4Introduction U.S. Nuclear Insurance largely handled by two Companies American Nuclear Insurers (ANI)Third party nuclear liability insurance coveragePrice-Anderson Act of 1957 provides the legal framework for potential nuclear third party liability claimsNuclear Electric Insurance Limited (NEIL)First Party CoverageMutual enterprise that largely sets its own terms and coverage frameworkANI and NEIL competed in the Property Coverage area until the mid to late 1990’s
5NRC Property Insurance Rule Found in 10 C.F.R (w)Requires property insurance of either $1.06 billion or the insurance cover generally available from private sources, whichever is lessTMI showed importance of coverage and changes neededRegulations prioritize recovery to decontaminating the site and stabilizing the reactorsPrioritization is not automatic, costs must exceed $100 millionPrioritization requirement ends when the reactor stops posing “any significant risk to the public health and safety”NEIL’s Policies designed to comply with the RegulationsReferred 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 1990NEIL’s policies support the NRC’s prioritization requirement
7What is NEIL? Mutual Company with 83 Members Have insurable interest in a nuclear plantFormation of Nuclear Mutual Limited in 1973Coverage provided by NEIL and two subsidiariesOverseas NEIL Limited – Outside North AmericaNEIL Specialty Insurance Company – Excess Cover to MembersToday, the NEIL companies insure on a Member basis100 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 YEARSWHY BERMUDA?INSURANCE REGULATION, NOT TAXES
8Mission StatementWe 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, andPrudently pursuing opportunities that serve the Membership.
10Insurance overviewInsurance 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 accuracyStatistical models work with large homogenous sample sizesNEIL’s Members represent a somewhat homogenous group, but not enough population for statistical accuracy purposesGeneral Insurance Industry claims forecasting is further enhanced by relatively small limits offered – replacement value of home, car, etc…
11Insurance 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 MembershipObjective is that each insured plant presents approximately the same level of risk to the MutualMinor differences in risk are reflected through premium adjustments (penalties & credits)
12Primary Property COverage Property Damage caused by an “Accident”$1.5 Billion LimitIndemnity PolicyCosts incurred to repair Property Damage caused by the AccidentReplacement Cost for equipment – “like kind and quality”Upgrades or improvements not coveredRecovery as costs incurredPrioritization of recovery for “Nuclear Liability Cover”$100 Million in Property Damage and nuclear releaseNo Property Damage recovery permitted until Insured certifies NRC agreement stabilization work complete or Insured has isolated sufficient funds to cover the work
13Primary Property COverage Natural CatastrophesDeductible - $10 Million + 10% of Loss up to $500 MillionTerrorism CoveredRolling 12-month aggregate limit of $3.24 BillionU.S. Terrorism Risk Insurance ProgramUnique coveragesDecommissioning Fund shortfallFunctional Total Loss
14Excess property coverage Coverage split above $1.5 BillionCoverage follows the Primary Property coverageNuclear LossesLoss must involve Nuclear Liability CoverageExcess coverage of up to $1.25 Billion provided by NEILCovers Nuclear Liability costs and non-nuclear Property Damage lossesNon-Nuclear LossesClaim does not involve Nuclear Liability CoverageExcess property coverage up to $750 Million provided by NEIL Specialty Insurance Company (wholly-owned captive subsidiary)
16Accidental outage coverage Outage caused by Property Damage caused by an AccidentCover Insured’s costs to purchase replacement powerTime it should take to repair Property Damage and return Unit to service with use of “due diligence and dispatch”Differs from traditional Business Interruption coverageMaximum Limit is $490 MillionWeekly Indemnity Amount selected by InsuredUp to $4.5 Million per weekPaid out over a period of up to three years100% of Weekly Indemnity for first 52 weeks, 80% thereafterDeductibles based on number of weeks the Nuclear plant is not operating following the Loss event
18Coverage 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.
19Principal Exclusions in Policies* Gradual accumulation of radioactive contaminationFraudulent, dishonest or criminal actsRust, erosion and corrosion of any kindAny form of deterioration or wear and tearPitting, cracking, blistering, etc.Faulty workmanship and/or designAmounts collectible under warranties or guaranteesRegulatory Shutdowns or work* Exclusion generalized for presentation purposes
20Limits Purchased from NEIL as of July 1, 2013 Operating SitesPerm. S/D Sites
21Benefits of the mutualSelf Determination – Members establish Policy terms and conditionsPolicies subject to New York lawMember intention in drafting is important to interpretationsRepresentatives on three Member Advisory CommitteesInsurance Advisory Committee (IAC) reviews Policy coverage and language, rating programs and premiumsEngineering Advisory Committee (EAC) establishes and reviews Loss Control Standards, and monitors staff implementation of themLegal Advisory Committee (LAC) advises the Company on legal-related issues and mattersRevisions to Policies, Rating Programs and Loss Control Standards must be approved by Board of DirectorsResult is the NEIL’s Policies and Standards contain various provisions that are unique to the Mutual
23Core Nuclear Program Claims* 377 claims filed since 1973178 paid claimsOver $2.5 billion in Property Damage and Accidental Outage claims paid* Through December 31, 2013
24Coverage 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?
25Disputes Alternative Dispute Resolution mechanism are encouraged Peer ReviewEarly Neutral EvaluationMediationFinal and binding arbitrationUNCITRAL RulesUnique relationship of Insurer and Insured consideredIntent of parties in drafting language consideredContra Proferentem not applicableDocuments related to prior reviews and consideration by the MembersPrior decisions by NEIL on identical/similar issues
27Loss Control ProgramEach insured plant should present approximately the same risk to the MutualLoss Control Standards that include minimum requirements for insurability, and penalties and credits for premium adjustmentPrincipal focus - Property/Fire Protection and Boiler & MachineryPrimarily address balance-of-plant (non-nuclear) areasLoss Control Evaluationsmonitor the conditions at insured facilities,Assess whether risk profile is reasonably consistentSpecial consideration given to increasing or emerging risk areasTurbine Risk Review – Review of all insured turbine shaft lines
28Loss Control Program Loss Control Standards SHALL Requirements Mandatory - all plants expected to meetNon-compliance results in premium or deductible adjustments and potential removal of coverage“should” RequirementsDesirable, but not mandatoryNon-compliance results in premium adjustmentsRevisionsLoss ExperienceMember/Staff/Plant personnel inputApproved by the Members’ Engineering Advisory Committee (EAC) and the Board of Directors
30NEIL A Successful enterprise Inception to date –Year-End 2013$ in BillionsPremiums Collected$7.0Claims Payments$3.3Investment Earnings$7.8Distributions Paid to Members$6.1Year-End 2013Policyholders’ Surplus$3.9