Terrorism Risk Insurance Program

1. Terrorism Risk Insurance Program Jeffrey S. Bragg Executive Director

2. Terrorism Risk Insurance Program Purpose • Address Insurance Market Disruptions • Ensure Availability and Affordability of Commercial P&C Terrorism Coverage • Provide Transition Period • Stabilize and Build Capacity in Private Market • Strengthen Overall Economy

3. Secretary of Treasury Secretary of State Attorney General Terrorism Risk Insurance ProgramOverview Certifies Act of Foreign Terrorism Resulting in Damage > 5M IN United States U.S. Missions U.S. Air Carriers U.S. Vessels FOR Commercial Lines P & C Workers Compensation

4. Terrorism Risk Insurance Program Restrictions • Temporary Program Expires 2005 • Company Deductible 2005 15% + 10% Insured Loss • $100 Billion Annual Cap on Insured Losses

5. Terrorism Risk Insurance Program Goals • Continued availability/affordability of insurance from Certified Acts of Terrorism • Transitional period for private markets to stabilize, build capacity • Preserving state insurance regulations • Equitable distribution of shared costs of recovery

6. Terrorism Risk Insurance ProgramCore Values • Sense of Urgency and Purpose • Open and Transparent Operations • Efficient, Fair and Accurate Service • Fiscal Responsibility • Accountability

7. Terrorism Risk Insurance Program Regulations • 1st Final Rule - Provides key definitions, such as “Act of Terrorism,” “Insurer,” and “Affiliate” - Identifies lines of Commercial Property & Casualty Insurance included in the Program • 2nd Final Rule - Make available requirements - Disclosure requirements • 3rd Final Rule - State residual market mechanisms

8. Terrorism Risk Insurance ProgramClaims Rule • Speed with which TRIP will act on a request for reimbursement. • Payment of allocated loss adjustment expenses. • Level of documentation required to support a claim. • Unique data elements required in reporting. • Partial payments.

9. Terrorism Risk Insurance ProgramAdvance Payments TRIP Claims Management • Company Submits Certification of Loss with Bordereau 2. Reviews COL for Accuracy Recommends Payment 4. TRIP Office Approves Payment Insurance Co. Request ASAP System 5. Treasury Issues Funds 3. Co. Establishes Segregated Account Payment

10. Terrorism Risk Insurance ProgramClaims Forms • Initial Notice of loss • Certification of loss • Schedule A – DEP & Insurer deductible • Schedule B – Certification of Compliance • Schedule C - Bordereau

11. Terrorism Risk Insurance ProgramBordereau Formats • Excel • Comma delimited text file • Pipe delimited text file • Online manual Completion

12. Terrorism Risk Insurance ProgramClaims Process • www.treas.gov/trip - Links to: • TRIP Claims Manager • ASAP

13. Terrorism Risk Insurance ProgramTRIP Service Contractors • Paragon Claims Processing & Management • ISO Statistical Reporting • Deloitte Claims Auditing

14. Terrorism Risk Insurance Program Contracting Process • Develop initial statement of work • Analyze requirements • Acquisition Office/TRIP Office development of Procurement Plan • Conduct market research-receive comments • Coordination of technical issues, e.g., systems, financial, accounting • Issue request for comments (optional)-receive and analyze comments • TRIP Office redraft of statement of work-develop independent cost estimate • Acquisition announce planned RFP release date on • TRIP/Acquisition development selection plan • Acquisition Office preparation and clearance of RFP • Release of RFP-Announce RFP FEDBIZOPPS.GOV • Receive and answer questions • Conduct pre-proposal conference • Amend solicitation (as required) • Receive and evaluate proposals • Establish a competitive range, obtain clarifications on conduction negotiations; obtain “Best and Final Offers” (as required) • Preparation of Report/Recommendation; Source Selection Authority decision • Acquisition Office prepare, clear and award contract

15. Terrorism Risk Insurance Program Litigation Management Rule • Follows Requirements of Act • Exclusive Federal cause of action • Preempts state causes of action (Not workers comp) • Preserves government subrogation rights • Federal funds not used to pay punitive damages • Presidential Memorandum • Advance approval of Secretary of Treasury for proposed settlements of Federal causes of action > $ 2M personal injury or death > $ 10M property damage

16. Terrorism Risk Insurance Program 6th Rule Affiliation Determination • Final 30 to 60 Days • Timing Affiliation Determination

17. Terrorism Risk Insurance Program Recoupment Example $20 B Insured Loss 100 Insurers Impacted DEP 100 Insures = $20 B $15 B 3rd Year 15% deductible = $3 B Trip Industry Aggregate Retention Pays $15.3 B 10% quota share = $1.7 B 100 Companies Pay $4.7 B $4.7 B Paid by 100 companies Discretionary Recoupment $5 B Mandatory Recoupment $10.3 B

18. Terrorism Risk Insurance Program 7th Proposed Rule - Recoupment • Published 30 – 60 Days • Standards for Treasury Notification (6 Months Notice) • Establishes Electronic Payment System • Assessments in Full Year Increments (Minimum 1 Year) • Annual Reconciliation/Audit

19. Terrorism Risk Insurance Program Rule Making Process • Preliminary determination of regulatory content (vs. business procedures) • Develop draft regs • TRIP Review draft regs • Reinsurer site visit • Determine reg vs business process division and incorporate changes to draft reg 6. Departmental review and possible meeting with OMB 7. OMB review 8. Publish in Federal Register (proposed rule) 9. Formal public comment 10. Paperwork Reduction Review - concurrent with public comment period • Review comments • Revise regs 13. Departmental review 14. OMB review 15. Publish final regs in Federal Register

20. Terrorism Risk Insurance Program Program Issues • State Exemptions (NBC) • Losses in Excess $100B • Foreign -vs- Domestic Terrorism • Program Extension

21. Terrorism Risk Insurance Program Program Alternatives

22. Terrorism Risk Insurance Program Treasury Offices Financial Institutions Office of Economic Policy TRIP Studies Implementation Group Life Program Management Make Available Program Operations Program Alternatives Effectiveness Claims Management/Processing Financial Integrity Operational Efficiency

23. Terrorism Risk Insurance Program Market Corrections • Property Insurance take up % rate 2003 1st Quarter 2004 3rd Quarter 24% 57% • Cost of coverage - % of premium 2003 1st Quarter 2004 3rd Quarter 10% - 50% 4.2%