Transcript State of the Terrorism Market

State of the Terrorism
Market
STRIMA Presentation
September 19, 2005
1. Status of TRIA extension
2. General position of carriers with
regard to TRIA for policies expiring
beyond 12/31/2005 if TRIA is not
extended
3. Insurance market for stand alone
terrorism coverage
4. Regulatory issues surrounding
terrorism exclusions
White House stance on TRIA
 Opposes extension in it’s current form
 Eliminate certain lines of coverage
 Increase in event that triggers coverage
(suggesting $500 million)
 Increase in dollar deductibles and percentage
co-payments
 Any extension needs to recognize:
 Temporary nature of program
 Rapid expansion of private market development
 Need to reduce tax payer exposure
Current status of TRIA
1.
2.



Congress has to extend it prior to year end or it
sunsets
Rep. Richard Baker (R. LA) Chair of Subcommittee on
Capital Markets, Insurance and Government
Sponsored Enterprises said any TRIA extension bill
has to meet 3 aims:
Provide market stability with less tax payer exposure
Require insurers to repay over time any money received from the Federal
Government
Replace minimum $500 million trigger recommended in the Treasury
Report with some sort of “relative trigger”
TRIA alternatives:
1.
2.
3.
4.
Extending the current program for 2
more years with increased
deductibles/trigger point
Adding group life but leaving out
general liability and commercial auto
Creating industry pools
Expand it to include both certified and
non-certified terrorism
Some misconceptions Regarding TRIA:
(From Paul Winston, Editorial Director, Business Insurance)
1.
2.
3.
4.
5.
TRIA is a big bailout for the insurance industry
Insurers are as profitable today as they were before 9/11/2001
– so clearly they can afford to take a hit
Terrorism is just another risk, such as hurricanes, that can be
insured in the traditional way
The private market will develop it’s own solutions to the
problem – doesn’t need a federal backstop
If the government lets TRIA lapse, it will avoid big expenses if
there is another terrorist attack
TRIA extension not assured
1.
2.
3.
4.
Wasn’t going to be a slam dunk before – now with
Katrina and the Supreme Court Hearings all bets are
off
Some members of Congress don’t see the issue as
very important and know almost nothing about it
With all the negative press the insurance industry has
received in the last year, not a lot of sympathy for it
A number of studies have questioned government’s
value in providing terrorism coverage
Wharton School of Business’ TRIA
Study Results:
There is a role for public/private partnership to provide protection
against terrorism losses because:
 Federal Government policy and actions significantly influence the
risk of terrorism
 The private market currently has limited capacity to provide
coverage for extreme losses from terrorism
 States constrain insurance rates, and mandate coverage for
particular lines of coverage, such as workers’ compensation and
property insurance
 Federal disaster assistance following a major attack will likely be
significantly greater if there is no predefined public sector role in a
terrorism insurance program
 Creation of a pure government program excludes insurer expertise
and financial and operational capacity
Terrorism Pool Option
US House Subcommittee on Capital Markets,
Insurance and Government Sponsored
Enterprise looking at viability of privately
funded terrorism risk insurance pool
Two different ways to fund have been
suggested:
1. Funded and run by insurance industry w/
tax breaks similar to how it operates in
France, Germany and Spain, still backed up
by the federal government
2. Funded by post-event bonds, policy holder
assessments and pre-event premiums
The pool would include the
following elements:
1. Wide spread, if not mandatory,
participation by insurers
2. Risk sensitive pricing
3. Government backstop
4. Tax-exempt status for
investment earnings
Any long-term solutions must
address two fundamental
issues:
1.
2.
Limited capacity within the insurance
industry to absorb losses from terrorist
attacks
Involvement of the Federal
Government in some form is essential
General position of carriers with regard to TRIA for policies
expiring beyond 12/31/2005 if TRIA is not extended
ACE
Sunset provision – coverage excluded effective 01/01/06 with TRIA expiration.
AIG/Lexington
Coverage to extend whether TRIA renewed or not.
Allianz
Position determined on case-by-case basis. Full terrorism being offered in select cases. Sunset
provision utilized elsewhere.
AXIS
Sunset provision – coverage excluded effective 01/01/06 with TRIA expiration.
C.N.A.
Coverage to extend whether TRIA renewed or not.
Chubb
Coverage to extend whether TRIA renewed or not.
Commonwealth
$2.5mm sub limit applicable. Loss must exceed $25mm.
Crum & Forster
Sunset provision – coverage excluded effective 01/01/06 with TRIA expiration.
FM
Varying sub limits (generally $100mm - $250mm, but will be less for MUL and E&O) to be
offered on an account-by-account basis. Terrorism DA’s: The greater of 1) Policy DA or 2) 1%
of value per loc. Subject to max $1mm per occur. Because of state regulations in FL, GA & NY,
may have to match reduced all risk capacity to post-TRIA terrorism capacity.
IRI
Sunset provision – coverage excluded effective 01/01/06 with TRIA expiration.
Lloyds of London
Sunset provision – coverage excluded effective 01/01/06 with TRIA expiration. Supporting
“sunset provision” syndicates to date: Markel: MAP: Beazley: AXIS-London: Faraday: Catlin:
Wellington: Talbot: Hiscox.
MARP
Sunset provision – coverage excluded effective 01/01/06 with TRIA expiration.
Starr Tech
Position determined on a case-by-case basis. Full terrorism being offered in select cases.
Sunset provision utilized elsewhere.
Travelers
Coverage to extend whether TRIA renewed or not.
XL
Position determined on a case-by-case basis. Full terrorism being offered in select cases.
Sunset provision utilized elsewhere.
Zurich
Terrorism coverage to be provided. Coverage to be underwritten & priced accordingly.
Insurance market for stand alone
terrorism coverage.
Property Insurance
Lloyd’s Underwriters
Market
Capacity
Aegis
$10,000,000
A F Beazley
$35,000,000
Amlin
$25,000,000
Atrium
$10,000,000
Brit
$25,000,000
Hiscox
$100,000,000
Liberty
$15,000,000
MAP
$20,000,000
Kiln
$20,000,000
Reith
$35,000,000
Catlin
$50,000,000
Talbot
$30,000,000
Wellington
$25,000,000
Insurance market for stand alone
terrorism coverage.
Property Insurance
Market
Capacity
QBE Europe
$20,000,000
Montpellier (Bermuda)
$150,000,000
Axis Specialty
(Bermuda)
$100,000,000
Insurance Company of
the West
$20,000,000
Lexington
$100,000,000
Berkshire
$1,000,000,000
Insurance market for stand alone
terrorism coverage.
Liability Insurance
Market
Capacity
Lloyd’s Syndicates
Up to $100,000,000
Lexington
$10,000,000
AON and Marsh offering terrorism coverage
through protected cell captives
Who’s buying stand-alone
terrorism coverage?
 Large construction projects
 Major metropolitan buildings/infrastructure
 Multinational corporations
 Financial institutions
 Leisure and entertainment industry
 Communication industry
Wall Street Journal reported on 12/13/04 that 45%
of all companies have purchased some form of
terrorism insurance
Why are they buying it?
1.
2.
3.
4.
5.
6.
7.
Continuing state of alert and unpredictability
More reliable modeling accurately assessing terrorism
risks and blast scenarios
Limited availability in the traditional property markets
Lower property premiums freed up capital to purchase
higher terrorism limits
Fill in gaps in large syndications where property
markets unwilling to offer full line
Forced placed lender requirements
Sleep
Regulatory issues surrounding terrorism
exclusions:
(relating to property insurance)
 States prohibiting terrorism exclusions
 States prohibiting exclusions on
terrorism and fire following terrorism
 States permitting exclusions on terrorism
but prohibiting exclusions on fire
following terrorism
 States permitting exclusions on terrorism
and fire following terrorism
TERRORISM EXCLUSIONS
Updated 05/24/05. We will update this map as we become aware of changes in SFP Laws that take effect
Alaska
NH
WA
ND
ME
VT
MT
MN
OR
ID
SD
MI
PA
IA
NE
NV
IL
IN
UT
KS
MO
CT
NJ
OH
WV
CO
RIR
NY
WI
WY
CA
MA
VA
KY
DE
MD
NC
TN
OK
AZ
SC
AR
NM
Hawaii
MS
TX
AL
GA
LA
FL
US VI
1.
Red states prohibit terrorism exclusions.
2.
Green states permit exclusions on terrorism but prohibit exclusions on fire following terrorism. Green states are
known as Standard Fire Policy (SFP) States.
3.
Blue states prohibit exclusions on terrorism and fire following.
4.
Yellow states permit exclusions on terrorism and fire following.
5.
Stars indicate states who have recently changed their SFP Laws to permit exclusions on fire following terrorism.