Page 1 Recording of this session via any media type is strictly prohibited. Impact of TRIA Expiration 1

Page 2 Recording of this session via any media type is strictly prohibited. Nathan Bacchus, RIMS Sr. Government Affairs Manager Elizabeth Guimaraes, Director, Risk Management, Nova Southeastern University, Inc.

Page 3 Recording of this session via any media type is strictly prohibited. What to Expect Gain an understanding of why the TRIA program was created and how it works. Appreciate the program's importance to risk professionals, the industry and the economy as a whole. Determine ways you can get involved in advocating for a long-term extension of the program.

Page 4 Recording of this session via any media type is strictly prohibited. Agenda RIMS Position History of TRIA Why TRIA is Important Arguments For/Against TRIA How You Can Get Involved 4

Page 5 Recording of this session via any media type is strictly prohibited. RIMS Position Strongly support permanent/long-term extension Public/private partnership Orderly & efficient response to acts of terror Address Nuclear, Biological, Chemical and Radiological (NBCR) Coverage Clarity 5

Page 6 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA Before September 11, 2001 losses from terrorism events were included in GL policies. Fears from late 2001 and into 2002 that lack of coverage posed a serious threat to many industry sectors and entire U.S. economy 6

Page 7 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA A 2002 survey found that “$15.5 billion of real estate projects in 17 states were stalled or cancelled because of a continuing scarcity of terrorism insurance. 7

Page 8 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA November 26, The Terrorism Risk Insurance Act was signed into federal law o Government and private insurers share in losses from terrorism inside the U.S. 8

Page 9 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA Minimum threshold of $5 million & 3 year duration insurer deductible of 7% of earned premium increasing to 15% by the end of 2005 Requirement that every insurer make terrorism coverage available 9

Page 10 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA 2005 Extension Established triggers: aggregate industry losses $50 million in 2006 and $100 million for

Page 11 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA Increased insurer deductible to 17.5% in 2005 and 20% in 2007; reduced the federal share of losses from 90% to 85% in

Page 12 Recording of this session via any media type is strictly prohibited. History and Evolution of TRIA 2007 Extension Removed requirement that a covered act of terrorism be committed on behalf of a foreign person or interest 12

Page 13 Recording of this session via any media type is strictly prohibited. How TRIA Works Certain criteria must be met before the federal government is required to step in 1.An individual act of terrorism must result in losses in excess of $5 million in the United States or to U.S. air carriers or sea vessels. 13

Page 14 Recording of this session via any media type is strictly prohibited. How TRIA Works 2. This act must then be certified as an act of terror by the U.S. Secretary of the Treasury, Secretary of State, and Attorney General. 3. Aggregate insurance industry losses from certified acts of terrorism must exceed $100 million. 14

Page 15 Recording of this session via any media type is strictly prohibited. Defining “Act of Terrorism” Violent or dangerous act toward human life, property, or infrastructure Results in damage within the United States Committed by individual(s) acting as part of an effort to coerce the civilian population or to influence the policy or affect the conduct of the U.S. Government by coercion 15

Page 16 Recording of this session via any media type is strictly prohibited. Loss Sharing Under TRIA 16

Page 17 Recording of this session via any media type is strictly prohibited. NBCR Coverage Not explicitly included/excluded under TRIA Language offered in 2007, but not adopted 2008 GAO study Coverage generally unavailable Insurers generally exclude coverage from property coverage Coverage generally offered in WC, Group Life, and Health coverage b/c of states 17

Page 18 Recording of this session via any media type is strictly prohibited. Why TRIA is Important TRIA allows insureds to obtain adequate coverage at affordable prices - Without actuarial data, it is not possible to project sound rates for insurance coverage - Workers’ Compensation insurance requires coverage for workers in the event of injury or illness due to a terroristic act 18

Page 19 Recording of this session via any media type is strictly prohibited. Why TRIA is Important Workers’ Compensation insurance requires coverage for workers in the event of injury or illness due to a terroristic act 19

Page 20 Recording of this session via any media type is strictly prohibited. Why TRIA is Important Without coverage many businesses will be forced to self-insure - Most businesses cannot afford to absorb the costs of terrorism related losses, even with aid from state and federal agencies 20

Page 21 Recording of this session via any media type is strictly prohibited. Why TRIA is Important Terrorism Risk Insurance is required to procure lending - Most financial institutions have required terrorism coverage since the 9/11 21

Page 22 Recording of this session via any media type is strictly prohibited. Why TRIA is Important - A sample agreement reads as follows: "insurance with respect to the Improvements and the Personal Property insuring against any peril now or hereafter included within the classification “All Risk” or “Special Perils” (including, without limitation, fire, lightning, windstorm, hail, terrorism and similar acts of sabotage, explosion, riot, riot attending a strike, civil commotion, vandalism, aircraft, vehicles and smoke), in each case (A) in an amount equal to 100% of the “Full Replacement Cost,”…" 22

Page 23 Recording of this session via any media type is strictly prohibited. Why TRIA is Important Other coverage lines may also be affected - We have already seen the impact on workers’ compensation coverage 23

Page 24 Recording of this session via any media type is strictly prohibited. Why TRIA is Important 24

Page 25 Recording of this session via any media type is strictly prohibited. Why TRIA is Important 25

Page 26 Recording of this session via any media type is strictly prohibited. Why TRIA is Important 26

Page 27 Recording of this session via any media type is strictly prohibited. Marketplace Uncertainty Increases of up to 10% for companies w/urban concentrations 53% of companies expected to see increased rates Standalone policies being offered Sunset provisions, non-renewals, etc. 27

Page 28 Recording of this session via any media type is strictly prohibited. Opposing Views Only helps major metropolitan areas Can terrorism be modeled as other lines? High government cost/Bailout of insurance companies TRIA=NFIP Reinsurance available 28

Page 29 Recording of this session via any media type is strictly prohibited. More than Big City Issue 29

Page 30 Recording of this session via any media type is strictly prohibited. Modeling Terrorism Coverage Not accidental Unpredictable/Random Events rare but losses from one single event could be catastrophic Confidential information 30

Page 31 Recording of this session via any media type is strictly prohibited. Differences from Bailouts & NFIP Not primary insurer or major creditor under TRIA TRIA is reinsurance Only cost government money in the event of catastrophic attack Recoupment mechanism in place Government has responsibility 31

Page 32 Recording of this session via any media type is strictly prohibited. Reinsurance Capacity? Reinsurance industry does have available capacity generally Same issues with modeling terrorism 2014 PWG report found industry “does not have capacity to provide reinsurance” o Estimates $6 to $8 billion reinsurance available for terrorism 32

Page 33 Recording of this session via any media type is strictly prohibited. Congressional Outlook Series of House & Senate hearings New leadership of HFS and Senate Banking Huge turnover since last extension o 28 members of HFS new 33

Page 34 Recording of this session via any media type is strictly prohibited. Congressional Outlook SB 2244, Introduced April 10, 2014 Bipartisan Senate Banking agreement Increases copay from 15%-20% Recoupment from $27.5 B to $37.5 B 34

Page 35 Recording of this session via any media type is strictly prohibited. Congressional Outlook House Financial Services o Transition to NBCR o Far less government responsibility o Far more taxpayer protection o Certification Process o Extension length 35

Page 36 Recording of this session via any media type is strictly prohibited. What Can You Do? Contact member(s) of Congress Particularly in districts of HFS members Legislative Alerts Attend RIMS Legislative Summit 36

Page 37 Recording of this session via any media type is strictly prohibited. Questions, Final Comments and Contact Information Nathan Bacchus Elizabeth Guimaraes