Presentation on theme: "Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Real Estate Industry Session TRIPRA Risk Management Perspective Monday,"— Presentation transcript:
Page 1 Recording of this session via any media type is strictly prohibited. Page 1 Real Estate Industry Session TRIPRA Risk Management Perspective Monday, April 28 2014
Page 2 Recording of this session via any media type is strictly prohibited. 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 Panel
Page 3 Recording of this session via any media type is strictly prohibited. Current Terrorism Risk Insurance Program U.S. Government is a reinsurer for “certified” acts of terrorism 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 IFcovered 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 $100B (per year) Extended in 2005 and again in 2007 - Expires December 31, 2014
Page 4 Recording of this session via any media type is strictly prohibited. Private Sector is Responsible for Most Expected Terror Losses Insurers have made great strides in improving the management of conventional terrorism losses – largely managing these risks within TRIA’s existing retentions. However, no private insurance mechanism is sufficient for pooling the risk of unconventional or large-scale losses. TRIA is a balanced public-private partnership – privatizing the management of terrorism risk and the pooling of conventional terrorism losses while maintaining the financing mechanism needed for truly catastrophic terror losses. Under existing TRIA retentions, the insurance industry is managing almost all of the risk from single-site, conventional terrorism losses. A RAND study (2014) estimated that total federal expenditures following a conventional terrorist attack are likely lower with TRIA in place than without TRIA. Make available provision increases take-up rates for insurance High retentions keep conventional risk in private sector Lowers need for post-disaster government assistance
Page 5 Recording of this session via any media type is strictly prohibited. Private Sector is Bearing Largest Share of Expected Terror Losses Delivery Method:2-ton truck bomb5-ton truck bomb10-ton truck bomb Estimated Industry Losses ($B) ~6.0 ~12.0 ~16.5 Estimated Fatalities ~1,600 ~4,500 ~7,000 Historical Events Oklahoma City Beirut Marine Khobai Towers Bombing Barracks Bombing Bombing, Saudi Arabia Year 1993 19832006
Page 6 Recording of this session via any media type is strictly prohibited. NBCR Terrorism Loss Potential is Considerably More Severe than Natural Catastrophes
Page 7 Recording of this session via any media type is strictly prohibited. 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
Page 8 Recording of this session via any media type is strictly prohibited. $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
Page 9 Recording of this session via any media type is strictly prohibited. $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
Page 10 Recording of this session via any media type is strictly prohibited. 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.
Page 11 Recording of this session via any media type is strictly prohibited. Legislative Activity Regarding TRIA Representative Mike Grimm (R-NY) House Financial Services Committee member H.R. 508: 5-year extension (12/31/2019) 88 regionally diverse/bi-partisan co-sponsors (40R 48D) 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. 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)
Page 12 Recording of this session via any media type is strictly prohibited. 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: 12 Reed (D-RI) Murphy (D-CT) Warner (D-VA) Menendez (D-NJ) Johnson (D-SD) Gillibrand (D-NY) Kirk (R-IL) Heller (R-NV) Johanns (R-NE) Blunt (R-MO) Crapo (R-ID) Isakson (R-GA)
Page 13 Recording of this session via any media type is strictly prohibited. REPORTS ON TRIA President’s Working Group on Financial Markets
Page 14 Recording of this session via any media type is strictly prohibited. Terrorism Insurance Take-up Rates Real Estate68% All Industries62% (44% - 81%) Worker’s Compensation100%
Page 15 Recording of this session via any media type is strictly prohibited. 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.
Page 16 Recording of this session via any media type is strictly prohibited. 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
Page 17 Recording of this session via any media type is strictly prohibited. TRIPRA – Lenders Position Bank Financing. Syndicated (CMBS) Facilities.
Page 18 Recording of this session via any media type is strictly prohibited. TRIPRA – Insured’s Position The Risk Managers perspective: Uncertainty Timing Other factors
Page 19 Recording of this session via any media type is strictly prohibited. Role of Capital Markets?
Page 20 Recording of this session via any media type is strictly prohibited. TRIPRA Structure up for Review What possibly to expect 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 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 ? ?
Page 21 Recording of this session via any media type is strictly prohibited. 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.orghttp://www.insureagainstterrorism.org Look for the Call to Action letter in the Get the Facts section. Email: firstname.lastname@example.org@insureagainstterrorism.org Spread the word to other businesses with mass gathering locations as well e.g. football stadiums/theatres/sporting venues.
Page 22 Recording of this session via any media type is strictly prohibited. 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.
Page 23 Recording of this session via any media type is strictly prohibited. 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
Page 24 Recording of this session via any media type is strictly prohibited. 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/
Page 25 Recording of this session via any media type is strictly prohibited. U.S. Senate Bill introduced in April Senate Banking Committee mark-up in May Senate floor consideration in June? U.S. House 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 August recess…September? 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? Possible Timeline for Renewal Only 54 Legislative Days before the Mid-term Elections on November 4th 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
Page 26 Recording of this session via any media type is strictly prohibited. Questions, Final Comments and Contact Information