UK Terrorism Insurance Where are we now

1
"UK Terrorism Insurance - Where are we now?"

• Insurance Institute of London
• 23 January 2003
• Steve Atkins
• Chief Executive

2
Background

• Covers damage to property and BI for Great
  Britain (excluding Northern Ireland) located
  property
• Members agree to provide cover where requested
• A mutual reinsurance company owned by its cedants

3

• Has an unlimited retrocession cover with HM
  Government, though with payback provisions
• Membership available to all properly authorised
  insurers covering relevant property
• Covers commercial property including residential
  property in commercial ownership (with a higher
  retention)
• A link with underlying General Cover,
  particularly as regards policy limits
• A no adverse selection principle

4

• Damage caused by Acts of Terrorism resulting from
  fire or explosion only
• Member retention of 100,000 per head of cover,
  per policy, per event
• Annual distribution (or call) of 10 of surplus
  (or premium ceded)
• A tariff rating structure controlling the retail
  price

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Claims

• Certification required
• 10 certified events producing claims
• 3 largest claims
• Bishopsgate
• Manchester
• South Quay

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Consequences of Recent Events

• Reductions in capital/solvency
• Preference by insurers for less volatile lines of
  business
• Widespread (and wide) terrorism exclusions
• Emergence of some new capital
• Consideration of how terrorism damage should be
  funded

7
Changes to Scheme

• Government agreed to discussions at end 2001
• Treasury chaired working group involving AIRMIC,
  ABI, BIBA and Pool Re with agreement reached July
  2002
• Some changes implemented August 2002 with others
  from 1 January 2003

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Changes to Scheme

• Wider cover
• Member retentions altered to Per Event plus
  Annual Aggregate
• No longer specify retail tariff or credit terms
• Examination of governance

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Definition

• Act of Terrorism means acts of persons acting on
  behalf of, or in connection with, any
  organisation which carries out activities
  directed towards the overthrowing or influencing,
  by force or violence, of Her Majestys government
  in the United Kingdom or any other government de
  jure or de facto.

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Outstanding Issues

• Definition
• Pricing behaviour
• Insurers
• Pool Re
• Development of Member Retentions

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Retentions

• Applying from Per event Per annum
• 1 January 2003 30m 60m
• 1 January 2004 50m 100m
• 1 January 2005 75m 150m
• 1 January 2006 100m 200m