Transcript Document

Session: RMG216
Ten Years After 9/11
The Future of TRIA and Terrorism Insurance
Challenges – Strategies – Solutions
Information for Attendees
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Introduce the SESSION, PANEL and start the program.
 THANK EVERYONE FOR THEIR PARTICIPATION AND WISH THEM A NICE DAY 
Discussion Points
• Client’s Perspective:
– How TRIA Supports My Terrorism and All Risk Programs
– Ten Years of Challenges
• Up on the Hill – And the Rest of the World
– Where is Treasury/DHS Headed…today’s talk
– Options based on other approaches
• The Future is Now
– Positioning Yourself and Your Program
• Your Questions and Comments
The Speakers
• Shari Natovitz, VP Risk
Mgt.
– Silverstein/World Trade
Center Properties
• Brian Finch, Partner
– Dickstein Shapiro LLP
• Wendy Peters, SVP
– Willis Terrorism Practice
Group
• All of You
Shari Natovitz
Silverstein/World Trade Center Properties
RISK MANAGER’S PERSPECTIVE:
DEALING WITH A WORLD WITHOUT TRIA
Our Current NYC Portfolio
H
D
6
Developer – World Trade Center
7
Limited Risk Management Tools
• Buildings Cannot be Hidden or
Disguised
 Can’t Move the Buildings

Can Reduce Impact




Insurance, Contractual Relief
Physical Safety Features to Protect Assets and People
Security
 Training
 Control of Access, Loading Docks, Packages
Evacuation Training – Staff and Tenant
AND WE STILL
NEED INSURANCE
8
Our Terrorism Insurance Needs
• NYC TIV: >$4 Billion
• We Purchase an All Risk
Master Program
– Limit: 1.4B
– Requires purchasing
meaningful Terrorism
coverage
• Minimum of at least $1B
+ Projects
– If available, would cost in
excess of $3,700,000
• NYC Projects: >$2Billion
• Builders Risk separate for
each Tower - total $2.2B
– Requires purchasing
equivalent Terrorism
coverage
– Limit - $2.1B
– Projected Cost $7,700,000
Terrorism Insurance Challenges
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Limits All Risk markets willing to provide coverage
Demand for full limits
Strain on terrorism market capacity
Too expensive
• The Solution: Maximizing our use of TRIPRA
A Little Bit About TRIA/TRIPRA
TRIA is a US Federal Program which provides a backstop to insurance companies for a
Certified Act of Terrorism
• Create an Insurance Company to utilize the Federal
backstop to reduce the insurance purchase
15% of limit Retained
85% of limit
TRIA Backstopped
• Certified Act
• A violent act or act dangerous to human life,
property or infrastructure
• Losses Must exceed $5M
• Triggered when aggregate losses exceed $100,000,000
• Coverage: 85% of limit
• Deductible: 20% of direct earned premium
20% of premium
TRIA deductible
What about remaining risk? – Reinsurance
$100M “TRIA Trigger”
$5M “Act of Terrorism” qualification
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How a Captive Terrorism
Program Works
Marketplace
Captive
15%
Required to purchase full
value
Captive
Risk
85%
Federal
Reinsurance
100% Insured
100%
Deductible
Deductible
Differences
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•
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Difficult to obtain limit
Cost is significantly higher
Premium out the door
 Access to increased insurance capacity
 Cost savings
 Accumulation of investment income
Players and Their Roles
Service
Providers
Tax
Authorities
Fee
Taxes
Premium
$$$Capitalization
Owner
Insurance Broker, Captive
Management,
Actuarial, Auditing, Legal
Captive
Reinsurers
Reinsurance
$$$Dividend
Allocated
Insurance
Premiums
Insured
Properties
Insured
Properties
Insurance
Insured
Properties
Reinsurance
Insured
Properties
TRIPRA
Example:
TRIA Captive Positive Impact
Limit and Premium Comparison
2010 Terrorism Program
Location
Limit (Individual)
Premium
2011 Captive
Limit (Blanket)
Premium*
Savings
1
$332,115,076
$383,686
$300,017
($83,669)
2
$125,000,000
$161,659
$160,799
($860)
3
$281,570,000
$500,000
$89,024
($410,976)
4
$115,540,000
$168,000
$167,425
($575)
5
$140,000,000
$300,000
$300,000
$0
Total
$994,225,076
$1,513,345
$1,017,265
($496,080)
* Total annualized premium for the captive
$1,015,714,978
$1,015,714,978
My Issues:
• Even with TRIA – insufficient capacity
– NYC
– Financial District and Midtown
– NYS Fire Following
• Mitigation and Security Have Little Impact on
Availability and Cost
• All Risk Carriers Seeking Full Terrorism Limits
• Lender Demands
• Prudent Risk Management
What to Do
• Watch and Wait…with
Concern:
– “The sky is falling! The
sky is falling!”
• Identify the Facts
–
–
–
–
Loan Covenants
Exposure
Placement Structure
Costs
• Develop a Plan
– Find an Expert
• Contact Congress
– Use Your Associations
• Inform the C-Suite
If TRIPRA Is Not Renewed
(Or Captive Provision not Continued)
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My spend could increase by $9M
Terrorism limits may not be available
Adverse impact on All Risk program
Expansion/Acquisitions impacted
Breach of Lender Agreements
Smaller carriers with embedded coverage may
non renew
Brian Finch, Partner
DICKSTEIN SHAPIRO
WHAT’S HAPPENING…ON THE HILL
AND IN THE WORLD
TRIPRA – The Washington View
on Renewal
Brian Finch, Partner
Dickstein Shapiro LLP
TRIPRA Renewal – Who Matters on the
Hill?
• Leadership --- it always matters who is in
charge (Speaker, Senate Majority Leader)
• Relevant Committees:
– Senate Banking
– House Financial Services
– Budget?
• Lots of time between 2014 and now to impact
personalities …
Personalities Matter
• If the Senate flips to Republican control, what
would that mean?
– If Sen. Shelby is Chairman, that matters.
• House Financial Services
– There will be a new Chairman in 2013
– Will there be a Southern or New York flavor to the
Committee?
• Could discussions be under way already?
What Could the Path to Renewal Look Like?
• Will it be smooth sailing or rough seas?
• Potential sticking points include:
– Retention levels
– Rethinking whether this is needed to support solvency
– “Make available” still an issue?
• A reexamination to see if it is wanted, much less
needed?
• Has it been a positive in the market?
Possible Outcomes
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•
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Simple reauthorization or extension?
Minor adjustments?
Blank slate/starting from scratch?
Other issues that could weigh heavily on the
debate:
– Cyber
– Overall Federal debt worries
What to Do …
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Is there plenty of time?
If not, when do you start discussions?
There will be winners and losers
Remember the big picture
– Is another 9/11 more of “if” than a “when”?
• Are there other “when” events that will
dominate the debate?
Wendy Peters, SVP
Willis Terrorism Practice Group
THE FUTURE IS NOW:
POSITIONING YOUR COMPANY & YOUR PROGRAM
The Current Terrorism Insurance
Marketplace
•Prices for terrorism insurance have remained relatively stable
since 2003 ( supply & demand model)
•Percentage of companies purchasing terrorism insurance in the
60%, up to 80% in Real Estate sector – most in major metropolitan
areas.
•NY metro insureds face greatest challenges in obtaining sufficient
coverage : much more expensive than other geographical areas
•Total market capacity stands at approximately $2.5 billion, though
substantially less in major metro areas.
The Arguments for TRIPRA
• Insurer reluctance to assume more risk - difficulty to model
frequency - Terrorism is human driven.
• Concentration of risk in major metropolitan areas.
• From insurers’ perspectives – already a large, non-reinsured gap
in TRIPRA 20 percent deductible, 15 percent virtually unlimited
co-participation corridor above the deductible, $100 million
trigger
• For conventional attacks that cause less than $40 billion, TRIPRA
potentially wouldn’t respond due to industry retentions and
recoupment provisions.
• Magnitude of non-conventional terrorist attack – virtually
uninsurable
Potential Arguments against TRIPRA
• Government bailout days are over. Ability of insurers to pay
loss/retained loss position of major carriers ( $550 billion surplus
in 2011 – time to step up to the plate!)
• Current deductible levels for major insurers – largest carriers see
little recovery under TRIPRA, but see big opportunity if it expires.
• Should funding be pre or post loss – did the government lose an
opportunity to build reserves?
• Sufficient insurance market place exists – ( though more expensive)
• Subsidy to relatively few, high profile risks in major metropolitan
areas.
• Even when available, take up rate at 60% - much lower for NBCR
Potential Alternatives
• Lowering insurers deductibles in areas affected by a future
large terrorist events .
• Spreading losses across entire industry
• Allowing insurers to establish tax deductible reserves for
terrorism attacks
• Pre event funding: Fully-funded, government backstopped
terrorism pool, e.g. Pool Re, – access to cheaper reinsurance.
The Future
What do we do now?
• Modeling - get a grip on PMLS. What are my true risk
exposures? What do I really need to insure and to what value?
• Quantification of loss expectancies— Analyses can capture
both probabilistic and scenario based loss assessments.
• Determine suitability of insurance purchased.
• Identify locations contributing the most to the expected losses,
so company can focus attention on those higher risk facilities.
• May have limited impact on insurance rates in metro areas.
The Future
What do we do now?
•Write to your Congressman. Vocalize support now.
•Loan agreements - start the dialogue now with lenders.
•Lock in long term, stand-alone insurance, as available.
•Secure convertible, non certified reinsurance support for
captives.
Thank you for attending
COMMENTS …QUESTIONS