Terrorism Risk in 2015: Issues and Perspectives

TERRORISM RISK IN 2015: ISSUES AND PERSPECTIVES

PRESENTERS:

Chris Folkman, Director, Model Product Management, RMS Lloyd Dixon, Director and Senior Economist, RAND Corporation Gordon Woo, Catastrophist, RMS

Participant Dial In: (855) 467-7289 Conference ID: 71585071

TERRORISM RISK IN 2015: ISSUES AND PERSPECTIVES Chris Folkman

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AGENDA

§  TRIA (Terrorism Risk and Insurance Act) and renewal implications §  Terrorism risk modeling in 2015

§  Q&A


Presenters Lloyd Dixon Director and Senior Economist RAND Corporation

Gordon Woo Catastrophist RMS

IMPLICATIONS OF THE TRIA RENEWAL Lloyd Dixon January 28, 2015


Program Feature

Provision in 2014 Provision in 2020

Program trigger $100 million $200 million Insurer deductible 20% of DEP 20% of DEP Insurer co-pay 15% 20% Recoupment surcharge 133% 140% Aggregate industry retention $27.5 billion $37.5 billion Program cap $100 billion $100 billion Domestic terrorism covered Yes Yes Treatment of NBCR Not treated

separately Not treated separately

TERRORISM RISK INSURANCE PROGRAM REAUTHORIZATION ACT OF 2015 EXTENDS PROGRAM THROUGH 2020


Hot Issues Moving Forward

§  GAO study on setting premiums for TRIP coverage §  GAO study on requiring insurers to set up reserve

funds for terrorism losses §  Advisory committee on how to increase private

terrorism risk reinsurance capacity §  Annual reporting requirements on terrorism coverage

§  Annual study on competitive challenges small insurers face in the terrorism insurance risk market


TRIA Has Important Impacts in Workers’ Compensation Market

§  WC statutes constrain insurers’ response to risk §  Insurers may limit capacity in high-risk areas

§  Employers would obtain coverage in residual markets §  Residual market growth is costly even if there is never

another terror attack


Hawaii

Alaska

A10468-MD-9

Cost Gradient

WITH TRIA, COSTS OF WC TERRORISM LOSSES ARE SHARED NATIONWIDE


Hawaii

Alaska

Cost Gradient

WITHOUT TRIA, WC COSTS WOULD BE CONCENTRATED IN THE STATE OF THE ATTACK

TERRORISM RISK MODELING Gordon Woo

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TERRORISM INSURANCE IN NORTH AMERICA AND WESTERN EUROPE IS EFFECTIVELY INSURANCE FOR COUNTER-TERRORISM FAILING §  Since 9/11, there

have been dozens of terrorist plots, but only a few notable successes:

Madrid 2004

London 2005

Boston 2013

Paris 2015

Edward Snowden


Too Many Terrorists Spoil the Plot

Cell Size 1 2 3 4 5 6 7 8 9 10

Plot Interdiction Probability

0.26 0.46 0.60 0.70 0.78 0.84 0.88 0.91 0.93 0.95

“For a large operation against the U.S., pick a number of brothers not to exceed ten...’’

Osama bin Laden Abottabad, Pakistan


Terrorist Attacks with Few Operatives


ISIL Activity Areas

ISIL Activity


Foreign Fighters in Syria and Iraq

0

500

1000

1500

2000

2500

3000

3500

Tunisia Saudi Jordan Morocco Russia France UK


Modeling the TRIA Renewal

§  Model TRIA as a stop-loss treaty (probabilistically) or a cat treaty (for individual scenarios)

§  Coverage applies to a company’s gross loss prior to the application of other reinsurance

§  See FAQ document on rms.com for step-by-step instructions


RMS TERRORISM MODELING AGENDA

§  Recent terrorism model release in 2014 §  New model releases planned in 2015

§  Ongoing solutions for exposure management, scenario modeling, probabilistic analysis

§  Call us with modeling questions

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Q + A

Economy & Finance

Terrorism Risk in 2015: Issues and Perspectives