1. ©Towers Perrin September 13, 2004 Joseph R. Lebens, FCAS, MAAA Extending TRIA CARe Special Interest Seminar

2. ©Towers Perrin 2 Currently there are three extensions to TRIA under consideration n H.R. 4634 n sponsored by Pete Sessions (R-Texas), et al. n H.R. 4772 n sponsored by Michael Capuano (D-Massachusetts), Steve Israel (D-New York), et al. n S. 2764 n sponsored by Christopher Dodd (D-Connecticut), Bob Bennett (R-Utah), et al.

3. ©Towers Perrin 3 Each of the extension bills modifies the existing TRIA in several areas n Length of extension n Lines covered n Mandatory availability n Individual insurer deductibles n Recoupment trigger of mandatory surcharge on commercial policyholders n Long-term solution study

4. ©Towers Perrin 4 Each bill seeks to extend TRIA for at least two years beyond the current expiration date H.R. 4634 H.R. 4772 S. 2764 Policy Run-off TRIA expires 12/31/2005 2006 2007 2008

5. ©Towers Perrin 5 Each of the three bills address which lines of business should be covered n H.R. 4634 – Identical to TRIA with a new group life study due by June 1, 2005 n H.R. 4772 – Adds group life insurance to the commercial P/C lines already covered n S. 2764 – Directs Treasury to issue rule within 90 days of enactment of how to include group life insurance n Separate retention amounts may be considered

6. ©Towers Perrin 6 Insurers are required to continue the “make available” requirement of TRIA n H.R. 4634 – For policies written in 2006 and 2007 n H.R. 4772 – For policies written in 2006 and 2007, including the run-off of those policies during 2008 n S. 2764 – For policies written in 2006 and 2007, including the run-off of those policies during 2008

7. ©Towers Perrin 7 Individual insurer deductibles continue to be a percentage of the prior year’s DEP H.R. 4634H.R. 4772S. 2764 ‘04‘06‘07‘06‘07‘08‘06‘07‘08 20% 15% ‘03 10% 5% ‘05 TRIA

8. ©Towers Perrin 8 The aggregate retention amounts for the insured loss compensation section vary H.R. 4634H.R. 4772S. 2764 ‘04‘06‘07‘06‘07‘08‘06‘07‘08‘03 $10B ‘05 TRIA $15B $20B ? for 2008

9. ©Towers Perrin 9 Each bill requires some study and recommendation for a long-term solution n H.R. 4634 – By June 1, 2005, the Secretary shall conduct a study and submit a report to Congress alternatives that “do not involve a Federal financial backstop.” n H.R. 4772 – The Comptroller General shall submit a report to Congress by June 30, 2007 n S. 2764 – The Presidential Working Group on Financial markets shall consult with the NAIC, insurance industry reps, and policyholders and submit recommendations for a long term solution to Congress by June 30, 2006

10. ©Towers Perrin 10 Under TRIA, insurers bore the brunt of smaller losses and paid a lesser percentage of large events Source: Tillinghast Industry Terrorism Pricing Model

11. ©Towers Perrin 11 With H.R. 4634, insurers bear the brunt of the losses while policyholders bear little Source: Tillinghast Industry Terrorism Pricing Model

12. ©Towers Perrin 12 With H.R. 4772, policyholders receive even more of a break at a cost to the government Source: Tillinghast Industry Terrorism Pricing Model

13. ©Towers Perrin 13 Like TRIA, S. 2764 has policyholders picking up a moderate share of losses less than $30B Source: Tillinghast Industry Terrorism Pricing Model

14. ©Towers Perrin 14 Projected CBO scorings 1 of the bills implies that insurers pay the most under H.R. 4634 TRIA 2002$2,689m H.R. 4634$1,133m H.R. 4772$1,359m S. 2764$1,224m Source: Tillinghast Industry Terrorism Pricing Model