Real Estate Industry Session
TRIPRA
Risk Management Perspective
Monday, April 28 2014
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Page 1
Panel
• Michael Horvath
• Senior Vice President, Risk Management, Simon Property Group
• Kenneth K. Dort
• Partner, Drinker Biddle & Reath LLP
• Patricia Henry
• Global Government Affairs Officer, ACE Group
• Eamonn Cunningham
• Chief Risk Officer, Westfield, LLC
• Jennifer Owens
• Manager Environmental Health and Safety, Comcast Corporation
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Page 2
Current Terrorism Risk Insurance
Program
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U.S. Government is a reinsurer for “certified” acts of terrorism
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Program is triggered when commercial losses exceed $100M
•
Coverage is for P&C commercial lines only including WC, Property, and Liability, etc.
•
Personal Lines & Group Life are excluded
•
NBCR and Cyber Terrorism losses are covered in program IF covered by underlying policy
•
Commercial insurers are required to “make available” coverage for certified acts of
terrorism
•
Insurers can only exclude coverage for terrorism if insured declines coverage
•
Individual company retention (deductible) is 20% of DEP
•
The Federal government pays 85% excess of an individual insurer retention, while the
insurer pays 15%
•
Recoupment mechanism for Federal share (up to a 3% surcharge)
•
Total program and insurer losses capped at $100B (per year)
•
Extended in 2005 and again in 2007 - Expires December 31, 2014
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Page 3
Private Sector is Responsible for Most
Expected Terror Losses

Insurers have made great strides in improving the management of conventional terrorism
losses – largely managing these risks within TRIA’s existing retentions. However, no private
insurance mechanism is sufficient for pooling the risk of unconventional or large-scale
losses.

TRIA is a balanced public-private partnership – privatizing the management of terrorism risk
and the pooling of conventional terrorism losses while maintaining the financing
mechanism needed for truly catastrophic terror losses.

Under existing TRIA retentions, the insurance industry is managing almost all of the risk
from single-site, conventional terrorism losses.

A RAND study (2014) estimated that total federal expenditures following a conventional
terrorist attack are likely lower with TRIA in place than without TRIA.
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Make available provision increases take-up rates for insurance
High retentions keep conventional risk in private sector
Lowers need for post-disaster government assistance
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Page 4
Private Sector is Bearing Largest Share
of Expected Terror Losses
Delivery Method:
2-ton truck bomb
5-ton truck bomb
10-ton truck bomb
Estimated Industry
Losses ($B)
~6.0
~12.0
~16.5
Estimated
Fatalities
~1,600
~4,500
~7,000
Oklahoma City
Bombing
Beirut Marine
Barracks Bombing
Khobai Towers
Bombing, Saudi Arabia
Historical
Events
Year
1993
1983
2006
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Page 5
NBCR Terrorism Loss Potential is Considerably
More Severe than Natural Catastrophes
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Page 6
Cyber-risk and TRIA
•
No precedent where TRIA has been applied in response to a cyber attack
•
A cyber terrorist attack arguably could trigger coverage under TRIA, if:
o Certified as an “act of terrorism” by Treasury
o All other statutory requirements were met
•
TRIA could be instrumental in providing stability in the event of a “Cyber
Pearl Harbor,” in which catastrophic damages resulted
•
As the severity and frequency of cyber attacks have grown more
prominent, several proposals have been made to clarify that TRIA could
apply as reinsurance in the event of a massive cyber attack
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Page 7
$100B Program Cap
The 2007 extension clarified that the $100B cap on payments
applies to both the federal government and insurer obligations for
covered terrorism losses in any one year
• The Treasury Secretary shall not make any payments for any portion
of the amount of aggregate losses that exceed $100B
• No insurer that meets its deductible shall be liable for the payments
of any portion of the amount of losses that exceed $100B
• The Treasury Secretary shall determine the pro-rata share of insured
losses to be paid by each insurer that incurs under the Program
• The Treasury Secretary must notify Congress within 15 days after
certification if losses are estimated to exceed $100B
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Page 8
$100B Program Cap – Final Rule
Once Treasury determines that losses exceed the $100B Cap:
• Treasury must determine the Pro Rata Loss Percentage (PRLP) and
provide notice in the Federal Register or through DOI’s
• Insurers will make pro-rated payments
 All prior claims settlements are final
• Treasury may call for a 2 week payment hiatus and may revise PRLP
as loss data comes in
• Each insurer must estimate if payments will exceed its deductible
 If yes, begin making payments using PRLP
 If no, continue paying at 100% of value
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Page 9
TRIPRA - Current Legislative Position
• Three Bills in the Congress including the
Grimm Bill (5 year extension).
• Recent bill in the Senate.
• Sub Committee on this seeking research from
the GAO.
• CIAT testified at the Senate Banking
Committee.
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Page 10
Legislative Activity Regarding TRIA
•
Representative Mike Grimm (R-NY)
House Financial Services Committee member


•
Representative Bennie Thompson (D-MS)
Homeland Security Committee Ranking Member


•
H.R. 1945: 10-year extension plus homeland security enhancements (12/31/2024)
7 co-sponsors (7D)
Representative Mike Capuano (D-MA)
House Financial Services Committee member


•
H.R. 508: 5-year extension (12/31/2019)
88 regionally diverse/bi-partisan co-sponsors (40R 48D)
H.R. 2146: 10-year extension (12/31/2024)
43 co-sponsor (42D 1R)
Senator Chuck Schumer (D-NY)
Senate Banking Committee member


S. 2244: 7-year extension with changes to co-share and recoupment (12/31/2021)
12 co-sponsor (6D 6R)
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Page 11
S. 2244
Introduced by Senator Schumer (D-NY)
• Co-share would be increased from 85/15 to 80/20
• Recoupment would be increased from $27.5B to $37.5B
o Both co-share and recoupment changes would be phased-in
over 5 years
• Program would be reauthorized for 7 years
• Co-sponsors include:
Kirk (R-IL)
Reed (D-RI)
Heller (R-NV)
Murphy (D-CT)
Johanns (R-NE)
Warner (D-VA)
Menendez (D-NJ)
Blunt (R-MO)
Johnson (D-SD)
Crapo (R-ID)
Gillibrand (D-NY)
Isakson (R-GA)
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12
Page 12
REPORTS ON TRIA
President’s Working Group on Financial Markets
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Page 13
Terrorism Insurance Take-up Rates
• Real Estate
68%
• All Industries
62% (44% - 81%)
• Worker’s Compensation
100%
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Page 14
Workers Compensation
•
•
•
•
•
Terrorism cannot be excluded.
Carriers have to be able to cede this risk.
All about concentration in workplace(s).
Carrier not just focusing on the larger cities.
New more detailed focus on numbers in individual
buildings and time of day concentrations.
• Not a lot of certainty in this space.
• Ultimate options are very expensive.
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Page 15
TRIPRA – Insurers Position
•
•
•
•
•
•
•
•
Accept the net position
Sunset provisions
Cover expiry 31 December
London
FM Global
Captives
Stand-alone program
Workers Compensation:
•
•
Short term policies to 12/31, or
Full year with AP if TRIPRA not extended
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Page 16
TRIPRA – Lenders Position
• Bank Financing.
• Syndicated (CMBS) Facilities.
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Page 17
TRIPRA – Insured’s Position
• The Risk Managers perspective:
• Uncertainty
• Timing
• Other factors
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Page 18
Role of Capital Markets?
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Page 19
TRIPRA Structure up for Review
What possibly to expect
•
•
•
•
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Individual losses greater than $5 million
Trigger (aggregate annual) - $100 million of insurance losses
Deductible - 20% of prior year direct earned premiums
Co-payment (insurer) - 15%
Post Funding/Recoupment of Federal assistance through surcharges
•
•
•
•
•
•
?
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Less than $27.5 Billion losses – mandatory recoupment at 133%
Above $27.5 Billion in insured losses – discretion to recoup
Total program and insurer losses capped at $100 Bn per annum
Pre-funding model
Cyber Terrorism
Streamlining the certification process

X
?
?
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Page 20
TRIPRA - Current Legislative Position
•
•
•
Conservative Republicans being approached (Need good
stories from Texas to spread the word including Oil and
Energy).
Need more evidence of difficulties being faced –
lending/investment.
Send a letter to your Representative or Senator –
•
CIAT Website: http://www.insureagainstterrorism.org
• Look for the Call to Action letter in the Get the Facts section.
Email: [email protected]
Spread the word to other businesses with mass gathering
locations as well e.g. football stadiums/theatres/sporting
venues.
•
•
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Page 21
Policyholder Advocates
The Coalition to Insure Against Terrorism represents a wide
range of businesses and organizations throughout the
transportation, real estate, manufacturing, construction,
entertainment and retail sectors.
These groups banded together to speak for business
insurance policyholders in search of a long-term solution to
make comprehensive terrorism risk insurance coverage
available and affordable through the Terrorism Risk
Insurance Program Reauthorization Act.
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Page 22
Coalition to Insure Against Terrorism
American Bankers Association
American Bankers Insurance Association
American Bankers Securities Association
American Council of Engineering Companies
American Gaming Association
American Hotel and Lodging Association
American Land Title Association
American Public Gas Association
American Public Power Association
American Resort Development Association
American Society of Association Executives
Associated Builders and Contractors
Associated General Contractors of America
Association of American Railroads
Association of Art Museum Directors
Building Owners and Managers Association International
Financial Services Roundtable
Institute of Real Estate Management
International Council of Shopping Centers
International Franchise Association
International Safety Equipment Association
Long Island Import Export Association
Mortgage Bankers Association
NAIOP
National Apartment Association
National Association of Chain Drug Stores
National Association of Home Builders
National Association of Manufacturers
National Association of REALTORS
National Association of Real Estate Investment Trusts
National Association for Stock Car Auto Racing (NASCAR)
National Association of Waterfront Employers
National Basketball Association
National Collegiate Athletic Association
National Council of Chain Restaurants
National Football League
National Hockey League
National Multifamily Housing Council
National Restaurant Association
National Retail Federation
National Roofing Contractors Association
National Rural Electric Cooperative Association
New England Council
Partnership for NYC
Public Utilities Risk Management Association
The Real Estate Roundtable
The Real Estate Board of New York
Securities Industry and Financial Markets Association
Self-Insurance Institute of America, Inc.
Taxicab, Limousine & Paratransit Association
UJA-Federation of New York
University Risk Management and Insurance Association
U.S. Chamber of Commerce
U.S. Travel Association
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Page 23
Representative Members of the
Coalition to Insure Against Terrorism
Boston Properties
Campbell Soup Company
Citigroup Inc.
Cornerstone Real Estate Advisers, LLC
CRE Finance Council
CSX Corporation
Emerson
Food Marketing Institute
Helicopter Association International
Hilton Worldwide
Host Hotels & Resorts, Inc.
InterContinental Hotel Group
International Speedway Corporation
Marriott International
Office of the Commissioner of Baseball
Starwood Hotels and Resorts
Union Pacific
http://www.insureagainstterrorism.org/
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Page 24
Possible Timeline for Renewal
Only 54 Legislative Days before the Mid-term Elections on November 4th
U.S. Senate
U.S. House
Bill introduced in April
Senate Banking Committee
mark-up in May
Senate floor consideration in
June?
2 days left in April
12 days in May
12 days in June
16 days in July
August Recess
10 days in September
2 days in October
After Nov 4 - Lame Duck
Committee Leadership and staff
working on draft in April/May
New bill/concept paper
unveiled for consideration in
May
Negotiation process with
members and industry
continues in May/June
Consideration in Committee
and/or House floor in June/July
Signed into Law
Multiple scenarios to get to
final passage
Differing language will have
to be negotiated
Additional floor time needed
to consider any amended
language
September…Lame Duck?
August recess…September?
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Page 25
Questions, Final Comments and
Contact Information
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Page 26
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TRIPRA – Insured`s Position