TRIA leaving slyabus in 2021

Question 1

Pre-9/11 terrorism coverage vs post-9/11

Answer 1

1. Commercial property insurers did NOT exclude terrorism coverage vs withdrew coverage

Question 2

Reasons for govt participating in terrorism insurance (FCC-ES)

Answer 2

1. Fill unmet need – fixed availability
2. Social purpose – fix economic impact of construction projects halted
3. Convenience – govt set up program quickly + work with treasury to compensate

Question 3

Goals of Terrorism Risk Insurance Act (TRIA) + how accomplish

Answer 3

1. Stabilize private insurance market → govt backed loss sharing mechanism
2. Protect consumers affordability & availability → required private insurers offer coverage w/ govt as reinsurer
3. Preserve state regulation of insurance→ except fed defines terrorism.

Question 4

How TRIA works

Answer 4

1. Govt is reinsurer, Private insurers forced to offer coverage, Losses are shared depending on size
2. Subsidized by fed taxes

Question 5

Good impacts of TRIA

Answer 5

1. Price down
2. Availability up (private market willing to offer coverage)

Question 6

TRIA extension of 2005

TRIA extension of 2007

Answer 6

TRIA extension of 2005

1. Reduced govt exposure

TRIA extension of 2007

1. Add domestic terrorism coverage + mandatory recoupment paid faster

Question 7

Terrorist act definition & certification

Answer 7

1. >5m losses,
2. in US or US vessels to coerce US population or govt policies
3. certified by sec of state & treasury & attorney general

Question 8

3 loss thresholds for fed govt to pay under TRIA

Answer 8

1. Single act must be at least 5M + certified terrorism by sec of state & treasury & attorney general
2. Aggregate industry losses in yr from all acts>100M.(Limit will be 200M in 2020)
3. Insurer meets deductible of 20% of annual direct EP for commercial P&C including Workers Comp

Question 9

Describe TRIA loss sharing for

small

medium

large losses

Answer 9

Small – private covers bc aggregate industry losses from all acts in yr need to be at least 100M (Limit will be 200M in 2020)

Medium – retroactive reinsurance - fed govt gives loan to private insurers, premium surcharges recoup 133% of difference b/w govt pmt & retention

Large – govt covers most of loss, govt sharing % of 80%*(Loss –Ded) in 2020 where D is 20% of annual direct EP for commercial P&C including Workers Comp

Question 10

Define govt sharing percentage

Answer 10

1. Fed pays % above deductible once thresholds are met

Question 11

Define aggregate insured loss trigger

Answer 11

1. Fed only makes payments IF aggregate insured losses from all act in the year is above 200M

Question 12

Define insurance market retention

Answer 12

1. Fed does not charge for coverage under 27.5B

Question 13

Define mandatory recoupment %

Answer 13

1. If losses above insurance market retention of 27.5B THEN fed recoups 133% of difference b/w govt pmt and retention

Question 14

2015 TRIA impact

Answer 14

1. Govt sharing % moving from 85% to 80% by 2020 (1% per yr for 5 years)
2. Aggregate industry losses in yr from all acts moving from 100M to 200M by 2020 (20M per year for 5 years)
3. Insurance market retention moves from 27.5B to 37.5B by 2020 (2B per year for 5 years)
4. Mandatory recoupment moves from 133% to 140% now

Question 15

What if aggregate losses from all terrorism acts in year are above 100B?

Answer 15

1. No fed coverage above 100B + private insurers not required to provide coverage above 100B

Question 16

Private insurer role vs fed govt role

Answer 16

1. Private: sell/services policies, pays small claims/deductible
2. vs Fed govt: reinsures large losses + loans$ for medium losses

Question 17

Identify 4 elements of insurability + if terrorism passes

Answer 17

1. Credibility – FAIL - Not enough data to predict freq /sev→use model
2. Measureable – PASS – losses must be definite & measureable
3. Accidental – FAIL – loss must be accidental
4. Not Cats – PASS if risks are spread out

Question 18

Argue TRIA is not insurance

Answer 18

1. Retroactive – govt recoups 133% of govt pmt above retention via premium surcharges
2. Everyone is covered & subsidized by taxes (welfare-like)

Question 19

Lob covered

Answer 19

1. Commercial P&C including Workers Comp

Question 20

How private market could replace TRIA

Answer 20

Use private reinsurance instead of fed govt OR cat bonds

Question 21

Answer 21

Question 22

does tria cover nuclear and chemical attacks?

Answer 22

yes, not explicitly excluded