Terrorism Risk Insurance
Program Reauthorization Act of
2007 (TRIPRA)
13
thAnnual ACI-NA Insurance & Risk Management
Conference
January 13, 2012
Any opinions or positions expressed in this presentation are the presenter’s own and not those of any ACE company.
The information, material and descriptions contained herein are intended only as a general overview of certain types of insurance or insurance-related
services. The description(s) of insurance coverages, policies or services herein shall not amend, modify, replace, alter, or otherwise changes the terms,
conditions, limits, provisions, exclusions or endorsements contained in any policy issued by the insurance companies of ACE USA. Please consult your insurance professional and/or policy for precise terms, limits, exclusions and conditions. The description(s) and material(s) contained herein shall not provide a basis for a
legal relationship between ACE USA and any potential or existing customer and gives no cause to anyone for claims, demands, assertions or other rights towards ACE USA or the insurance companies of ACE USA, either on a contractual or on a non-contractual basis.
A portion of this presentation has been made available with the kind permission of Aon Corporation.
Agenda
TRIPRA 2007 – Key changes
Threats and Insurance Implications
Reauthorization Act of 2007 Extended Terrorism Risk
Insurance Extension Act (TRIEA) 2005
December 26, 2007: Signed into law by White House
2007 Reauthorization Act: 6 key changes to TRIEA
2005 Act
1. Seven (7) year extension term (until 12/31/14)
2. Inclusion of “domestic” acts of terrorism in definition of covered
or “certified” events, formerly only “foreign” acts of terrorism
3. Accelerated post event payment provisions for reimbursing
federal government via surcharges for events below a certain
insured loss threshold ($27.5 billion), as well as additional
discretionary recoupment provisions
4. Cap on insurer retentions stated that insurers:
Are only responsible for their respective coinsurance and TRIA
deductible exposures
Cannot be looked to for funding losses in excess of the $100 billion
annual aggregate limit under the Act
5. Required U.S. Treasury to
Establish process for allocation of pro-rata payments in the event
that terrorism-related insurance losses exceed federal
government’s annual aggregate cap of $100 billion
(Completed)
Issue report within 180 days describing recoupment changes
6. Changed “recoupment” provisions of TRIA
If insured losses are less than $27.5 billion, federal government
can recoup difference between actual amount paid and required
retention via surcharges, not to exceed 3% of premium for
insurance coverages that fall under the Act, subject to defined
schedule for repayment
Insurance industry as a whole must cover $27.5 billion of
deductibles and co-payments (up from $25 billion in 2006) before
federal assistance kicks in
Threats and Insurance Implications
Date Location Event
Dec. 8, 2010 Baltimore, MD Attempted bombing of Armed Forces recruiting center by U.S. citizen Antonio Martinez, aka Muhammad Hussain
Nov. 26, 2010 Portland, OR Attempted bombing at Christmas tree lighting ceremony in downtown Portland by naturalized U.S. citizen Mohamed Osman Mohamud Oct. 2010 Washington, DC Attempted plot to bomb DC area metro stations
May 1, 2010 New York City, NY Attempted SUV bombing in Times Square, New York City by naturalized U.S. citizen Faisal Shahzad
Dec. 25, 2009 Over Detroit, MI Attempted bombing of Northwest Airlines passenger jet over Detroit by underwear bomber Umar Farouk Abdulmutallab
Sept. 2009 New York City, NY U.S. resident Najibullah Zazi and others charged with conspiracy to use weapons of mass destruction in New York City.
Sept. 2009 Springfield, IL Attempted plot to detonate a vehicle bomb at the federal building in Springfield, IL
Sept. 2009 Dallas, TX Attempted bombing of skyscraper in Dallas, TX
May, 2009 New York City, NY Foiled plot to bomb synagogue and shoot down military planes in New York City
Insurance Implications
Between 1970 and 2010 insured property losses were $28.92 billion,
with the largest event, September 11, 201, at $23.14 billion
1Only 21% of ACE USA airport liability policyholders buy some form of
terrorism coverage, TRIA or Extended Coverage War, Hi-jacking &
Other Perils
2With spending freeze, will U.S. government bail out those who do
not buy any form of terrorism coverage?
Cost of insurance could increase in the event of new claims
TRIPRA 2007 - Highlights
Highlights
Term/Timeline 7 Year Term – extension effective for 1/1/08 –
12/31/2014
Latest Action by Congress/White House
December 18, 2007 – House passed Senate version
of TRIA extension legislation
December 26, 2007 – White House signed TRIPRA
2007 into law. Changes in TRIPRA “terrorism”
Highlights
Covered Terrorist
Events
(definition of a
“certified” TRIA event)
Changed. Any terrorism act, including “domestic”
terrorism (eliminated “acting on behalf of any foreign person or foreign interest”) – including “domestic” was new
To be certified, an event must cause at least $5
million in aggregate property and casualty insurance losses and take place on U.S. soil (limited foreign exposure exceptions)
Loss Limit
(Annual Aggregate amount of funds available to fund
No change: $100 billion annual aggregate (including
insurance industry aggregate retentions)
Changed: Clarified that insurers are “capped” at their
respective retention levels for deductibles and
TRIPRA 2007 - Highlights
Highlights
Event or Loss Trigger
(for payment of federal reinsurance funds for terrorism losses to insurers)
No change: $100 million – same as 2005 Act
(but maintained $5 million insured loss trigger for certifying events)
Deductible Retention
(for insurers) No change. 20% of Prior Year Direct Earned Premium (annualized income for new insurers
Coinsurance Retention
(for insurers) No change. 15% of losses excess of insurer’s’Deductible Retention
Changes to Retentions No changes to Retentions – remain same as 2005
TRIPRA 2007 - Highlights
Highlights
Covered insurance lines
backstopped by TRIA No change. All commercial P&C lines except:No coverage for commercial auto, financial
guarantee, burglary, surety, professional liability, farm owners multiperil/crop
No coverage for life, health, medical malpractice,
personal lines of insurance or reinsurance
Nuclear, Biological, Chemical &
Radiological (NBCR) events
No change. Will backstop NBCR events, but no
TRIPRA 2007 - Highlights
Highlights
Make Available
(mandatory offer of coverage)
No change. Required for all covered P&C lines Changed: Terrorism Mandatory Disclosure Form
(prerequisite to claims payments) now adds reference to
$100 billion annual aggregate and requires insurers to
indicate premium charge and federal share of losses
Recoupment
Provision (forcing
insurers to repay funds below certain annual aggregate loss thresholds)
$27.5 billion – if aggregate losses are:
•Below this threshold, insureds assessed a surcharge on all in-force P&C policies (no cap on surcharge) with
insurers remitting these funds to Federal Government Recoupment
TRIPRA 2007 - Highlights
Highlights
Funding TRIA “Costs”
(as a result of CBO
estimates ranging from $5.1 billion to $8.4
billion over ten years for Senate and House Bills, Respectively)
Change. Accelerated Recoupment Provision payment
(see above):
1) Removed 3% cap on surcharges and mandatory recoupment level set at 133% of mandatory
recoupment amount for a given Program Year
2) Required repayment for losses below $27.5 billion aggregate loss threshold over two terms (losses
between 2007 – 2013 repaid by 2013; losses after 2011 repaid by 2017)
TRIPRA 2007 - Highlights
Highlights
Reporting and Study
Provisions Changed: Required:President’s Working Group (PWG) Report 2010 Report of the PWG on Financial Markets
Further PWG Report required in 2012
Loss Notification
