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Nuclear TPL insurance

Nuclear TPL insurance. RNIP presentation 10 th March 2010 M Tetley, Nuclear Risks Insurers Ltd, London. Liability & property insurances. Bruce site, ON, Canada. Onsite – assets & cash flow Property insurance. Offsite – legal obligations Liability insurance.

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Nuclear TPL insurance

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  1. Nuclear TPL insurance RNIP presentation 10th March 2010 M Tetley, Nuclear Risks Insurers Ltd, London.

  2. Liability & property insurances Bruce site, ON, Canada Onsite – assets & cash flow Property insurance Offsite – legal obligations Liability insurance

  3. Why is insuring nuclear different? The risk… • Failure to control the nuclear chain reaction leading to….. • Catastrophic radioactive contamination of a widespread area, • Extensive plant damage. Problems for insurers… • Events potentially very high severity but low frequency. • Low number of nuclear sites: 500 sites & premium approx $600m globally (2007); about 0.04% of total global premium. • Insufficient actuarial data - only theoretical calculations as industry loss record good.

  4. Chernobyl 1986 > 110,000 evacuations & re-housing – cost $3bn+? 600,000 involved in recovery operation Europe wide spread of radioactive cloud Consumption & export of foods interrupted over a wide area No insurance < 2,000 victims eventually? Three Mile Island 1979 11,000 evacuations Claims office established day after event; publicised using the media Immediate “hardship” payments of $1.3m made by insurers Class action for business interruption & loss of earnings Substantial insurance loss excess of $70m to TPL policies Practical experience

  5. History of nuclear TPL insurance I Extract from a report on the nuclear industry prepared by UK insurers in April 1957: “..circumstances may arise which can result in loss of control over an atomic reaction. Should this happen it has to be envisaged that radioactive products in the form of vapour or dust, may escape from the normal confines of the reactor installation into the atmosphere and…adversely affect all forms of property..and cause injury to both human and animal life.”

  6. History of nuclear TPL insurance II

  7. 11 History of nuclear TPL insurance III 11 UK 1959 Nuclear Installation (Licensing & Insurance) Act USA 1954 Energy Act (sect.170 1957 Price-Anderson Act) Germany 1959 Atomic Energy Act Japan 1961 Law 147 & Law 148 Spain 1964 Act # 25 on Nuclear Energy Brazil 1977 Act # 6.453 Civil Liability for Nuclear Damage South Africa 1982 Nuclear Energy Act Some early examples of nuclear liability legislation

  8. History of nuclear TPL insurance IV Third Party Liability & Basic Property Damage Gap Liability Covers & Enhanced Property Damage Alternative Liability Covers, Terrorism & Business Interruption TMI 1979 Vandellos 1986 Paks 2003 1950s & 1960s 1970s & 1980s 1990s & 2000s $3bn $70m Combined property & TPL insurance available

  9. Convention principles & insurance I

  10. Convention principles & insurance II • A financial limit of liability provides a • Maximum cost to the operator for any • event.

  11. TPL in non-convention countries: United States I • 1957 Price-Anderson act (PAA) - “economic” channelling. • 1975 - secondary layer of financial protection provided by industry. Law currently extended to 2025; provides about $10bn. • Liability absolute when the regulator declares an Extraordinary Nuclear Occurrence (ENO). • Liability of licensee (operator) under PAA is generally strict, but suppliers can be held liable too if no ENO. • TPL insurance limited to liability for bodily injury or offsite property damage. If no ENO, policy does not respond for environmental cleanup. • Limit of $300m includes costs & expenses; increased effective 2010 to $375m • 2006 – Senate consented to ratification of CSC. • 2008 – Instrument of ratification deposited at IAEA

  12. TPL in non-convention countries: United States II Total: $12.015bn SECONDARY FINANCIAL PROTECTION LAYER $11.64 Billion ($111.9 Million x 104 Reactors) “The legislation was intended first of all to bolster investor confidence, whereas victim compensation is secondary” “The Price Anderson Act – a law that subsidises nuclear power by creating liability protection for nuclear accidents” Insurance Policy Limit: $375M US nuclear pool (ANI) & reinsurers

  13. TPL in non-convention countries: Japan • 1961 law 148 (as amended) largely conforms with Convention principles. • Liability of operator is strict & is unlimited. • Financial security required up to $1,277m (Y120bn) – as insurance, cash deposit or equivalent securities. • Government indemnifies operators for earthquake/eruption events. • Insurance policy therefore excludes natural disasters, but offers full required cover of $1,277m.

  14. Key conditions for TPL insurance Convention &/or national nuclear law acceptable Site technically acceptable & regulatory control good   TPL insurance contract possible Domestic insurance industry strong & capable of reinsurance No exchange controls & currency strong  

  15. TPL indemnity limits IA selection (in $) Revised Paris amount is €700m ($ 945m) Above amounts exclude costs/claims handling limits

  16. TPL indemnity limits II • Current per site insurance provision up to about $1.35bn for TPL (excl terrorism) . • Problems for insurers with capacity utilisation – capital needed to support highest limit. • P.C. revision will improve this in some countries (OECD). • Japan’s limit is about 30 times China’s.

  17. For which nuclear sites is TPL insurance available? All aspects of the nuclear fuel cycle

  18. Operator’s liability Gaps in insurance cover • Currently: • Time limits: many regimes 30 years – insurance always 10 years. • Occurrence limits: some regimes per occurrence – insurance aggregated to lifetime or at least annual. • Revised Conventions: • As above + • Environmental damage or remote economic damage: new heads of damage but maybe uninsurable…..

  19. Other types of liability insurance • Radioactive contamination exclusion clause causes other insurance “gaps”: • Directors & Officers insurance, • Errors & Omissions insurance, • Employer’s liability in some countries, • Products liability insurance.

  20. February 12th 2004 OECD, Paris A protocol was signed to revise the 1960 Paris Convention with the objective of offering more financial compensation, to more people, for a wider range of nuclear damages. UN/IAEA Vienna Convention was similarly revised in1997.

  21. Convention revisions II OECD (regional) IAEA (global)

  22. insurable concerns with regard to full insurability Concept of Nuclear Damage Convention revisions III 1. loss of life, personal injury 2. loss of or damage to property Current 3. economic loss related to 1 and 2 4. reinstatement of impaired environment 5. use or enjoyment of environment 6. preventative measures Future

  23. Convention revisions IV Extended time to make claim - 30 yrs Existing insurance Max $1.35bn (more than required for revised Convention limit) New bio- sphere cover $945m AMOUNT OF COVER $0m 30 years TIME 10 years SCOPE OF COVER >>> environmental

  24. Insurance concerns = less certainty?

  25. International Nuclear Third-Party Liability Conventions 1960 Paris Convention Parties (126) 1963 Vienna Convention Parties (72) 1997 CSC (108) Non Party to Convention (134) 1963 Vienna Convention Parties (72) 1960 Paris Convention Parties (126) 1997 CSC (108) Non Party to Convention (134)

  26. Revisions = legal harmonisation? • Of c.440 reactors globally, 235 remain outside of the Conventions • Within revised Conventions, greater reference to ‘competent courts’ & wider geographical scope may lead to more legal disharmony. • Is CSC a big step towards a harmonised global system? But also has wider scope of damage: punitive damages too?

  27. New build I: site responsibilities 2 units under refurbishment Decommissioning B – 1 to 4 A -1 & 2 Potential new build Bruce site: 6 reactors in operation

  28. New build II: site risks Wylfa, UK Possible new build site Existing NPP (decomm after 2012) Liability for all 3rd parties following accident: £140m now insured, above that Government; how long will it take to recover investment? From DECC

  29. New build III: new liability obligations 1400 1200 1000 800 600 400 200 0 US$m PR China UK Japan Germany US Switzerland

  30. New build IV: capacity example UK Decomm. Liabs. Maybe £1bn £4bn + NPP new build asset value insurance More than £2.5bn £1.14bn NPP asset value insurance About £1bn Nuclear liability £600m £140m Nuclear liability £140m Now New build - 2017

  31. Decommissioning I: planning • New build on adjacent property likely; exposure management. • Construction work likely too: needs specific insurance. • Project time vs. insurance market time restrictions. • Impact of major work on neighbouring property: • e.g. Marcoule chimney

  32. Decommissioning II: TPL arrangements • Nuclear TPL to remain in force. • Risk remains of catastrophic off-site exposure. • Risks reduce over time. • Revised Convention limits will apply to decommissioning sites • Moves to reduce Convention TPL limits for late-stage decommissioning projects. • TPL for nuclear material storage.

  33. Decommissioning III: TPL legacies • Process of de-licensing. • Most legislation leaves insurers ‘on the hook’ for 10 years. • Government responsible thereafter. • Earlier sites worse: US experience. • What’s out there? • For the good of the industry, each case needs defending; facts & science support this.

  34. Transportation in the Nuclear Fuel Cycle (arrows indicate transportation links) 60

  35. What is transported?

  36. Insurance issues specific to transport • Premium volumes vs. capacity required. • Identity of operator. • Process: CoFs. • No matter where TPL is purchased, the insurers are the same. • Lower limit = quicker Government involvement. • Greater likelihood of contentious claims under Convention revision.

  37. Operator Nuclear Insurers Public Government TPL insurers’ role following a severe accident • Insurers’ capital at risk: • Safeguarding of payment authority. • Need for comprehensive infrastructure: • National & international – nuclear pools have cross border agreements, • Immediate, long term & secure. • Total claims handling “service” to ensure continuity & consistency with State payout. • Important for victims & perhaps for politicians.

  38. Risk management: retention & transfer Risk management options Retain Avoid Transfer Control Private insurance market Industry mutuals

  39. Why risk transfer insurance? • Stability of revenue & profit: • Risk transfer insurance provides independent emergency funding & reduces distress costs for insured, • Safeguards future investment, reduces volatility & associated costs, • Correlation between stable earnings & higher stock valuations. • Claims handling infrastructure & expertise. • Price of risk – insurance cheaper than debt and equity costs. Better for victims in the long term

  40. TPL insurance: a hidden subsidy? • Nuclear operators have STRICT, NO FAULT liability: Such onerous liability is rare in industry. • The private insurance market has been voluntarily insuring nuclear risks for nearly 50 years. Example: U.K. law requires either insurance or 2 times limit in liquid, ring-fenced funds (about $460m today). Options for operator: risk transfer insurance (cost: approx $2,000-$5,000/m); ring-fence $460m of assets (cost: opportunity cost); S460m line of credit from bank (cost: 3-4% over base rate of 1% - approx $18-20m). Answer to question is: NO !

  41. Nuclear insurance vs. all insurance • Non-life global insurance premium: • 2007 $1,685,762,000,000 • 2008 $1,779,316,000,000 • Nuclearglobal premium: less than 0.04% of this. • UK property/liability premium: • 2008 $107,393,000,000 • nuclear premium less than 0.050% of this. • Other problems: • Consolidation. • No one likes nasty surprises. • Security & reinsurance. • Terrorism.

  42. Nuclear TPL insurance RNIP presentation 10th March 2010 mark.tetley@nuclear-risk.com

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