Ten Years After 9/11 The Future of TRIA and Terrorism Insurance Challenges – Strategies – Solutions Session: RMG216

Information for Attendees WELCOME everyone to the session and commit to start and end the session on time. This is important to ensure the next session can begin as scheduled. Use the EMERGENCY exits in case of an emergency…  Point out where they are located. Silence all CELL PHONES. Complete SESSION EVALUATION FORMS and return to the door monitor. This will assist RIMS in continuing to provide quality programs. (If there is any speaker change, alert the registrants to change on the evaluation form) CE Credits are being offered at RIMS this year. For those that registered please note that you need to STAY THE ENTIRE SESSION. If you leave early see the door monitor. All sessions should be tracked on the Session Tracker Form to receive FULL Credits. For Information visit the CE Counter at Registration. Download SESSION HANDOUTS at (For copies on site visit the print stations located on Level 1 Lobby: Broad & 13 th St Bldg.; 12 th & 13 th St Bldg., as well as RIMS Cyber Stations located in booths #431 and #2431 in the Exhibit Hall) Note Members of the PRESS may be in attendance. The Press may quote comments or remarks without clarification or verification. Introduce the SESSION, PANEL and start the program. THANK EVERYONE FOR THEIR PARTICIPATION AND WISH THEM A NICE DAY THANK 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 NatovitzSilverstein/World Trade Center Properties

6 H D Our Current NYC Portfolio

Developer – World Trade Center 7

8 Limited Risk Management Tools Buildings Cannot be Hidden or Disguised Can’t Move the Buildings Can 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 INSURANCE

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

11 A Little Bit About TRIA/TRIPRA TRIA 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% of limit TRIA Backstopped 15% of limit Retained

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% Captive Risk 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 Tax Authorities Taxes TRIPRA Reinsurers Reinsurance Premium

Example: TRIA Captive Positive Impact Limit and Premium Comparison 2010 Terrorism Program2011 Captive LocationLimit (Individual) PremiumLimit (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 $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 HILL AND IN THE WORLD Brian Finch, Partner DICKSTEIN SHAPIRO

TRIPRA – The Washington View on Renewal Brian Finch, Partner Dickstein 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, SVPWillis 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 …QUESTIONS Thank you for attending