1 May 7, 2007 Casualty Actuarial Society Kimberly M. Welsh, Esq. Reinsurance Association of America TRIEA LEGISLATIVE DEVELOPMENTS

2 Overview Current law, reinsurance capacity and evidence of success. Insurance industry and policyholder efforts to reach agreement on principles. Congressional legislative developments and timetable.

3 Key Provisions of Current Law/ Where Changes are Likely Two-year extension through December 31, 2007 – Congress must extend or program will sunset. Program Trigger - $100 Million in the U.S. Insurance company deductible – 20% (percentage of prior year’s direct earned premium.) Annual Program Cap - $100 Billion. “Make Available” – all covered lines for certified acts that “does not differ materially” – NBCR does not apply.

4 Key Provisions of Current Law/ Where Changes are Likely cont’d RAA believes program is working/filling void for lack of private reinsurance. RAA survey suggests $6-8 billion of private terrorism reinsurance capacity. Approximately $1 billion of that for NBCR. RAA supports program extension.

5 Insurance Industry and Policyholder Develop Principles for Long-Term Program Efforts ongoing since January 2006 for insurance industry agreement on long-term solution. No agreement on bill but industry did agree on the following principles for a TRIEA-extension: – Conventional TRIA structure for non-NBCR risk, including individual insurer deductible and industry retention.

6 Insurance Industry and Policyholder Develop Principles for Long-Term Program cont’d – Consideration of incentives to facilitate development of new private reinsurance and capital market capacity. – NBCR Increase Federal participation in management of special exposure presented by NBCR risk. – Commercial lines only (TRIEA lines). – Foreign and domestic terrorism.

7 Insurance Industry and Policyholder Develop Principles for Long-Term Program cont’d – Event trigger that provides meaningful opportunity for small company participation. – Preemption of rate and coverage requirements where appropriate to maximize private market participation. – Make program permanent.

8 AIA Proposal - Program Design Late April: AIA breaks ranks and reaches separate agreement on principles with policyholder community – seeking other insurer support. Not likely, due to the following NBCR principles: First Principle NBCR: Reduce potential exposure and provide certainty with respect to the role of private insurers in managing NBCR terrorism risk by:

9 AIA Proposal - Program Design cont’d 1) Clearly and affirmatively stating that the federal government is solely liable for NBCR terrorism losses above insurer’s individual NBCR retentions, thus encouraging insurers to provide more capacity. 2) Lowering or eliminating insurer deductible and eliminating the insurer co-pay for NBCR to reflect consistent view of GAO, Treasury, and PWG that markets are not working in this area; If private insurer role is consistent with these principles, then enhance “make available” provision to include endorsement covering NBCR terrorism that would be excluded by the nuclear hazard or pollution exclusion.

10 AIA Proposal - Program Design cont’d Small and midsize insurance companies do not want to have to make NBCR available, would prefer 1st dollar. Second Principle – AIA offers $100 million event trigger. – Small companies want reduction to $50 million.

11 Congressional Efforts and Timetable – Senate Banking Committee – House Financial Services Committee – House Insurance Subcommittee

12 Congressional Efforts and Timetable cont’d At April Hearing Subcommittee Chairman Kanjorski announces 5 policy options for TRIEA renewal legislation. 1)TRIEA should not include extraneous legislation (surplus lines/reinsurance, risk retention) 2)Duration should be 6-8 years 3)Including group life as covered line and eliminate distinction between domestic and foreign terrorism 4)Address NBCR 5)Explore government’s role (should event size be lowered and should insurers pay premiums for federal reinsurance).

13 Congressional Efforts and Timetable cont’d House Republicans and Administration not likely to support due to duration and addition of group life. Senate consideration to occur after movement in the House. TRIEA extension not likely to become law until late summer/early fall at the earliest. Enactment possibly not until very end of the year.

14 Questions

15 Kimberly M. Welsh, Esq. Reinsurance Association of America