Transcript Slide 1

Nuclear TPL insurance
RNIP presentation 10th March 2010
M Tetley, Nuclear Risks Insurers Ltd, London.
Liability & property insurances
Bruce site, ON, Canada
Onsite – assets & cash flow
Property insurance
Offsite – legal obligations
Liability insurance
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Why is insuring nuclear different?
The risk…
• Failure to control the nuclear chain reaction leading to…..
– Catastrophic radioactive contamination of a widespread area,
– Extensive plant damage.
Problems for insurers…
• Events potentially very high severity but low frequency.
• Low number of nuclear sites: 500 sites & premium approx
$600m globally (2007); about 0.04% of total global
premium.
• Insufficient actuarial data - only theoretical calculations as
industry loss record good.
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Practical experience
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Chernobyl 1986
> 110,000 evacuations & rehousing – cost $3bn+?
600,000 involved in
recovery operation
Europe wide spread of
radioactive cloud
Consumption & export of
foods interrupted over a
wide area
No insurance
< 2,000 victims eventually?
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Three Mile Island 1979
11,000 evacuations
Claims office established
day after event; publicised
using the media
Immediate “hardship”
payments of $1.3m made
by insurers
Class action for business
interruption & loss of
earnings
Substantial insurance loss
excess of $70m to TPL
policies
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History of nuclear TPL insurance I
Extract from a report on the nuclear industry
prepared by UK insurers in April 1957:
“..circumstances may arise which can result in loss of
control over an atomic reaction. Should this happen
it has to be envisaged that radioactive products in
the form of vapour or dust, may escape from the
normal confines of the reactor installation into the
atmosphere and…adversely affect all forms of
property..and cause injury to both human and
animal life.”
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History of nuclear TPL insurance II
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• Key principles of liability established by international treaties: e.g.
Paris & Vienna Conventions, Brussels Supplementary Convention.
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• National legislation dictates scope of operator liability: country a
signatory to PARIS/BRUSSELS, VIENNA or has legislation that adheres
to the principles embodied within the Conventions.
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• Insurance policy must follow relevant national nuclear legislation;
often requires Government approval & policy language may refer to
legislation.
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• General insurance polices have radioactive contamination exclusions;
fulfils channelling principle.
• Establishment of nuclear pools
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History of nuclear TPL insurance IV
Third Party
Liability
&
Basic
Property
Damage
Gap
Liability
Covers &
Enhanced
Property
Damage
TMI
1979
1950s & 1960s
$70m
Alternative
Liability
Covers,
Terrorism
&
Business
Interruption
Vandellos
1986
1970s & 1980s
Paks
2003
1990s & 2000s
$3bn
Combined property & TPL insurance available
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Convention principles & insurance I
Requirement for
financial security
• Legal imperative to provide financial cover is
the incentive to buy insurance; note that
liability arising from terrorism is also
covered.
Liability
channelling
• All liability falls to site operator with
radioactive contamination exclusion clause
on all insurance policies. General waiver of
rights of recourse for suppliers & contractors.
Strict liability
• Strict liability provides direct & rapid access
to insurance funds & offers certainty of
maximum exposure to insurers.
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Convention principles & insurance II
Liability limited in
time
• Generally 10 years prescription (some
offer > 10 years) but insurers can only
provide 10 year time limit.
Liability limited in
amount
• A financial limit of liability provides a
Maximum cost to the operator for any
event.
Clear definitions
• Clear definitions of nuclear damage &
other key components provide clarity for
the scope of cover.
Jurisdiction
clarity
• Capital of insurers is generally exposed
only in the country of origin of liability.
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TPL in non-convention countries:
United States I
• 1957 Price-Anderson act (PAA) - “economic” channelling.
• 1975 - secondary layer of financial protection provided by
industry. Law currently extended to 2025; provides about $10bn.
• Liability absolute when the regulator declares an Extraordinary
Nuclear Occurrence (ENO).
• Liability of licensee (operator) under PAA is generally strict, but
suppliers can be held liable too if no ENO.
• TPL insurance limited to liability for bodily injury or offsite
property damage. If no ENO, policy does not respond for
environmental cleanup.
• Limit of $300m includes costs & expenses; increased effective
2010 to $375m
• 2006 – Senate consented to ratification of CSC.
• 2008 – Instrument of ratification deposited at IAEA
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TPL in non-convention countries:
United States II
Total: $12.015bn
SECONDARY FINANCIAL PROTECTION
LAYER
“The legislation was intended first of all to bolster investor confidence,
whereas victim compensation is secondary”
$11.64 Billion
($111.9 Million x 104 Reactors)
“The Price Anderson Act – a law that subsidises nuclear power by
creating liability protection for nuclear accidents”
Insurance
Policy Limit:
US nuclear pool (ANI) & reinsurers
$375M
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TPL in non-convention countries:
Japan
• 1961 law 148 (as amended) largely conforms with
Convention principles.
• Liability of operator is strict & is unlimited.
• Financial security required up to $1,277m (Y120bn) –
as insurance, cash deposit or equivalent securities.
• Government indemnifies operators for
earthquake/eruption events.
• Insurance policy therefore excludes natural disasters,
but offers full required cover of $1,277m.
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Key conditions for TPL insurance
Convention &/or
national nuclear law
acceptable

Site technically
acceptable &
regulatory control good

TPL insurance
contract possible
Domestic insurance
industry strong &
capable of reinsurance


No exchange controls
& currency strong
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TPL indemnity limits I
A selection (in $)
Japan
1,350m
Sweden
590m
U.K.
210m
Switzerland
929m
S Africa
440m
P.R.China
45m
U.S.A.
375m
Canada
73m
Revised Paris amount is €700m ($ 945m)
Above amounts exclude costs/claims handling limits
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TPL indemnity limits II
• Current per site insurance provision up to
about $1.35bn for TPL (excl terrorism) .
• Problems for insurers with capacity
utilisation – capital needed to support
highest limit.
• P.C. revision will improve this in some
countries (OECD).
• Japan’s limit is about 30 times China’s.
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For which nuclear sites is TPL insurance
available?
All aspects of the nuclear fuel cycle
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Operator’s liability
Gaps in insurance cover
• Currently:
– Time limits: many regimes 30 years – insurance always 10
years.
– Occurrence limits: some regimes per occurrence –
insurance aggregated to lifetime or at least annual.
• Revised Conventions:
– As above +
– Environmental damage or remote economic damage: new
heads of damage but maybe uninsurable…..
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Other types of liability insurance
• Radioactive contamination exclusion clause
causes other insurance “gaps”:
– Directors & Officers insurance,
– Errors & Omissions insurance,
– Employer’s liability in some countries,
– Products liability insurance.
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February 12th 2004
OECD, Paris
A protocol was signed to revise the
1960 Paris Convention with the
objective of offering more financial
compensation, to more people, for a
wider range of nuclear damages.
UN/IAEA Vienna Convention was similarly
revised in1997.
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Convention revisions II
OECD (regional)
1960
• Paris Convention
(PC)
1963
• Brussels
Convention (BC)
2004
• Revised Paris &
Brussels
Conventions
(RPC)
IAEA (global)
1963
• Vienna Convention
(VC)
1997
• Revised Vienna
Convention (RVC)
1997
• Convention on
Supp.
Compensation (CSC)
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Convention revisions III
Concept of Nuclear Damage
Current
1. loss of life, personal injury
2. loss of or damage to property
3. economic loss related to 1 and 2
Future
4. reinstatement of impaired environment
5. use or enjoyment of environment
6. preventative measures
insurable
concerns with regard to full insurability
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Convention revisions IV
Extended time to make claim - 30 yrs
$945m
AMOUNT
OF
COVER
Existing insurance
Max $1.35bn
(more than required for
revised Convention limit)
New
biosphere
cover
30 years
TIME
10 years
$0m
SCOPE OF COVER
>>> environmental
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Insurance concerns
PC, BC, VC
RPC, RVC, CSC
Nuclear damage
Property damage,
personal injury & loss of
life
PLUS: environmental &
economic loss,
reinstatement costs,
preventative measures costs
Liability amounts
Low minimum amounts
Much higher amounts
Nuclear incident
Occurrence only
PLUS: grave & imminent
threat
Nuclear sites
Reactors, major fuel
cycle, transport
PLUS: Decommissioning &
waste disposal
Geographical scope
Contracting parties
Non-contracting parties &
EEZ
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1963 Vienna Convention Parties (72)
1960 Paris Convention Parties (126)
1997 CSC (108)
Non Party to Convention (134)
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Revisions = legal harmonisation?
• Of c.440 reactors globally, 235 remain outside
of the Conventions
• Within revised Conventions, greater reference
to ‘competent courts’ & wider geographical
scope may lead to more legal disharmony.
• Is CSC a big step towards a harmonised global
system? But also has wider scope of damage:
punitive damages too?
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New build I: site responsibilitie
Decommissioning
2 units under
refurbishment
B – 1 to 4
A -1 & 2
Potential new build
Bruce site: 6 reactors in operation
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New build II: site risks
Wylfa, UK
Existing NPP
(decomm after 2012)
Possible new
build site
Liability for all 3rd parties following accident:
£140m now insured, above that Government;
how long will it take to recover investment?
From DECC
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New build III: new liability obligations
US$m
1400
1200
1000
800
600
400
200
0
PR
China
UK
Japan
Germany
US
Switzerland
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New build IV: capacity example UK
Decomm. Liabs.
£4bn +
Maybe £1bn
NPP new build
asset value
insurance
More than £2.5bn
£1.14bn
NPP asset value
insurance
About £1bn
£140m
Nuclear liability
£140m
Now
Nuclear liability
£600m
New build - 2017
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Decommissioning I: planning
• New build on adjacent property likely;
exposure management.
• Construction work likely too: needs specific
insurance.
• Project time vs. insurance market time
restrictions.
• Impact of major work on neighbouring
property:
– e.g. Marcoule chimney
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Decommissioning II: TPL arrangements
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Nuclear TPL to remain in force.
Risk remains of catastrophic off-site exposure.
Risks reduce over time.
Revised Convention limits will apply to
decommissioning sites
• Moves to reduce Convention TPL limits for
late-stage decommissioning projects.
• TPL for nuclear material storage.
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Decommissioning III: TPL legacies
• Process of de-licensing.
• Most legislation leaves insurers ‘on the hook’
for 10 years.
• Government responsible thereafter.
• Earlier sites worse: US experience.
• What’s out there?
• For the good of the industry, each case needs
defending; facts & science support this.
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Transportation in the Nuclear Fuel Cycle
(arrows indicate transportation links)
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What is transported?
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Insurance issues specific to transport
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Premium volumes vs. capacity required.
Identity of operator.
Process: CoFs.
No matter where TPL is purchased, the
insurers are the same.
• Lower limit = quicker Government
involvement.
• Greater likelihood of contentious claims under
Convention revision.
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TPL insurers’ role following a severe
accident
• Insurers’ capital at risk:
Operator
– Safeguarding of payment
authority.
• Need for comprehensive infrastructure:
– National & international – nuclear pools have cross
border agreements,
– Immediate, long term & secure.
Nuclear
Insurers
“service”
• Total claims handling
to ensure continuity
& consistency with State payout.
• Important
for victims & perhaps for politicians.
Public
Government
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Risk management: retention & transfer
Risk management options
Retain
Avoid
Industry
mutuals
Transfer
Control
Private
insurance
market
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Why risk transfer insurance?
 Stability of revenue & profit:
 Risk transfer insurance provides independent emergency
funding & reduces distress costs for insured,
 Safeguards future investment, reduces volatility &
associated costs,
 Correlation between stable earnings & higher stock
valuations.
 Claims handling infrastructure & expertise.
 Price of risk – insurance cheaper than debt and
equity costs.
Better for victims in the long term
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TPL insurance: a hidden subsidy?
• Nuclear operators have STRICT, NO FAULT liability:
Such onerous liability is rare in industry.
• The private insurance market has been voluntarily insuring
nuclear risks for nearly 50 years.
Example: U.K. law requires either insurance or 2 times limit in
liquid, ring-fenced funds (about $460m today).
Options for operator: risk transfer insurance (cost: approx
$2,000-$5,000/m); ring-fence $460m of assets (cost:
opportunity cost); S460m line of credit from bank (cost: 3-4%
over base rate of 1% - approx $18-20m).
Answer to question is: NO !
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Nuclear insurance vs. all insurance
• Non-life global insurance premium:
– 2007
– 2008
$1,685,762,000,000
$1,779,316,000,000
– Nuclear global premium: less than
0.04% of this.
• UK property/liability premium:
– 2008
$107,393,000,000
– nuclear premium less than 0.050% of
this.
• Other problems:
–
–
–
–
Consolidation.
No one likes nasty surprises.
Security & reinsurance.
Terrorism.
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Nuclear TPL insurance
RNIP presentation 10th March 2010
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