherwise changes the terms, conditions, limits, provisions, exclusions or

3 Agenda TRIPRA 2007 Key changes Threats and Insurance Implications TRIPRA Highlights 3

4 TRIPRA 2007 Key Changes Reauthorization Act of 2007 Extended Terrorism Risk Insurance Extension Act (TRIEA) 2005 December 26, 2007: Signed into law by White House 4

5 TRIPRA 2007 Key Changes 2007 Reauthorization Act: 6 key changes to TRIEA 2005 Act 1. Seven (7) year extension term (until 12/31/14) 2. Inclusion of domestic acts of terrorism in definition of covered or certified events, formerly only foreign acts of terrorism 3. Accelerated post event payment provisions for reimbursing federal government via surcharges for events below a certain insured loss threshold ($27.5 billion), as well as additional discretionary recoupment provisions 5

Inclusion of domestic acts of terrorism in definition of covered or certified events, formerly only foreign acts of

6 TRIPRA 2007 Key Changes 4. Cap on insurer retentions stated that insurers: Are only responsible for their respective coinsurance and TRIA deductible exposures Cannot be looked to for funding losses in excess of the $100 billion annual aggregate limit under the Act 5. Required U.S. Treasury to Establish process for allocation of pro-rata payments in the event that terrorism-related insurance losses exceed federal government s annual aggregate cap of $100 billion (Completed) Issue report within 180 days describing recoupment changes 6

Cannot be looked to for funding losses in excess of the $100 billion annual aggregate limit under the Act 5. Required U.S.

7 TRIPRA 2007 Key Changes 6. Changed recoupment provisions of TRIA If insured losses are less than $27.5 billion, federal government can recoup difference between actual amount paid and required retention via surcharges, not to exceed 3% of premium for insurance coverages that fall under the Act, subject to defined schedule for repayment Insurance industry as a whole must cover $27.5 billion of deductibles and co-payments (up from $25 billion in 2006) before federal assistance kicks in 7

to exceed 3% of premium for insurance coverages that fall under the Act, subject to defined schedule for repayment

8 Threats and Insurance Implications RECENT TERRORIST ATTACK ATTEMPTS IN THE U.S. Date Location Event Dec. 8, 2010 Baltimore, MD Attempted bombing of Armed Forces recruiting center by U.S. citizen Antonio Martinez, aka Muhammad Hussain Nov. 26, 2010 Portland, OR Attempted bombing at Christmas tree lighting ceremony in downtown Portland by naturalized U.S. citizen Mohamed Osman Mohamud Oct Washington, DC Attempted plot to bomb DC area metro stations May 1, 2010 New York City, NY Attempted SUV bombing in Times Square, New York City by naturalized U.S. citizen Faisal Shahzad Dec. 25, 2009 Over Detroit, MI Attempted bombing of Northwest Airlines passenger jet over Detroit by underwear bomber Umar Farouk Abdulmutallab Sept New York City, NY U.S. resident Najibullah Zazi and others charged with conspiracy to use weapons of mass destruction in New York City. Sept Springfield, IL Attempted plot to detonate a vehicle bomb at the federal building in Springfield, IL Sept Dallas, TX Attempted bombing of skyscraper in Dallas, TX May, 2009 May, 2009 New York City, NY Various US targets Source: Federal Bureau of Investigation (FBI); Insurance Information Institute Foiled plot to bomb synagogue and shoot down military planes in New York City Conviction of Liberty City six for conspiring to plan attacks on U.S. targets, including Sears Tower, Chicago 8

2010 Washington, DC Attempted plot to bomb DC area metro stations May 1, 2010 New York City, NY Attempted SUV bombing in Times Square, New York City by naturalized U.S. citizen Faisal Shahzad Dec.

9 Threats and Insurance Implications Insurance Implications Between 1970 and 2010 insured property losses were $28.92 billion, with the largest event, September 11, 201, at $23.14 billion 1 Only 21% of ACE USA airport liability policyholders buy some form of terrorism coverage, TRIA or Extended Coverage War, Hi-jacking & Other Perils 2 With spending freeze, will U.S. government bail out those who do not buy any form of terrorism coverage? Cost of insurance could increase in the event of new claims 1 Source: Swiss Re 2010 report on Worst Terrorist Acts Insured Property Losses 2 Based on informal survey of ACE airport liability policyholders 9

14 billion 1 Only 21% of ACE USA airport liability policyholders buy some form of terrorism coverage, TRIA or Extended Coverage War, Hi-jacking & Other Perils 2

10 TRIPRA Highlights Highlights Term/Timeline 7 Year Term extension effective for 1/1/08 12/31/2014 Latest Action by Congress/White House December 18, 2007 House passed Senate version of TRIA extension legislation December 26, 2007 White House signed TRIPRA 2007 into law. Changes in TRIPRA terrorism definition became effective on date of enactment as per U.S. Treasury Interim Guidance of December 31,

legislation December 26, 2007 White House signed TRIPRA 2007 into law.

11 TRIPRA Highlights Highlights Covered Terrorist Events (definition of a certified TRIA event) Loss Limit (Annual Aggregate amount of funds available to fund losses) Changed. Any terrorism act, including domestic terrorism (eliminated acting on behalf of any foreign person or foreign interest ) including domestic was new To be certified, an event must cause at least $5 million in aggregate property and casualty insurance losses and take place on U.S. soil (limited foreign exposure exceptions) No change: $100 billion annual aggregate (including insurance industry aggregate retentions) Changed: Clarified that insurers are capped at their respective retention levels for deductibles and coinsurance exposures within the $100 billion annual cap 11

least $5 million in aggregate property and casualty insurance losses and take place on U.S.

12 TRIPRA Highlights Highlights Event or Loss Trigger (for payment of federal reinsurance funds for terrorism losses to insurers) Deductible Retention (for insurers) Coinsurance Retention (for insurers) No change: $100 million same as 2005 Act (but maintained $5 million insured loss trigger for certifying events) No change. 20% of Prior Year Direct Earned Premium (annualized income for new insurers No change. 15% of losses excess of insurer s Deductible Retention Changes to Retentions No changes to Retentions remain same as 2005 Program Year 12

million insured loss trigger for certifying events) No change.

13 TRIPRA Highlights Highlights Covered insurance lines backstopped by TRIA No change. All commercial P&C lines except: No coverage for commercial auto, financial guarantee, burglary, surety, professional liability, farm owners multiperil/crop No coverage for life, health, medical malpractice, personal lines of insurance or reinsurance Nuclear, Biological, Chemical & Radiological (NBCR) events No change. Will backstop NBCR events, but no mandatory offer of coverage except for workers compensation as per individual state laws 13

owners multiperil/crop No coverage for life, health, medical malpractice, personal lines of insurance or reinsurance Nuclear,

14 TRIPRA Highlights Highlights Make Available (mandatory offer of coverage) Recoupment Provision (forcing insurers to repay funds below certain annual aggregate loss thresholds) No change. Required for all covered P&C lines Changed: Terrorism Mandatory Disclosure Form (prerequisite to claims payments) now adds reference to $100 billion annual aggregate and requires insurers to indicate premium charge and federal share of losses $27.5 billion if aggregate losses are: Below this threshold, insureds assessed a surcharge on all in-force P&C policies (no cap on surcharge) with insurers remitting these funds to Federal Government Recoupment Above this threshold also available at discretion of Congress See Funding Change below 14

Required for all covered P&C lines Changed: Terrorism Mandatory Disclosure Form (prerequisite to claims payments) now adds reference to $100 billion annual aggregate and requires

15 TRIPRA Highlights Highlights Funding TRIA Costs (as a result of CBO estimates ranging from $5.1 billion to $8.4 billion over ten years for Senate and House Bills, Respectively) Change. Accelerated Recoupment Provision payment (see above): 1) Removed 3% cap on surcharges and mandatory recoupment level set at 133% of mandatory recoupment amount for a given Program Year 2) Required repayment for losses below $27.5 billion aggregate loss threshold over two terms (losses between repaid by 2013; losses after 2011 repaid by 2017) 3) Within 180 days of enactment, U.S. Treasury must issue a report describing how these new recoupment changes will be managed and how they will be paid in the defined periods noted above 15

Accelerated Recoupment Provision payment (see above): 1) Removed 3% cap on surcharges and mandatory recoupment level set at 133% of mandatory recoupment amount for a given Program

16 TRIPRA Highlights Highlights Reporting and Study Provisions Changed: Required: President s Working Group (PWG) Report 2010 Report of the PWG on Financial Markets Further PWG Report required in 2012 Loss Notification Procedures Change: U.S. Treasury to advise Congress following an event if there is potential to exceed $100 billion Loss Limit. Treasury to issue pro rata claims guidelines within 180 days. 16

2012 Loss Notification Procedures Change: U.S.

12 th Annual ACI-NA Insurance & Risk Management Conference

12 th Annual ACI-NA Insurance & Risk Management Conference General Session 8 - Terrorism How Does Aviation Liability Insurance Respond to Terrorism? Stephen P. Dinsdale Any opinions or positions expressed