NUCLEAR PROPERTY INSURANCE

COVERAGE IN THE UNITED STATES

INLA Intra Jura Congress October 23, 2014Buenos Aires

Nuclear Electric Insurance Limited

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Introduction

Company Overview

Insurance Coverage Claims

Loss Prevention

Conclusion

AGENDA

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INTRODUCTION

INTRODUCTION

U.S. Nuclear Insurance largely handled by two Companies

American Nuclear Insurers (ANI)Third party nuclear liability insurance coverage

Price-Anderson Act of 1957 provides the legal framework for potential nuclear third party liability claims

Nuclear Electric Insurance Limited (NEIL)First Party Coverage

Mutual enterprise that largely sets its own terms and coverage framework

ANI and NEIL competed in the Property Coverage area until the mid to late 1990’s

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NRC PROPERTY INSURANCE RULE

Found in 10 C.F.R. 50.54(w)Requires property insurance of either $1.06 billion or the

insurance cover generally available from private sources, whichever is less

TMI showed importance of coverage and changes neededRegulations prioritize recovery to decontaminating the site and

stabilizing the reactors

Prioritization is not automatic, costs must exceed $100 million

Prioritization requirement ends when the reactor stops posing “any significant risk to the public health and safety”

NEIL’s Policies designed to comply with the RegulationsReferred to as “Nuclear Liability Coverage”

No Statutory or Regulatory Property Insurance Requirements in E.U. Member countries (Belgium and Spain)

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COMPANY OVERVIEW

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WHAT IS NEIL?

Mutual Company with 83 Members

Have insurable interest in a nuclear plant

Formation of Nuclear Mutual Limited in 1973

Coverage provided by NEIL and two subsidiaries

Overseas NEIL Limited – Outside North America

NEIL Specialty Insurance Company – Excess Cover to Members

Today, the NEIL companies insure on a Member basis

100 operating nuclear units in U.S.

18 shutdown nuclear units in U.S.

5 Nuclear units under construction in the U.S.

15 nuclear units internationally (Belgium and Spain)

MISSION STATEMENT

We fulfi ll our continuing core responsibility of insuring our Members’ nuclear risks by: Maintaining the fi nancial strength to cover two full-

limit losses,

Promoting industry risk management and safety practices,

Providing value and equitable treatment, and

Prudently pursuing opportunities that serve the Membership.

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INSURANCE COVERAGE

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Insurance industry is built on the “law of large numbers”e.g. - can’t identify which house will incur a fi re, but can

quantify how many with statistical accuracy

Statistical models work with large homogenous sample sizesNEIL’s Members represent a somewhat homogenous

group, but not enough population for statistical accuracy purposes

General Insurance Industry claims forecasting is further enhanced by relatively small limits off ered – replacement value of home, car, etc…

INSURANCE OVERVIEW

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NEIL’s Mission leads to design for insurance of infrequent and large claims (Low frequency and high severity)

NEIL’s Loss Control Program is intended to monitor the conditions at insured facilities to assure that the risk profi le is reasonably consistent across the Membership

Objective is that each insured plant presents approximately the same level of risk to the Mutual

Minor diff erences in risk are reflected through premium adjustments (penalties & credits)

INSURANCE OVERVIEW (CONTINUED)

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Property Damage caused by an “Accident”$1.5 Billion Limit

Indemnity PolicyCosts incurred to repair Property Damage caused by the

Accident

Replacement Cost for equipment – “like kind and quality”

Upgrades or improvements not covered

Recovery as costs incurred

Prioritization of recovery for “Nuclear Liability Cover”$100 Million in Property Damage and nuclear release

No Property Damage recovery permitted until Insured certifies NRC agreement stabilization work complete or Insured has isolated suffi cient funds to cover the work

PRIMARY PROPERTY COVERAGE

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Natural CatastrophesDeductible - $10 Million + 10% of Loss up to $500 Million

Terrorism CoveredRolling 12-month aggregate limit of $3.24 BillionU.S. Terrorism Risk Insurance Program

Unique coveragesDecommissioning Fund shortfallFunctional Total Loss

PRIMARY PROPERTY COVERAGE

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Coverage split above $1.5 BillionCoverage follows the Primary Property coverage

Nuclear Losses Loss must involve Nuclear Liability Coverage

Excess coverage of up to $1.25 Billion provided by NEIL

Covers Nuclear Liability costs and non-nuclear Property Damage losses

Non-Nuclear LossesClaim does not involve Nuclear Liability Coverage

Excess property coverage up to $750 Million provided by NEIL Specialty Insurance Company (wholly-owned captive subsidiary)

EXCESS PROPERTY COVERAGE

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NUCLEAR PROPERTY INSURANCE

$1.5 Billion

Excess Property Layer

Nuclear Events Only

$1.25 Billion

Nuclear

Primary Property Layer

$1.5 Billion

Non-Nuclear Property

OnlyExcess Property Layer Non-nuclear Only$750 Million

Primary Property Layer

$1.5 Billion

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Outage caused by Property Damage caused by an AccidentCover Insured’s costs to purchase replacement powerTime it should take to repair Property Damage and return

Unit to service with use of “due diligence and dispatch”Differs from traditional Business Interruption coverage

Maximum Limit is $490 MillionWeekly Indemnity Amount selected by Insured

Up to $4.5 Million per weekPaid out over a period of up to three years

100% of Weekly Indemnity for first 52 weeks, 80% thereafter

Deductibles based on number of weeks the Nuclear plant is not operating following the Loss event

ACCIDENTAL OUTAGE COVERAGE

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ACCIDENTAL OUTAGE POLICY (ASSUME $3.5 MM/WEEK & 12 WEEK DEDUCTIBLE)

Next 110 Wks @ 80% of $3.5 MM

12 Weeks

64 Weeks

174 Weeks

$0

$182 MM

$490 MM

$327.6 MM(Non-NuclearOutage limit)

1st 52 Wks @ $3.5 MM

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COVERAGE

Accident Defi nition

"Accident" means a sudden and fortuitous event, an event of the moment, which happens by chance, is unexpected and

unforeseeable. Accident does not include any condition which develops, progresses or

changes over time, or which is inevitable.

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Gradual accumulation of radioactive contamination

Fraudulent, dishonest or criminal acts

Rust, erosion and corrosion of any kind

Any form of deterioration or wear and tear

Pitting, cracking, blistering, etc.

Faulty workmanship and/or design

Amounts collectible under warranties or guarantees

Regulatory Shutdowns or work

* Exc lus ion genera l i zed for presentat ion purposes

PRINCIPAL EXCLUSIONS IN POLICIES*

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LIMITS PURCHASED FROM NEIL AS OF JULY 1, 2013

0

500

1,000

1,500

2,000

2,500

3,000

3,500

US

$ M

illio

ns

NEIL OutageNEIL Property

Perm. S/D Sites

Operating Sites

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Self Determination – Members establish Policy terms and conditionsPolicies subject to New York lawMember intention in drafting is important to interpretations

Representatives on three Member Advisory CommitteesInsurance Advisory Committee (IAC) reviews Policy coverage

and language, rating programs and premiumsEngineering Advisory Committee (EAC) establishes and reviews

Loss Control Standards, and monitors staff implementation of them

Legal Advisory Committee (LAC) advises the Company on legal-related issues and matters

Revisions to Policies, Rating Programs and Loss Control Standards must be approved by Board of Directors

Result is the NEIL’s Policies and Standards contain various provisions that are unique to the Mutual

BENEFITS OF THE MUTUAL

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CLAIMS

CORE NUCLEAR PROGRAM CLAIMS*

377 claims fi led since 1973

178 paid claims

Over $2.5 billion in Property Damage and Accidental Outage claims paid

23* Through December 31, 2013

COVERAGE DETERMINATION PROCESS

Was there “Property Damage”?

Was the damage caused by an “Accident” as defined in the policy? “sudden”, “fortuitous”, “event of the moment”,

“happens by chance”, “unexpected”, “unforeseeable”, etc.

Do any of the policy exclusions apply? Examples: “wear and tear”, “fatigue of any kind”,

“rust, erosion, or corrosion of any kind”, “amounts collectible from a contractor or vendor under a guarantee or warranty”, “faulty workmanship, material, construction or design”, etc.

Are there any exceptions to the exclusions? 24

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Alternative Dispute Resolution mechanism are encouragedPeer Review

Early Neutral Evaluation

Mediation

Final and binding arbitrationUNCITRAL Rules

Unique relationship of Insurer and Insured consideredIntent of parties in drafting language considered

Contra Proferentem not applicable

Documents related to prior reviews and consideration by the Members

Prior decisions by NEIL on identical/similar issues

DISPUTES

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LOSS PREVENTION

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Each insured plant should present approximately the same risk to the MutualLoss Control Standards that include minimum requirements

for insurability, and penalties and credits for premium adjustment

Principal focus - Property/Fire Protection and Boiler & Machinery

Primarily address balance-of-plant (non-nuclear) areas

Loss Control Evaluations

monitor the conditions at insured facilities,

Assess whether risk profile is reasonably consistent

Special consideration given to increasing or emerging risk areas Turbine Risk Review – Review of all insured turbine shaft lines

LOSS CONTROL PROGRAM

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Loss Control Standards SHALL Requirements

Mandatory - all plants expected to meet Non-compliance results in premium or deductible adjustments

and potential removal of coverage

“should” Requirements Desirable, but not mandatory Non-compliance results in premium adjustments

Revisions Loss Experience Member/Staff/Plant personnel input Approved by the Members’ Engineering Advisory Committee

(EAC) and the Board of Directors

LOSS CONTROL PROGRAM

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SUCCESS OF NEIL

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NEIL A SUCCESSFUL ENTERPRISE

Inception to date –Year-End 2013 $ in Billions

Premiums Collected $7.0

Claims Payments $3.3

Investment Earnings $7.8

Distributions Paid to Members $6.1

Year-End 2013 $ in Billions

Policyholders’ Surplus $3.9

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QUESTIONS?