T errorism R isk I nsurance P rogram

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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

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Overview

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 ofTreasury

AttorneyGeneral

*Program Trigger $100M

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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

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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

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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

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• 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.


Regulations

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• 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


Regulations

*2005 Extension Act reaffirms Presidential Memorandum

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Regulations

• 6th Final Rule - Affiliation Determination

- Affiliations frozen after first trigger event

- Recall: Certified Event –vs- Trigger Event

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Regulations

• 7th Final Rule

- Implements 2005 changes mandated by Congress

- Clarifies multiple events not cumulative to reach trigger event

- NAIC Model Forms: Safe Harbor

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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

*Insurer 90 day compliance window (March 31, 2008)

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Regulations

• 9th Final Rule - $100B Cap Proration

• 10th Final Rule - Recoupment of Federal Payments

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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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Bordereau Formats

• Excel

• Comma delimited text file

• Pipe delimited text file

• Online manual completion

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Claims Process

• www.treas.gov/trip

- Links to:

• TRIP Claims Manager

• Register Treasury Payments

http://www.treas.gov/trip

http://www.treas.gov/trip

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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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Claims Payments

TRIP Claims Contractor

4. TRIP Office Approves Payment

5. Treasury Issues Funds

3. Co. Establishes Segregated

Account

Insurance Co.

1. Company Submits

Certification of Loss with Bordereau

2. Reviews COL for Accuracy/Recommends

Payment

Reg. Acct #

Payment

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Aggregate Industry Retention

2003 $10.0B

2004 $12.5B

2005 $15.0B

2006 $25.0B

2007 $27.5B

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$40B Insured Loss Assumptions

Loss occurs 2008

100 Insurers Impacted

$27.5B TRIA covered DEP 100 Industry Aggregate Retention Insurers = $30B

Trip Pays $28.9B 20% Deductible = $6.0B

15% Coinsurance = $5.1B

100 Companies Pay $11.1B

$11.1B Paid by 100 companies

Program Trigger Event $100M

* 16.4B plus 33% (5.4B) = 21.8B Total Recoupment – PAYGO


Recoupment Example

DiscretionaryRecoupment

$12.5B

MandatoryRecoupment

$16.4B*

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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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2.36%

3.10%

3.31%

3.56%

3.75%

4.02%

4.20%

4.69%

4.76%

4.76%

4.94%

5.09%

6.07%

7.65%

8.03%

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

Construction

Manufacturing

Healthcare

Financial Institutions

Retail

Technology/Telecom

Public Entity

Food & Beverage

Transportation

Education

Utility

Real Estate

Media

Habitational/Hospitality

Energy


Terrorism Premium as Percentage of Property Premium, by industry

Marsh, Inc.

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23.5%

32.70%

44.20%46.20%

44.00%

48.00%

58.00% 59.00%

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


Take-Up Rate Rising

2006 Marsh Marketwatch Report; Insurance Information Institute

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Terrorism Risk Insurance

STUDIES

WHO WHAT WHEN

PWG Availability/Affordability 9/30 2010/2013

Financial Markets Terrorism Insurance

Comptroller Availability/AffordabilityGeneral Insurer NBCR Losses

12/26/08

Comptroller Specific 6/26/08General Market Capacity Constraints

Availability/AffordabilityInsurance/Reinsurance

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TRIP 2008 Objectives

• Interim Guidance Jan 1, 2008

• Report Proration Procedures May 1, 2008

• Recoupment Regulations Jul 1, 2008

• Final Proration Regulation Sep 1, 2008

• Recompete Contracts:ClaimsAuditStatistical Reporting

• Regulation: Final Netting

Documents

T errorism R isk I nsurance P rogram