nuclear Property Insurance Coverage in the United States INLA Intra Jura Congress October 23, 2014 Buenos Aires Nuclear Electric Insurance Limited

Agenda Introduction Company Overview Insurance Coverage Claims Loss Prevention Conclusion

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

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 needed Regulations 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 Regulations Referred to as “Nuclear Liability Coverage” No Statutory or Regulatory Property Insurance Requirements in E.U. Member countries (Belgium and Spain) In order to operate a nuclear power plant in the United States, the NRC requires that each plant have a minimum of $1.06B in property insurance coverage. This requirement has been in place since 1980s and the dollar amount was based on the amount of nuclear property insurance that was available at that time. After TMI, the NRC’s Prop Ins. regulation was modified to require that property insurance first be used to decontaminate/stabilize after an accident before $ recovery for physical damage. Language first adopted in 1984, current version in 1990 NEIL’s policies support the NRC’s prioritization requirement

Company overview

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) ANYONE BEEN TO BERMUDA? I LIVED THERE FOR 15 YEARS WHY BERMUDA? INSURANCE REGULATION, NOT TAXES

Mission Statement We fulfill our continuing core responsibility of insuring our Members’ nuclear risks by: Maintaining the financial 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.

Insurance coverage

Insurance overview Insurance industry is built on the “law of large numbers” e.g. - can’t identify which house will incur a fire, but can quantify how many with statistical accuracy Statistical models work with large homogenous sample sizes NEIL’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 offered – replacement value of home, car, etc…

Insurance overview (continued) 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 profile is reasonably consistent across the Membership Objective is that each insured plant presents approximately the same level of risk to the Mutual Minor differences in risk are reflected through premium adjustments (penalties & credits)

Primary Property COverage Property Damage caused by an “Accident” $1.5 Billion Limit Indemnity Policy Costs 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 sufficient funds to cover the work

Primary Property COverage Natural Catastrophes Deductible - $10 Million + 10% of Loss up to $500 Million Terrorism Covered Rolling 12-month aggregate limit of $3.24 Billion U.S. Terrorism Risk Insurance Program Unique coverages Decommissioning Fund shortfall Functional Total Loss

Excess property coverage Coverage split above $1.5 Billion Coverage 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 Losses Claim does not involve Nuclear Liability Coverage Excess property coverage up to $750 Million provided by NEIL Specialty Insurance Company (wholly-owned captive subsidiary)

Nuclear property insurance Non-Nuclear Property Only Excess Property Layer Nuclear Events Only $1.25 Billion Excess Property Layer Non-nuclear Only $750 Million $1.5 Billion Primary Property Layer $1.5 Billion Primary Property Layer $1.5 Billion

Accidental outage coverage Outage caused by Property Damage caused by an Accident Cover Insured’s costs to purchase replacement power Time 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 Million Weekly Indemnity Amount selected by Insured Up to $4.5 Million per week Paid 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 Policy (Assume $3.5 MM/Week & 12 Week Deductible) 174 Weeks $490 MM Next 110 Wks @ 80% of $3.5 MM $327.6 MM (Non-Nuclear Outage limit) 64 Weeks $182 MM 1st 52 Wks @ $3.5 MM 12 Weeks $0

Coverage Accident Definition "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.

Principal Exclusions in Policies* 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 * Exclusion generalized for presentation purposes

Limits Purchased from NEIL as of July 1, 2013 Operating Sites Perm. S/D Sites

Benefits of the mutual Self Determination – Members establish Policy terms and conditions Policies subject to New York law Member intention in drafting is important to interpretations Representatives on three Member Advisory Committees Insurance Advisory Committee (IAC) reviews Policy coverage and language, rating programs and premiums Engineering 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

Claims

Core Nuclear Program Claims* 377 claims filed since 1973 178 paid claims Over $2.5 billion in Property Damage and Accidental Outage claims paid * 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?

Disputes Alternative Dispute Resolution mechanism are encouraged Peer Review Early Neutral Evaluation Mediation Final and binding arbitration UNCITRAL Rules Unique relationship of Insurer and Insured considered Intent 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

Loss prevention

Loss Control Program Each insured plant should present approximately the same risk to the Mutual Loss 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 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

Success of neil

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 Policyholders’ Surplus $3.9

Questions?