DEPARTMENT OF THE TREASURY 

FEDERAL INSURANCE OFFICE (FIO) 

ADVISORY COMMITTEE ON RISK-SHARING MECHANISMS (ACRSM) 

MINUTES - 30 SEPTEMBER 2019 

The Advisory Committee on Risk-Sharing Mechanisms (ACRSM) convened at 1 :03 pm on 30 

September 2019 in the Cash Room at the U.S. Department of the Treasury, 1500 Pennsylvania 

Ave. NW, Washington, D.C., with Mike Sapnar, Chair, presiding. 

In accordance with the Federal Advisory Coinmittee Act, the meeting was open to the public. 

Committee Members Present 

MIKE SAPNAR, TransRe, Chair 

JOHN LUPICA, Chubb 

EMIL METROPOULOS, Guy Carpenter 

WENDY PETERS, Willis Towers Watson 

JOHN SEO, Fermat Capital 

KEITH WOLFE, Swiss Re 

Also Present 

LINDSEY BALDWIN, Senior Policy Analyst, FIO (Federal Insurance Office) (Designated 

Federal Officer) 

RICHARD IFFT, Senior Insurance Regulatory Policy Analyst, FIO 

STEVEN SEITZ, Director, FIO 

TYLER WILLIAMS, Deputy Assistant Secretary, Financial Institutions Policy, Treasury 

Welcome and Opening Remarks 

Director Seitz welcomed everyone to second 2019 meeting of the ACRSM. He noted that the 

committee was formed under the Terrorism Risk Insurance Program Reauthorization Act of 2015 

to provide advice, recommendations, and encouragement to Treasury regarding the creation and 

development of nongovernmental risk-sharing mechanisms for protection against losses arising 

from acts of terrorism. 

Director Seitz provided a recap of the last ACRSM meeting in August 2019, at which an update 

was provided concerning Treasury's engagement concerning issues respecting the potential 

reauthorization of the Terrorism Risk Insurance Program, as well as Treasury's recent work 

concerning its administration of the Program, principally addressing the reporting and data 

collection requirements under the 2015 Reauthorization Act. Director Seitz also noted the 

updates provided at the last meeting on the current state of the insurance, reinsurance, and capital 

markets from industry participants, and the discussions on the potential next steps for the 

Committee in terms of any analysis and deliverables that the Committee might produce. 

Director Seitz stated that the present meeting would focus more closely on the Committee's 

analysis and deliverables. 

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Chair Sapnar welcomed everyone and thanked Director Seitz and FIO for the office's continued 

work related to the insurance industry and work with the Committee to convene the meeting. In 

order to frame the discussions for the meeting, Chair Sapnar commenced by reviewing both the 

purpose of the TRIA, as well as the purpose of the Committee, as identified by Congressional 

purposes and findings as expressed the relevant legislation. The findings were: 

(1) Property and casualty (P&C) insurance, at reasonable and predictable prices, is 

necessary for the economy; 

(2) P&C insurers are important participants in the economy as a whole; 

(3) The P&C industry will be a major factor in allowing the economy to recover after 

a terrorist attack and in stabilizing the economy generally; 

(4) The September 11, 2001 Attacks gave rise to widespread financial market 

uncertainty, particularly as respects how the industry could handle any future 

terrorism events; 

(5) Failing to make available terrorism risk insurance at reasonable prices could 

hamper economic growth and otherwise suppress economic activity; and 

(6) The Government should step in, on a temporary basis, to permit the industry to 

stabilize to create a viable financial services market for private terrorism risk 

msurance. 

Based upon those findings, TRIA created a temporary Federal program providing for a 

transparent system of shared public and private compensation for insured losses from terrorism, 

the purposes of which were to 

(1) Protect consumers by avoiding market disruptions and ensuring widespread 

availability and affordability of P & C insurance for terrorism risk; 

(2) Allow for a transitional period for private markets to stabilize, price, and build 

capacity for terrorism risk insurance, while preserving State regulation and 

consumer protections. 

Chair Sapnar noted that the purpose of the Committee, on the other hand, is somewhat narrower. 

As Congress stated in the 2015 Reauthorization Act, noting again that it was desirable to 

encourage the growth of nongovernmental, private market reinsurance capacity for protection 

against terrorism losses, the Committee is charged to provide 

(1) advice; 

(2) recommendations; and 

(3) encouragement 

with respect to the creation and development of nongovernmental, private risk-sharing 

mechanisms. Because Chair Sapnar believed it was important for level-setting purposes to 

review how the Program will actually operate in 2020, prior to its currently-scheduled expiration 

on December 31, 2020, he requested that Mr. Ifft of FIO provide such a summary to the 

Committee. 

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Treasury Update on Terrorism Risk Insurance Program Mechanics 

Mr. Ifft commenced by noting that when the Program was last reauthorized in 2015, the 

legislation implemented a number of changes that result in a different sharing formula over each 

of the six years of the current reauthorization period. He then focused upon the mechanism that 

will be in place in calendar year 2020, with the aid of two slides that were made part of the 

Committee record. 

The first slide, titled "TRIP Overview: Federal Share in 2020," illustrated the general structure of 

the sharing mechanism. Initially, the Program is not triggered until the Secretary of the Treasury 

certifies an act as an "act of terrorism" within the meaning of the statute. As reflected at the 

bottom of the first slide, there is a $5 million threshold of insured losses that must be satisfied 

before the Secretary certifies an event as an "act of terrorism." That figure has been the same 

since TRIA was enacted in 2002. Next, there is also a Program Trigger based upon insured 

losses in a particular calendar year that must be satisfied before any Federal payments can be

made, even if all other conditions have been satisfied. In 2020, that figure will be $200 million. 

Assuming one or more acts of terrorism in 2020 are certified, and there have been at least $200 

million in associated insured losses, Treasury will make payments to any insurer that has met its 

Program deductible, which is measured for each insurer by 20 percent of its TRIP-eligible lines 

premium in the prior year, or in this case in 2019. The fact that the deductibles of insurers will 

vary by the size of the insurer is represented on the graphic by the wavy line between the insurer 

deductible obligation and the federal share payment. Because the deductible is based upon 

TRIP-eligible lines premiums earned in a particular year, an insurer's deductible will tend to 

increase over time as its TRIP-eligible lines premium increases. 

The federal share payment, in 2020, will be 80 percent of losses sustained by an individual 

insurer above its deductible. This means that in addition to the amount of its individual 

deductible an insurer will continue to pay 20 percent of losses above the deductible, in addition 

to the amount of the deductible. This amount has changed each year since the Program was 

reauthorized in 2015, with the insurer share increasing by one percent per year. 

Finally, once the payments of insurers and the federal government combined reach $100 billion 

in a particular year, no further payments will be made by either the federal government or by any 

insurer that has satisfied its TRIP deductible for the year in question. If such payments in a year 

are anticipated to exceed $100 billion, the Program rules provide for Treasury to set pro rata loss 

payment percentages which are designed to insure that policyholders receive equal treatment in 

terms of any insured loss payments to which they are entitled. 

Mr. Ifft then discussed that although the Program does not impose a charge for the protection 

that it provides, the Government either must, or may, recover the payments that it may make in 

connection with the Program. This "recoupment" mechanism was illustrated in the second slide, 

titled "TRIP Overview: Recoupment." The important figure in this calculation is the Insurance 

Aggregate Marketplace Retention Amount, or IMARA. Although that figure has been a certain 

amount set by TRIA up through 2019 (and is $37.5 billion in 2019), in 2020 the IMARA shifts to 

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an amount that represents the three-year average of aggregated insurer deductibles. The precise 

figure will be based on actual industry premium figures which Treasury has collected in its 

annual data calls. Mr. Ifft stated that the 2020 number will be released by Treasury before the 

end of CY 2019, although he noted that in light of the data that has been collected the figure will 

be above the 2019 statutory figure of $3 7 .5 billion. Like the individual insurer deductibles, 

beginning in 2020 the IMARA will be a dynamic figure that will tend to increase in association 

with the general increase in industry premium figures over time. 

To the extent that insurance industry payments (for deductibles and co-pay amounts combined) 

are less than the IMARA in a particular year, Treasury must recoup any payments that it makes, 

at least up to the IMARA amount, at a rate of 140 percent of its expenditures. This is called the 

mandatory recoupment amount. Once the IMARA has been satisfied, through either insurer 

payments or mandatory recoupment amounts, Treasury can recoup any additional amounts that it 

has expended on a discretionary basis. The Program rules identify the considerations that 

Treasury will take into account in determining whether to recoup any payments on a 

discretionary basis. In either case, Treasury recoups payments through a surcharge that Treasury 

will determine (in an amount and for a period that results in the collection of the appropriate 

amount of money), which it then directs all insurers to impose upon all TRIP-eligible lines 

policies for the period in question. Treasury imposes the surcharge upon all such policies 

regardless of whether the policyholder had any terrorism losses or whether it even purchases 

terrorism risk insurance. Insurers then remit those amounts to Treasury on a rolling basis as they 

are collected. 

Presentations by Committee Members and Discussion 

The meeting then moved to presentations by individual committee members addressing the areas 

on which they are working and which will form the basis of their future work with the ACRSM. 

Mr. Sapnar observed that TRIA has been effective in getting the market to where it is today. 

Before discussing specific issues on how to further increase private risk sharing, however, he 

stated that the Committee should look at how the program has performed in the past to move 

risk to the private sector, and how it will perform in the future if it were to continue in 

perpetuity, because the mechanisms are dynamic and the risk changes over time. 

Chair Sapnar performed this review by reference to another series of slides (now part of the 

Committee record), illustrating the manner in which the Federal Share has declined on account 

of changes to the program from its inception in 2003 and then how it will gradually continue to 

decline after 2020, even if the Program were reauthorized after 2020 with reference to the same 

sharing formula that will be in place in CY 2020. Chair Sapnar noted that insurers will have 

increased retained risk through their deductibles and copay obligations relative to their 

policyholder surplus. He also observed that policyholders continue to run a significant amount 

of economic risk under the Program, on account of both the recoupment mechanism as well as 

potential application of the Program Cap. 

The slides illustrated different results depending upon various industry premium growth 

assumptions; the base case presented assumed annual premium growth of five percent, but the 

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analysis also showed the result based upon a growth rate of three percent, which Chair Sapnar 

indicated might be closer to United State Government growth projections. 

The 2003 baseline case, during the first year of Program operation, reflected a composite 

industry/government share of 19 percent/81 percent for an assumed maximum loss of $100 

billion, in light of the initial deductible and copay share obligations, with the government having 

the ability to recoup some or all of the $81 billion that it paid through assessments on 

policyholders. 

By comparison with today (2019), the slides illustrated that this 19/81 share had moved to almost 

a 50/50 sharing between the private sector and the government, with the government still 

retaining the right to assess recoupment against policyholders. At this time, the individual 

insurer deductibles have increased to 20 percent (almost three times the initial deductible of 7 

percent), and the co-pay share is at 19 percent, which is almost double from where the Program 

stated in 2003. 

These figures assume a five percent annual increase in premium growth, which Chair Sapnar 

noted could be debatable. He indicated that he would not expect it to be much higher than that, 

and it could certainly be lower. In any event, using the five percent growth figure, it can be seen 

how the private sector share gradually starts to move up; in 2020, it is projected to be 53 percent 

in the private sector and a 47 percent federal share, again based upon a hypothetical $100 billion 

loss. He then reviewed a slide illustrating CY 2022, showing a 55 percent private share and 45 

percent government share based upon the growth in deductible and retention obligations, 

Moving forward, the private share continues to increase such that by the time we reach 2030, 71 

percent would be in the private sector, and only 29 percent would be subject to federal payments, 

which would then still be subject to recoupment. 

All of these figures are based upon static sharing percentages; Chair Sapnar noted that if the 

copay share percentage and insurer retention percentage increase as well, the government share 

shrinks even further as time passes. 

Concluding his review of the slides, Chair Sapnar stated that there will be, year over year, a 

significant increase in risk sharing in the private sector under the current structure of the 

Program. If a three percent growth rate is used instead to make the projection, the numbers are 

not as dramatic, but even using this lower growth assumption a risk share of 63 percent in the 

private sector and 3 7 percent in the public sector is indicated. As you would expect, using a 

figure in the middle of four percent results in a sharing split in the middle as well. Chair Sapnar 

indicated that the Committee would be evaluating a number of potential changes, but even as 

currently set up the existing mechanics of the Program ensure that there will be a significant 

increase in private risk sharing moving forward, even in the absence of any further changes. 

Chair Sapnar then announced that the Committee would be considering five issues in particular, 

initially at a subcommittee level, that he would outline in broad terms, and would then ask each 

of the respective subcommittee heads to comment on their current general observations and the 

issues they would be reviewing. That evaluation still involves the collection of further 

information and development of analysis, although he did emphasize that the relevant issues 

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have been identified and the subcommittees were now drilling down on where the focus should 

be on those issues. He acknowledged that there are many different aspects to look at in the 

Program, ranging from its administration to post-event operations, although observed that we 

have been fortunate in that the working of the Program to date has been in an environment where 

the Program has not yet been triggered. He indicated that the evaluation would certainly look to 

the ramifications presented if the Program was triggered for federal payments and potential 

recoupment of such amounts. 

Chair Sapnar identified the five general categories for further subcommittee examination as 

follows: 

(1) The renewal and reauthorization of the legislation, particularly with respect to the 

time period of any reauthorization; 

(2) The current mechanics of the Program and whether they should be changed at all; 

(3) The issues associated with nuclear, biological, chemical, and radiological exposures, 

commonly known as NBCR, that are associated with the Program; 

(4) Cyber terrorism risk that falls under the Program, and as part of that, the Program 

certification provisions; and 

(5) The use of prefunding approaches in connection with the Program (there is no 

explicit upfront charge for the Program as it currently stands). 

Chair Sapnar then invited Mr. Wolfe to address the issues presented by reauthorization of the 

Program and the length of any reauthorization. 

Mr. Wolfe discussed the evaluation by his subcommittee of the issues present by the general 

decision of whether to reauthorize the Program or not, and if reauthorized the period of any 

reauthorization. His presentation was contained within two draft discussion documents, which 

were made a part of the Committee record. The first document addresses the potential issues 

presented by potential non-renewal or anticipated expiration, while the second addresses the 

potential length of any reauthorization. 

Regarding the issue of non-renewal of TRlA, Mr. Wolfe advised that the existing information 

(identified in the draft document) indicated non-renewal could lead to some insurers withdrawing 

from the market, with any remaining insurers raising rates considerably. He indicated that the 

available information was from research conducted during the prior reauthorizations of the 

Program, although he believed that this information was still valid research for purposes of the 

present inquiry. He also indicated that another consequence of non-renewal of TRlA could be a 

strong negative impact on the economy. Mr. Wolfe noted that the best example supporting this, 

as seen during some of the prior reauthorization debates, was around long-term construction 

projects and the inability of some of those projects to secure both insurance and financing as the 

reauthorization debates became contentious and the potential expiration of the Program 

approached. 

Mr. Wolfe then proceeded to review his second draft document, which addressed the potential 

duration of any reauthorization of the Program. This document explores possible short-term 

reauthorizations (characterized at between one to five years), a longer-term reauthorization (five 

to ten years), and finally a permanent Program. The document identifies pros and cons 

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associated with each of these areas. In general, Mr. Wolfe indicated that his current belief was 

that there are more significant stability benefits created the longer the period that the Program is 

reauthorized. He also noted, consistent with Chair Sapnar' s presentation, that the government 

financial burden continues to decrease with the length of that period of reauthorization, using 

assumptions concerning premium growth over time as have been presented. Mr. Wolfe did note, 

however, that on the drawback side a longer reauthorization obviously makes it harder to make 

changes as circumstances might change over time. In that regard, he noted that cyber is a good 

example of this, as a risk that was not even significantly contemplated at the enactment of the 

Program in 2002 (he deferred to the later presentation concerning cyber for more details on that 

issue). 

Chair Sapnar then discussed his own subcommittee's evaluation of the existing Program 

mechanics and how changes in those mechanics could affect the Program. He indicated that the 

individual mechanics would be examined in light of dynamic modeling showing how changes 

would affect the proportionate risk sharing between the private and public sectors, and how the 

current mechanics affect various Program participants, either positively or negatively. He 

indicated that the goal of the subcommittee's analysis would be to maximize the efficiency of the 

Program without providing any preferential benefits for any segment of the industry, with the 

ultimate aim of making the Program as fair as possible to all constituents. 

Chair Sapnar observed that there many types of events that the subcommittee could examine in 

connection with the potential ramifications around putting additional limits on the Program, or 

altering the existing deductibles and copay amounts. He also noted that there remained 

uncertainty as to how TRIA would operate if triggered by an actual loss situation, which has not 

yet happened. He indicated that, ultimately, the subcommittee would be looking to obtain a 

better understanding of the different things that might happen and how the Program would 

respond in connection with them, and whether there are ways in which to modify those 

mechanics so that the Program runs smoothly should there be an event -- from a triggering 

standpoint, a recoupment standpoint, a payment standpoint, and then a post-event standpoint to 

make sure that there remains sufficient market capacity to insure a continuing stable 

environment. 

Chair Sapnar then requested Mr. Metropoulos to discuss his subcommittee's evaluation of the 

manner in the Program addresses losses arising out of nuclear, biological, chemical, and 

radiological (NBCR) events, with specific reference to workers' compensation (WC) losses (as 

such NBCR exposures must be covered under WC policies as a matter of state law. Mr. 

Metropoulos also used a series of slides in connection with his presentation, which slides have 

also been made part of the Committee record. 

Mr. Metropoulos noted initially that NBCR losses are treated the same as any other losses under 

the Program; there is no difference in terms of how the Program covers NBCR versus 

conventional losses. In that sense, he observed that his slide on the operation of the Program for 

NBCR was basically the same as the Treasury slides previously presented. The principal 

difference is that the magnitude of the losses with respect to NBCR could be much, much larger 

than losses arising from conventional events. 

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In general, Mr. Metropoulos stated that TRIA provides up to nine levels of policyholder and 

insurer retentions that provide protection to U.S. taxpayers. It has supported the private 

reinsurance market in providing needed capacity for the last 18 plus years. He then reviewed 

certain conclusions from FI O's June 2018 Report on the Effectiveness of the Terrorism Risk 

Insurance Program in terms of the extent of private reinsurance availability. As noted by the 

Report, reinsurance purchased for terrorism risk remains subject to limitations and exclusions, 

most typically for exposures specific to NBCR, where the limits are much less. Mr. Metropoulos 

recited the figures from the Report indicating that reinsurance limits for property, liability, and 

workers' compensation losses involving NBCR-related risks were far lower than the available 

limits identified for conventional risks -- specifically, that the Report identified that $92.2 billion 

of total per loss reinsurance limits were purchased for all terrorism risks, versus only $17 .5 

billion for NBCR losses subject to TRIP. This reflects only roughly 19 percent of all reinsurance 

limits would be available for NBCR relative to all terrorism losses. At the same time, Mr. 

Metropoulos noted that although TRIA requires participating insurers to offer insurance for 

terrorism risk on the same basis as for other perils, it does not require such insurance to be 

offered for NBCR exposures, for which coverage is generally not provided or specifically 

excluded. 

Mr. Metropoulos acknowledged that the FIO Report findings demonstrate that private 

reinsurance capacity for terrorism risk has improved significantly since the September 11, 2001 

Attacks, but stated his view that this capacity remains contingent upon the TRIA backstop 

remaining in place. Even with the existence ofTRIA, it is clear from the FIO Report that 

regardless of the amount of direct coverage available for NBCR exposures, that coverage is less 

likely to be supported by the private reinsurance market relative to losses arising from 

conventional terrorism. He also noted that with respect to the reinsurance that has been obtained 

for NBCR exposures, a large portion of it was obtained by captive insurers which, while 

potentially significant on an individual basis, represents only a small percentage of total risk 

exposures assumed by insurers participating in the Program. 

Mr. Metropoulos stated the aggregation risk presented by terrorism continues to be a limiting 

factor on the development of private reinsurance capacity, as does the difficulty in modeling 

potential NBCR exposures from both the frequency and the severity standpoint. This conclusion 

is borne out by commenters cited by FIO, including state regulators, stating that while there is 

generally sufficient private reinsurance capacity to support the conventional terrorism market, 

there was not sufficient private reinsurance capacity for the catastrophic terrorism risk exposures 

covered by the Program. Such catastrophic terrorism risks are presented not only by NBCR 

exposures, but also by so-called "Tier 1" city risks (New York, Washington, D.C., Chicago, San 

Francisco, and Los Angeles), and by workers' compensation risks more generally. 

In his next slides, which addressed take-up rates for terrorism risk insurance, Mr. Metropoulos 

reviewed the take-up rates identified in the June 2019 FIO Report on Small Insurer 

Competitiveness in the Terrorism Risk Insurance Marketplace. Because primary workers' 

compensation policies must provide coverage for terrorism risk as a matter of state law, the 

effective take-up rate for workers' compensation is 100 percent. The take-up rates for policies 

written by small insurers were generally lower than those of non-small insurers. Figures 11 and 

12 from the 2019 FIO Report identify take-up rates on a state-by-state basis for all lines 

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excluding workers' compensation (i.e., property and liability risks), ranging between 55 and 70 

percent. 

Mr. Metropoulos also reviewed the findings of the Marsh 2019 terrorism report, which identified 

similar take-up rates, and which identified an overall average countrywide take-up rate for nonworkers' compensation coverage at 60 percent. However, in certain large cities in the northeast, 

the take-up rate can approach 75 to 80 percent. For purposes of further evaluation, Mr. 

Metropoulos indicated that he would be generally using a 60 percent assumed take-up rate for 

NBCR based upon these various sources. 

Mr. Metropoulos then discussed the results of a study (also set forth in his slides) conducted by 

Guy Carpenter on the efficacy of private market for capital for terrorism risk, and specifically for 

NBCR terrorism risk, in the reinsurance market. This study was recently made public during 

Marsh's testimony before the U.S. Senate Banking Committee TRIA Reauthorization Hearing on 

June 18, 2019. On the left hand side of the chart illustrating the analysis is shown the total 

private industry capital, from AM Best, which is estimated at $779 billion of property and 

casualty (P&C) insurance and reinsurance-dedicated capital. This is for all perils, all lines of 

business. This is then reduced to an estimated $440 billion of global reinsurance dedicated 

capital. The analysis is performed on a global basis because global reinsurers can reinsure U.S. 

terrorism risks, whether for NBCR or conventional terrorism. 

The analysis then moved to the estimated reinsurance dedicated capital specific to North 

America. According to Mr. Metropoulos, the estimated range, based upon Guy Carpenter 

sources and interpretation of AM Best data, is that there is an estimated range of between $120 

billion to $140 billion of dedicated capital specific to North America. That is not just for 

terrorism, but for all North American perils. When that figure is compared to large loss 

scenarios with respect to terrorism, the amount can be placed into context. For example, the 

losses associated with the September 11, 2001 Attacks, in 2018 adjusted dollars, were about 

$46.3 billion. 

Of that $46.3 billion, only $12 billion of it is specific to workers' compensation and property, or 

about 25 percent of the total. The other lines of business are group life and various liabilities as 

well as business interruption. 

Mr. Metropoulos then considered what current large modeled conventional terrorism losses 

reveal, using the latest RMS industry exposure database. A ten-ton truck bomb exploding in Los 

Angeles, the largest conventional loss in the current model today, is estimated at about $44.8 

billion, roughly the same amount of the September 11 losses in adjusted dollars. This suggests, 

according to Mr. Metropoulos, that the reinsurance industry, with the support of the Program, 

may be adequately capitalized for these largest conventional attacks. 

Mr. Metropoulos indicated that the picture is different when NBCR losses are considered. He 

then reviewed RMS modeled losses greater than $100 billion (the amount ofTRIA's overall 

cap), and found that there are 77 losses associated with a nuclear event resulting in more than 

$100 billion in losses, the largest being a nuclear event in New York City, in midtown New 

York, estimated at about $625 billion. 

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This is again is considering workers' compensation at a 100 percent take-up rate, and property at 

a 60 percent take-up rate. Of those 77 events, 26 of them are in excess of $200 billion dollars. 

Looking at biological losses (and specifically anthrax, which results in the largest biological 

modeled loss), there are 282 losses, the largest of which is at $508 billion, again in New York 

City. Chemical losses seem to be somewhat lower; e.g., the largest loss is at $15 billion. 

Radiological losses above $100 billion (nine events in total) are generally clustered between 

$100 billion and $108 billion, with the highest $108 billion loss also located in New York City. 

The upshot of this evaluation, Mr. Metropoulos concluded, was that although the reinsurance 

industry may be adequately capitalized for conventional losses, it is clearly not adequately 

capitalized for the largest ofNBCR losses. Using the AIR modeling, instead of RMS modeling, 

generates similar results, and again a number of resulting losses are in excess of the $100 billion 

cap. 

Mr. Metropoulos then discussed in more general terms overall conditions in the reinsurance 

market. As reflected in the associated slide, the combined maximum property and workers' 

compensation conventional capacity for direct insurance is estimated at about $2 billion. For 

reinsurance treaty capacity (workers' compensation and property in combination), it is estimated 

at about $1.5 billion per program. However, this is an ideal and a theoretical maximum, and will 

not be available in all situations. 

When insurers have significant accumulations in Tier 1 cities (New York, Chicago, San 

Francisco, Los Angeles, and Washington, D.C.), they should expect to have notably less access 

to reinsurance capital relative to those portfolios that have exposure outside of Tier 1. Similarly, 

reinsurance capacity for coverage including NBCR, especially in Tier 1 and the central business 

districts of Tier 1, has become increasingly challenging to secure. 

There are accumulated terrorism aggregate constraints as well. Aggregates have somewhat been 

consumed by those select carriers that have already obtained the limited NBCR capacity that 

exists in the market. There are ratings agency implications for those carriers that include and 

cover NBCR, which includes the reinsurers themselves. 

Mr. Metropoulos noted that there continues to be some NBCR retrocessional capacity (that is, 

reinsurance in favor of the reinsurers). However, it is important to realize that several key global 

reinsurers and reinsurance markets will not cover NBCR. With respect to NBCR and capacity 

on an individual program basis, the estimate for direct insurance is around $700 million to $800 

million per program. For reinsurance treaties (again, for workers comp and property in 

combination), the per program capacity figure is estimated to be between $400 to $800 million 

per program. Mr. Metropoulos cautioned that these estimates again represent theoretical 

maximums per program, and these estimates also assume that the federal terrorism insurance 

backstop through TRIA continues to remain in its current form, or in a very similar form. 

Mr. Metropoulous then identified what would likely happen ifTRIA were to expire in 2020, or 

to be reauthorized subject to notable increases to the obligations of insurers that are not 

supported by the backstop. Initially, he indicated that it would be likely that multiple carriers 

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will simultaneously enter the private reinsurance market. The impact that this would have on the 

aggregate (re)insurance sector and market pricing is uncertain. He observed that while the 

current reinsurance market demand has been relatively balanced over the last several years, with 

the industry adding capacity at a measured pace, it could quickly become unbalanced on account 

of large numbers of insurers seeking additional reinsurance capacity at the same time, leading to 

market and economic disruption. 

Based upon the foregoing market conditions and considerations, as respecting NBCR, Mr. 

Metropoulos indicated that his subcommittee should be examining the following issues: 

(1) Should NBCR events be treated differently from conventional events under TRIA? 

This could include consideration of possible bifurcation of treatment ofNBCR 

events (either individually, and/or in conjunction with workers' compensation 

events). 

(2) As the insurance marketplace aggregate retention amount (or IMARA) is now 

indexed to premium growth beginning in 2020, which will decrease the scope of the 

federal backstop, should consideration be made to limit the IMARA increases 

specific to NBCR losses? 

(3) How should TRIA reuthorization address the growing NBCR risk over the existing 

$100 billion cap? The program cap has remained unchanged in dollar amount since 

2003, notwithstanding unlimited workers' compensation exposures that remain a 

liability to all employers via statutory law for NBCR, and notable increases in 

property total insured values and business interruption exposures since 2003. There 

is also rating agency attention for these large potential NBCR losses, which is 

expected to increase in the future. 

(4) Consideration of bifurcating the insurer deductibles and co-shares under TRIP 

differently for NBCR events versus conventional terrorism events? 

(5) Analysis of how state "fire following" laws affect NBCR exposures. This is 

recognized to be a very challenging area, but further analysis could help the 

understanding of what portion ofNBCR property modeled losses may be insured 

and uninsured on account of state insurance statutes. 

(6) Consideration of the role of captive insurers being formed to cover NBCR 

exposures under TRIP, and their impact on potentially transferring that risk to the 

market overall through the mandatory recoupment mechanism ( as compared with 

conventional insurers, where more of the risk remains with the insurers through 

their TRIA deductibles). 

In response to Mr. Metropoulos' presentation, Chair Sapnar inquired as to whether the $440 

billion capital figure included both traditional reinsurance as well as alternative capital. Mr. 

Metropoulos confirmed that the figure consisted of $385 billion of traditional reinsurance and 

$95 billion of alternative capital. He also observed, however, that there are certain limits and 

challenges presented by the availability of alternative capital for NBCR-related risk, such that the 

$440 billion figure could be somewhat overstated in that regard. 

Mr. Seo also inquired, respecting potential reauthorization, to confirm that the Mr. Metropoulos' 

presentation contemplated that the subcommittee would be considering potential changes in the 

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retention structure after a first NBCR event - that is, not necessarily changing the mechanics of 

the Program until there has been some reaction to a first NBCR event. Mr. Metropoulos 

confirmed that this was the case and that TRIA should be evaluated with the dual purpose of how 

it stabilizes the market both pre-event and post-event, such that it remains a significant 

consideration how the market will react after an event has taken place. Mr. Seo suggested it was 

important to consider this generally, and not simply with respect to NBCR - so not bifurcating 

the discussion solely between NBCR and conventional terrorism risk, but between any first 

event/second event losses. Mr. Metropoulos acknowledged that this would be considered as 

well. 

Chair Sapnar then invited Mr. Lupica to discuss his subcommittee's evaluation of how the 

Program currently addresses cyber-related losses, and the certification issues posed by such 

losses. He framed the discussion in connection with three issues: (1) Clarification that cyberrelated losses paid under cyber liability insurance policies and property and casualty policies are 

covered and reimbursed under TRIA; (2) clarification that that TRIA will apply to cyber attacks 

causing financial and economic loss to U.S. entities, wherever they take place and whether they 

cause damage within or outside the United States; and (3) clarification and improvement of the 

certification process as it applies to cyber losses, with further definitions, time frames, and 

notification requirements. 

Concerning these issues, Mr. Lupica indicated that the subcommittee would be examining such 

matters as the intent necessary for certification and the nature of any attribution to be required, 

and a more defined timeline associated with the process. The subcommittee would also be 

looking at the coverage of cyber losses both inside and outside the United States, so long as U.S, 

entities are affected and there have been damaging effects to the tangible and intangible property 

and infrastructure of those U.S. entities within or outside the United States. 

Chair Sapner indicated that Mr. Driscoll (absent) and Mr. Seo would be leading subcommittee 

consideration of possible approaches to moving to some sort of pre-funded system for the 

Federal Share exposure, as distinguished from the current recoupment system which only 

collects funds associated with the loss after it has taken place. Mr. Seo advised that upon 

conferring with Mr. Driscoll they are in agreement that their research should focus upon looking 

at other programs that are associated with state or federal governments that have engaged in 

significant risk transfer operations. 

In that regard, Mr. Seo observed that there are more examples of this recently than was the case 

at the time of prior reauthorizations, and, thus, the Committee now has the benefit of those 

experiences, and can examine their applicability or non-applicability to the situation presented by 

TRIA. Mr. Seo noted that the Program is obviously not set up at present to charge the sort of 

premiums necessary for pre-funded risk transfer to the private market, although he stated that 

this does not mean that the issue should not be examined carefully, through the lens of existing 

experiences, as a base for the research. Mr. Seo also advised that the subcommittee would 

identify all programs and mechanisms they were examining and would coordinate to make 

certain that the Committee as a whole believes the listing to be complete. 

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Upon confirming that none of the other Committee members had any further questions or 

comments, at 1 :55 pm Chair Sapnar concluded the meeting. 

I hereby certify these minutes of the September 30, 2019 Advisory Committee on Risk-Sharing 

Mechanisms public meeting are true and correct to the best of my knowledge. 

Mike Sapnar 

Chair 

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