Property Not Covered

1
Status of Federal TerrorismRisk Insurance Program
Deborah Summerlin, CPCU Vice President,
Insurance Lines Kimberley Ward, Chief
Actuary December 16, 2005 Audio Dial 800 - 895
- 0198 Conference ID status
2
Before We Begin

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Todays Presentation

• Review latest status TRIA-related activity in
  Congress
• Overview of Bill initially passed by the Senate
• Anticipated NAIC Involvement
• Anticipated Action for Exempt Lines
• Anticipated Changes to Existing Endorsements
• New Pricing Considerations
• Future Communications
• Questions

4
TRIA Extension Latest Status

• Awaiting latest action in Congress

5
Terrorism Risk Extension Act

• U.S. Senate passed S 467 on 11/18/05, featuring
• Extension of TRIP for two years Year 4 (2006)
  and Year 5 (2007)
• Mandatory participation
• Applicable only to acts of terrorism certified to
  have been committed by or on behalf of foreign
  persons or foreign interests
• Limitations -
• Program Year 4 - 50 Million
• Program Year 5 - 100 Million
• Annual liability capped at 100 Billion, until
  such time as modified by CongressTRIEA

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Terrorism Risk Extension Act

• Affected Lines of Insurance
• Includes commercial lines of PC insurance
  (including excess insurance) and workers comp
• Does not include
• Commercial Auto
• Burglary and Theft
• Surety
• Professional Liability
• Farmowners or
• All previous types of insurance exempted under
  TRIA

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Terrorism Risk Extension Act

• Insurer Deductibles
• Program Year 4 - 17.5 Program Year 5 - 20.0
• Federal Share of Compensation
• Program Year 4 - 90
• Program Year 5 - 85
• Insurer Retention - The lesser of
• 17.5 Billion (Yr 4) or 20 Billion (Yr 5) and
• Aggregate amount, for all insurers, of insured
  losses during the program year

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Once TRIA Extension is Enacted ?

• NAIC Terrorism Working Group expected to
• Consider coverage gaps for policies that cover
  loss caused by certified acts of terrorism
• Develop expedited filing procedures
• Release Model Bulletin
• Hold pre-filing discussions with advisory
  organizations and others
• Mortgage Bankers Association recommends
• NAIC should promulgate model bulletin to increase
  conditional coverage limitations to coincide with
  the limitations set forth by the federal
  legislation.

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Coverage Gaps

• NAIC Model Bulletin of November 26, 2002This
  state will not allow exclusions of coverage for
  acts of terrorism that fail to be certified
  losses solely because they fall below the
  5,000,000 threshold in Section 102(1)(B) on any
  policy that provides coverage for certified
  losses. Insurers required to file policy forms
  may submit language containing coverage
  limitations for certified losses that exceed 100
  billion.

10
Lines Exempted from S 467

• If the TRIA extension follows original Senate
  Bill S 467, Conditional Terrorism Exclusions,
  when attached, are expected to become active for
  policies issued under the following AAIS
  programs.
• Crime
• Farmowners
• Farm Properties
• Farm Personal Liability
• Farm Umbrella
• Except in FL, GA NY, optional Terrorism
  Exclusions available for policies that first
  become effective in 2006

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Anticipated Endorsement Changes

• Policyholder Disclosure Notice of Terrorism
  Insurance Coverage - Changes needed to coincide
  with the triggers that apply in Program Years 4
  and 5
• Certified Terrorism Loss Whether Capped or
  Excluded
• Where required, endorsements that define
  certified act of terrorism will be updated to
  reflect Limitations for Program Years 4 and 5
  (50 Million and 100 Million, respectively)
• Endorsement terms that cap coverage for
  certified loss will be updated to reflect title
  of new law
• Fire Exceptions expected to continue to apply to
  the extent that coverage for loss caused by an
  act of terrorism is subject to Standard Fire
  Policy statutes

12
Anticipated Endorsement Changes

• Non-certified terrorism loss
• Changes to be dictated by NAIC/state positions on
  potential coverage gaps

13
Terrorism Pricing

• Terrorism models
• Modifications of cat models
• Developed by several firms
• Incorporate information on potential damage to
  structures under different scenarios
• Incorporate expert opinion on likely occurrence
  and location of attacks
• Systematically estimate frequency and severity
• AAIS use of terrorism model
• Modeling firm already consulted
• Preliminary work done
• Final request awaiting congressional outcome
• Rapid turnaround expected

14
Terrorism Pricing, cont.

• Pricing for coverage under federal backstop
• 4-6 terrorism zones covering the country
• Zones comprised of ZIP Code areas
• Zones 1-2 High-risk, mostly urban areas
• Zone 6 Vast majority of U.S. land area
• Pricing for terrorism coverage not included in
  federal program
• Built into property loss costs over time
• Provide added premium for domestic terrorism and
  other non-certified acts

15
Future Communications

• Website postings
• Bulletins
• Additional web seminars
• Interim contact
• Larris Larsen, CPCUAVP, Compliance800/564-AAIS
  (2247), ext 288larrisl_at_AAISonline.com