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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 insurers deductible: 2002 = 1% of prior years 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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