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___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ Overview ___________________________________ ___________________________________ Casualty Actuarial Society ___________________________________ “In Focus: Government in Insurance” ___________________________________ October 4-5, 2010 ___________________________________ James P Brown Senior Analyst US Treasury Department ___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ History ___________________________________ Terrorism Risk Insurance Act (“TRIA”) ___________________________________ • Enacted and signed into law November 2002 ___________________________________ Created Terrorism Risk Insurance Program (“TRIP”) ___________________________________ • Extended in 2005 ___________________________________ • Reauthorized 2007 until EOY 2014 2 ___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ Purpose ___________________________________ ___________________________________ • Address Insurance Market Disruptions ___________________________________ • Ensure Availability and Affordability of Commercial P&C Terrorism Coverage ___________________________________ • Provide Transition Period ___________________________________ • Strengthen Overall Economy 3

___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ Office ___________________________________ • Part of Domestic Finance Office in Treasury ___________________________________ Department ___________________________________ • Headquartered in Washington, DC ___________________________________ • Small Staff - 4 Professionals with over 130 cumulative years ___________________________________ of Insurance Experience -2 Administrative Personnel • Outsourced: Claims, System and Audit Functions 4 ___________________________________ Terrori rism R sm Risk isk In Insu surance Pr Program ___________________________________ Functions ___________________________________ Stand-by Reinsurance Mechanism which: ___________________________________ • Pays “federal share” of incurred losses resulting from certified terrorist event ___________________________________ • Assures insurer compliance with TRIA ___________________________________ • Timely Assesses and report potential losses ___________________________________ • Oversees implementation and collection of “recoupment fees” • Communicates with insurance industry stake holders 5 ___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program m ___________________________________ Trig igger ___________________________________ ___________________________________ Certifies Act of Terrorism Resulting in Damage > 5M* ___________________________________ IN Secretary of United States ___________________________________ Treasury U.S. Missions U.S. Air Carriers ___________________________________ U.S. Vessels FOR Specified Commercial Lines Secretary of Attorney State General Workers Compensation *Program Trigger $100M 6

___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ ___________________________________ • All Acts of Terrorism Covered ___________________________________ • Insurer Deductible 20% ___________________________________ ___________________________________ • Insurer “Co Pay” 15% ___________________________________ • $100B “HARD” Cap on losses 7 ___________________________________ TER TERROR ORISM SM RISK SK INSURA NSURANC NCE E PR PROG OGRAM ___________________________________ Coverage Ex Excluded ___________________________________ • Medical Malpractice • Commercial Auto ___________________________________ • Reinsurance • Burglary & Theft ___________________________________ • Life & Health • Surety ___________________________________ • Crop • Farm Owners Multi Peril ___________________________________ • Financial Guaranty • Professional Liability • Flood 8 ___________________________________ TERRORISM TERR SM RISK SK INSU SURANCE PR E PROGRAM ___________________________________ Exclusions Ex ___________________________________ ___________________________________ •Nuclear • Biological ___________________________________ • Chemical ___________________________________ • Radiological ___________________________________ • Punitive Damages 9

___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ Insurer Obligations ___________________________________ • Make Terrorism Coverage Available ___________________________________ • Respond to Data Calls ___________________________________ • Accurately and Completely Adjust and Report ___________________________________ Claims ___________________________________ • Collect Recoupments 10 ___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ TRIA Impact ___________________________________ • Terrorism Impact on availability has been minimized ___________________________________ • “Take - up” rate is increasing from 25% of businesses ___________________________________ at the inception of the program to 61% in 2009* ___________________________________ • Premiums have decreased from $37 per M in 2008 to $25 per M in 2009* ___________________________________ • Some Reinsurers Reentering Market *The Marsh Report Terrorism Risk Insurance 2010 11 ___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ Pricing ___________________________________ • Dearth of Data ___________________________________ • Modeling More Useful for Exposure ___________________________________ Management than Rate Making ___________________________________ • Policy limits, Frequency Expectations, Concentration of Risks and Market ___________________________________ Pressures Key Elements in Premium Setting 12

___________________________________ Terroris ism Ri m Risk In sk Insur surance Pr Program ___________________________________ Horizon ___________________________________ ___________________________________ • Presidential Commission ___________________________________ • Report on NBCR • World Events ___________________________________ ___________________________________ 13