Ten Years After 9/11
The Future of TRIA and Terrorism Insurance Challenges – Strategies – Solutions
Session: RMG216
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THANK EVERYONE FOR THEIR PARTICIPATION AND WISH THEM A NICE DAYTHANK 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
RISK MANAGER’S PERSPECTIVE:DEALING WITH A WORLD WITHOUT TRIA
Shari Natovitz Silverstein/World Trade Center Properties
6
H
D
Our Current NYC Portfolio
Developer – World Trade Center
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8
Limited Risk Management Tools
• Buildings Cannot be Hidden or Disguised
Can’t Move the BuildingsCan 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 AND WE STILL NEED INSURANCEINSURANCE
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
• 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
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A Little Bit About TRIA/TRIPRATRIA 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
•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
What about remaining risk? – Reinsurance
$5M “Act of Terrorism” qualification
$100M “TRIA Trigger”
20% of premium TRIA deductible
85
% o
f limit
TR
IA B
acksto
pp
ed
15
% o
f limit R
eta
ine
d
How a Captive Terrorism Program Works
• Difficult to obtain limit• Cost is significantly higher• Premium out the door
Access to increased insurance capacity Cost savings Accumulation of investment income
Marketplace
Deductible
100%
Required to purchase full value
85%
Federal Reinsurance
Deductible
15%
CaptiveRisk
Captive
100% Insured
Differences
Players and Their Roles
Captive$$$Capitalization
Owner$$$Dividend
Insured Properties
Insured Properties
Insured Properties
Insured Properties
Allocated Insurance Premiums
Insurance
Service Providers
Fee
Insurance Broker, Captive Management,Actuarial, Auditing, Legal
TaxAuthorities
Taxes
TRIPRA
ReinsurersReinsurance
Reinsurance
Premium
Example:TRIA Captive Positive Impact
Limit and Premium Comparison
2010 Terrorism Program 2011 Captive
Location Limit (Individual) Premium Limit (Blanket) Premium* Savings
1 $332,115,076 $383,686
$1,015,714,978
$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 $1,015,714,978 $1,017,265 ($496,080)
* Total annualized premium for the captive
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)
• 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
WHAT’S HAPPENING…ON THE HILLAND IN THE WORLD
Brian Finch, Partner DICKSTEIN SHAPIRO
TRIPRA – The Washington View on Renewal
Brian Finch, PartnerDickstein 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
• 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 …
• 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?
THE FUTURE IS NOW: POSITIONING YOUR COMPANY & YOUR PROGRAM
Wendy Peters, SVP Willis Terrorism Practice Group
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.
COMMENTS …QUESTIONSThank you for attending