Terrorism Insurance

Risk 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

Terrorism Risk Insurance Program Overview
Certifies Act of Foreign Terrorism Resulting in Damage > 5M* IN United States U.S. Missions U.S. Air Carriers U.S. Vessels FOR Attorney Specified Commercial Lines General Workers Compensation

Secretary of Treasury

Secretary of State

*Proposed: “Payment Trigger” Event = $50M ‘06 $100M ‘07

Terrorism Risk Insurance Program Lines Excluded

• Medical Malpractice • Reinsurance • Life & Health • Crop • Financial Guaranty • Flood

• • • • •

Commercial Auto Burglary & Theft Surety Farm Owners Multi Peril Professional Liability*

*NAIC SERFF Uniform P&C Matrix: Professional E + O Liability


Terrorism Risk Insurance Program Restrictions

Temporary Program Expires December 2007 Company Deductible 2005 15.0% DEP + 10% Insured Loss 2006 17.5% DEP + 10% Insured Loss 2007 20.0% DEP + 15% Insured Loss $100 Billion Annual Cap on Insured Losses


Terrorism Risk Insurance Program Goals

Continued availability/affordability of insurance from Certified Acts of Terrorism Transitional period for private markets to stabilize, build capacity Preserving state insurance regulations Equitable distribution of shared costs of recovery

• •

Terrorism Risk Insurance Program Core Values

• • • • •

Sense of Urgency and Purpose Open and Transparent Operations Efficient, Fair and Accurate Service Fiscal Responsibility Accountability

Terrorism Risk Insurance Program Regulations


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


Terrorism Risk Insurance Program Claims Rule

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.

• • • •

Terrorism Risk Insurance Program Advance Payments
1. Company Submits Certification of Loss with Bordereau TRIP Claims Contractor

2. Reviews COL for Accuracy/Recommends Payment

4. TRIP Office Approves Payment

Insurance Co.

3. Co. Establishes Segregated Account

Reg. Acct # Payment

5. Treasury Issues Funds


Terrorism Risk Insurance Program Claims Forms

3. 4. 5. 6. 7.

Initial Notice of loss Certification of loss Schedule A – DEP & Insurer deductible Schedule B – Certification of Compliance Schedule C - Bordereau

Terrorism Risk Insurance Program Bordereau Formats

• • • •

Excel Comma delimited text file Pipe delimited text file Online manual completion

Terrorism Risk Insurance Program Claims Process

- Links to:

• •

TRIP Claims Manager Register Treasury Payments


Terrorism Risk Insurance Program TRIP Service Contractors

•Paragon •ISO •Deloitte

Claims Processing & Management

Statistical Reporting

Claims Auditing

Terrorism Risk Insurance Program Contracting Process

2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. 17. 18. 19.

Develop initial statement of work Analyze requirements Acquisition Office/TRIP Office development of Procurement Plan Conduct market research-receive comments Coordination of technical issues, e.g., systems, financial, accounting Issue request for comments (optional)-receive and analyze comments TRIP Office redraft of statement of work-develop independent cost estimate Acquisition announce planned RFP release date on TRIP/Acquisition development selection plan Acquisition Office preparation and clearance of RFP Release of RFP-Announce RFP FEDBIZOPPS.GOV Receive and answer questions Conduct pre-proposal conference Amend solicitation (as required) Receive and evaluate proposals Establish a competitive range, obtain clarifications on conduction negotiations; obtain “Best and Final Offers” (as required) Preparation of Report/Recommendation; Source Selection Authority decision Acquisition Office prepare, clear and award contract 15

Terrorism Risk Insurance Program 5th 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 Extension Act reaffirms Presidential Memorandum

Terrorism Risk Insurance Program 6th Rule Affiliation Determination

Company Affiliations are considered frozen after first certified event in any calendar year Proposed: Affiliations frozen after first trigger event Recall: Certified Event –vs- Trigger Event

Terrorism Risk Insurance Program 7th Rule Update to Regulations
• • • • •

Implements Changes Mandated by Congress Clarifies; NAIC Model Forms (Make Available Disclosure) as Safe Harbor Clarifies multiple Losses NOT cumulative to reach Trigger Event Addresses: Excess & Umbrella Policy Issues Confirms: Make Available & Program Disclosure Required

Terrorism Risk Insurance Program Rule Making Process

2. 3. 4. 5. 6.

6. 7. 8. 9. 10.
12. 13.

13. 14. 15.

Preliminary determination of regulatory content (vs. business procedures) Develop draft regs TRIP Review draft regs Reinsurer site visit Determine reg vs business process division and incorporate changes to draft reg Departmental review and possible meeting with OMB OMB review Publish in Federal Register (proposed rule) Formal public comment Paperwork Reduction Review - concurrent with public comment period Review comments Revise regs Departmental review OMB review Publish final regs in Federal Register

Terrorism Risk Insurance Program Aggregate Industry Retention

2003 2004 2005 2006 2007

$10.0B $12.5B $15.0B $25.0B $27.5B


Terrorism Risk Insurance Program Recoupment Example

Discretionary Recoupment $12.5B**

$40B Insured Loss

Assumptions Loss occurs 2007 100 Insurers Impacted

Trip Pays $27.9B

Mandatory Recoupment $15.4B**

$27.5B Industry Aggregate Retention

TRIA covered DEP 100 Insurers = $30B 20% Deductible = $6.0B 15% Coinsurance = $6.0B 100 Companies Pay $12.1B

$12.1B Paid by 100 companies

Payment Trigger Event $100M **Treasury may recoup by collecting up to 3% DWP covered lines per year 21

Terrorism Risk Insurance Program Summary
Deductible Expiration Payment Trigger Federal Share Lines Covered 15%DWP 12/31/05 >$5M

TRIA Extension
17.5% Y4 12/31/07 >50M 04/01/06 90% Y4 >$100M 01/01/07 85% Y5 20% Y5


All Commercial P&C Workers Compensation

Excludes: Commercial Auto, Burglary and Theft, Surety, Farm Owners Multi Peril, Professional Liability 1st Trigger Event


1st Certified Event

Terrorism Risk Insurance Program Future Issues Proposed Rule - Recoupment

    

Published 90 – 120 Days Standards for Treasury Notification (6 Months Notice) Establishes Electronic Payment System Assessments in Full Year Increments (Minimum 1 Year) Annual Reconciliation/Audit

Terrorism Risk Insurance Program Future Issues

Presidential Working Group/Financial Markets

Composed of:

- Secretary of Treasury or Designee, Chairman - Chairman of Federal Reserve System or Designee - Chairman of Securities Exchange Commission or Designee - Chairman of Commodity Futures Trading Commission or Designee By 09/30/06 Analyze Long Term Availability and Affordability of Insurance for Terrorism Risk Including:  Group Life Insurance  Coverage for Chemical, Nuclear, Biological, and Radiological Events

TRIA Extension Assignment: