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

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

©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

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

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

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

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

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

©Towers Perrin 9 Each bill requires some study and recommendation for a long-term solution n H.R – 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 – The Comptroller General shall submit a report to Congress by June 30, 2007 n S – 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

©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

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

©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

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

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