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Terrorism Rating Overview

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Terrorism Rating Overview

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    1. Terrorism Rating Overview

    2. Terrorism Rating Commercial Property AIR Loss Costs Conventional vs NBC International vs. Domestic Property Damage (Bldgs. vs. Contents) Exposure Base: per $100 of Total Value Geographic Detail: by County/City/Zip Code

    3. Terrorism Rating Commercial Property AIR Results

    4. Terrorism Rating Commercial Property Geographic Tiers

    5. Commercial Property Adjustments to AIR Loss Costs Insurance – to – Value Divide by .80 Nuclear/Bio-Chemical Multiply by 2.00 Federal Backstop Factor Insurer Retained Losses ? Total Terrorism Losses Loss Adjustment Expenses Add 5% of Adjusted Losses No Backstop Adjustment

    6. The Terrorism Risk Insurance Act of 2002 – Lines of Insurance Commercial Lines, except: Crop insurance Mortgage guarantee Financial guaranty Medical malpractice National flood insurance program Life and health insurance

    7. The Terrorism Risk Insurance Act of 2002 -- Duration Three years, lasting through 2005 First two years mandatory Third year optional

    8. Terrorism Rating Impact of Federal Backstop

    9. The Terrorism Risk Insurance Act of 2002 - Structure Amount of an insurer’s deductible: 2002 = 1% of prior year’s earned premium 2003 = 7% 2004 = 10% 2005 = 15% Annual cap – Losses in excess of $100 billion may not be covered; Congressional review

    10. Federal Backstop Pricing Modeling Assumptions

    11. Federal Backstop Modeling Calculation of Mean Expected Losses Annual Expected Comm. Prop. Terrorism Loss for P.D. (“Conventional” Losses from AIR Model = $1.5 Billion) Business Interruption Losses = 20% of P.D. Losses “NBC” Losses = 100% of “Conventional” Losses Alternative Markets = 20% of Total CP Market Terrorism Loss Allocation by LOB: Comm. Prop. = 50% of Total (All Lines total) = $1.5 Billion x 1.20 x 2.00 x .80 X 2.00 = $5.75 Billion

    12. Federal Backstop Pricing Insurer Retention Percentages Program Year 1 Program Year 2 Program Year 3 Geographic Tier 2003 2004 2005 High Hazard 40% 55% 70% Medium Hazard 75% 85% 95% Low Hazard 90% 95% 100% Average 47% 61% 74%

    13. Commercial Property ISO Loss Costs

    14. Terrorism Rating Commercial Property

    15. ISO Terrorism Loss Costs Commercial Property “Tier 1” Jurisdictions Reduction in Tier 1 Loss Costs Cities sub-divided into Tiers 2 & 3 Habitational further reduced 25% cap on premium increase

    17. Potential Future Revisions Loss Costs Based on AIR Model NBC Domestic Terrorism Re-evaluation of current geographic rating approach New Tiers Tiers Within Cities Re-Pricing of Federal Backstop Reflect Insureds Declining Coverage

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