THE RENEWAL OF TRIPRA AND THE AMERICAN TERRORISM EXPERIENCE

RAA Catastrophe Modeling Conference February 2013 Pete Thomas Chief Risk Officer Willis Re

A word from our lawyers

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Renewing TRIPRA will be a lot of work in 2014

Washington not in the mood for another bail out Parts of the country without target exposures dont
think its their problem

Conservatives (and think tanks) believe in private

market solutions

Politicians and academics, however, are starting to

appreciate that the (re) insurance industry may not have the capital or the risk appetite to spread catastrophic terrorism losses (e.g., NCRBC)

A federal solution is needed

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Terrorism Risk Insurance Act A fulcrum for creating balance

TRIA 2002
Terminates Make available December 31, 2005 Must make available coverage for certified acts of terrorism same terms and conditions Foreign terrorism in USA (including war for WC) $5 million $5 million

TIRA EXTENSION 2005

December 31, 2007 No change

TRIPRA EXTENSION 2007

December 31, 2014 No change

Covered acts Certification level Program trigger

No change No change $5 million through 03/31/06 $50 million post 03/31/06 $100 million 2007 Commercial P&C, excludes auto, burglary, surety, professional liability, farm owners multi-peril 2006: 17.5% 2007: 20% 2006: 90% 2007: 85% 2006: $25 billion 2007: $27.5 billion No change

Foreign & domestic in USA (WC for war) No change $100 million

Covered insurance

Commercial P&C

No change

Deductibles - % of direct earned premium Federal reinsurance quota share Industry retention for mandatory recoupment Cap on liability

2005: 15% 2005: 90% 2005: $15 billion $100 billion

20% 85% $27.5 billion each program year No change

TRIPRA is a national economic and defense security issue

TRIPRA is part of our nations economic defense platform

Post 9/11 it was an economic stimulus tool Insurance market stability, pricing consistency, and capacity at risk if TRIPRA is not extended Major multi-year development projects at risk if TRIPRA is not renewed

TRIPRA is not a bailout the recoupment provisions place the ultimate burden on insurers
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Todays talk: The basic tools for the job

Two centuries of foreign policy

and todays transnational terrorism

Globalization and the four

waves of terror

How terrorism ends Terrorism in America The precautionary principle Balance

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Pax Britannia Pax Americana Anglo-American World Order

Foreign policy and todays transnational terrorism Balfour Declaration

Source: http://upload.wikimedia.org/wikipedia/commons/c/cd/Balfour_portrait_and_declaration.JPG

In some parts of the world

The tribe is the critical political unit the nation state is an imposed and artificial geopolitical construct Religion is a revealed, divine, comprehensive cohesive, spiritual, moral, political, personal, legal and political system there is no separation of church and state Western democracy is not the preferred form of government

Local western foreign policy objectives are perceived to conflict with western ideals (e.g., Muslim Brotherhood and Hezbollah)

Globalization and technology are perceived to undermine traditional religious values Globalization is perceived as an extension of colonial exploitation

Globalization and the four waves of terror

David C. Rapports The Four Waves of Modern Terrorism Anarchist Wave (1880s to 1920s) Anti-colonial Wave (1920s to 1960s) New Left Wave ( 1960s to 1980s) Religious Wave (1979 to )

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Anarchist Wave

Modern terror began in Russia in the 1880s Anarchist initiated the wave Took advantage of revolution in communication &
transportation

Women: Leaders and operators Tactic: assassinations Weapon: bombs Propaganda of the deed Formalized doctrine and tactics Revolutionary Catechism by Sergei Nechaev

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Anti-Colonial Wave

The Versailles Peace Treaty Victors applied Wilsonian principle of self determination
to break up defeated empires

Undermined their own empires as terrorist groups emerged

in all empires except the Soviet Union

WWII enlarged self determination theme as both victors

and losers abandoned territory

Terror campaigns fought where withdrawal not an option Palestine, Algeria, Northern Ireland Tactics: eliminate police, hit and run, diaspora sponsors
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Left Wing Wave

Viet Nam War Internationalism Vanguards for the masses (American Weather
Underground, West German Red Army Faction, Red Brigade, Japanese Red Army, French Directe)

Women: leaders and fighters Tactics: theatrical targets, hostages, and

assassinations- Americans favorite targets

Between 1968 and 1982 there were 409

international kidnappings incidents in 73 countries involving 951 hostages
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Religious Wave

Religious doctrines and ethnic identities overlap Anti- colonialism and secular nation state Islam influencing other religions Sikhs, Jewish, Aum Shinrikyo, Christian Identity Iranian Revolution 1979 storming of the Grand Mosque in Mecca Sunni terrorism Collapse of the Soviet Union The far enemy 9/11 and aftermath

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Religious transnational terrorism may be different

They have a good powerful story that will survive

generations and appeal to the disenfranchised

This story requires a different model with a longer time

frame to put its appeal into perspective.

Historical models to consider

16th The The

and 17th century European Wars of Religion Cold War (1917 1991) Wars of Decolonization (1945 1997)

Islamist political theorists posit a utopian theory of

government that differs from the western view of the nation state and the separation of church and state

Influential Islamic thinkers

Sayyid Qutb with the President of the Colorado Teachers College

Hassan al Banna Muslim Brotherhood

Grand Ayatollah Ruhollah Khomeini

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How terrorism ends

Decapitation Failure Repression

Negotiation Reorientation

Success

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Terrorism in America

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Since the 1700s The forecast is always stormy

1800s: Europe, UK discounted American experiment Paid tribute to North African countries 1930s: Fascists and totalitarians dismissed us 1950s: Communism will bury us 1970s: The revolution was coming 1980s: Japan & Europe will bury America economically 1990s: The Asian tigers will eat our lunch 2001 : Jihadist caliphate 2010 : China and India will overcome America 2012 : We are bankrupt

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Geopolitics: History repeats itself

Americans killed Enslaved Ships captured Tribute paid Ins costs skyrocket Military budget soars Big hit to GDP Arms for hostages Proxy warfare

The first war on terror

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Bombardment of TripoliAugust 1805

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Unfortunately, terrorism since the founding of the Republic has been part of the American experience

The Haymarket Bombing (May 1886)labor Assassination of Pres. McKinley (Sept 1901)anarchist Bombing of US Senate (July 1915) Anarchist bombings of 1919, simultaneous attacks over
half the nationresulted in famous Palmer Raids Budas wagon Wall Street (Sept 1920)anarchist Nazi raid on New York (June, 1942) PRNPattempt to assassinate Pres. Truman (Oct 1950) PRNP attack on US House of Representatives (Mar 1954)
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Source: Terrorism on American Soil, Joseph T. McCann, 2006 Sentient Publications

Unfortunately, terrorism since the founding of the Republic has been part of the American experience

Bombing 16th Baptist ChurchKKK (May 1963) FALN bombing attacks of 1975 (Fraunces Tavern) Bombing of US Senate (Nov 1983)Armed
Resistance Unit

Dalles, Oregon, Americas first biochemical attack

(Aug 1984) Rajneeshpuram cult

1993 World Trade Center Bombing Oklahoma City Bombing (Apr 1995)Right Wing 9/11
Source: Terrorism on American Soil, Joseph T. McCann, 2006 Sentient Publications
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50 foiled plots

Richard Reed December 2001 Jose Padilla- May 2002 Lackawanna Six- September 2002 Lyman Faris May 2003 Virginia Jihad Network June 2003 Nuradin M. Abdi November 2003 Dhirn Barot August 2004 James Elshafay & Shahawar Martin Siraj August 2004 Yassin Aref and Mohammad Hossain August 2004 Hamid Hayat June 2005

Levar Haley Washington, Gregory Vernon Patterson, Hammand Riaz and Kevin James August 2005 Michael C. Reynolds December 2005 Mohammad Zaki Amawi, Marwan Otheman El-Hindi and Zand Wassim Mazloum February 2006 Syed Haris Ahmed and Ehsannul Islam Sadequess April 2006 Narseal Batiste, Patrick Abraham, Stanley Grant Phanor, Naudimar Herrera, Burson Augustin, Lyglenson Lemorin and Rothshild Augstine June 2006 Liquid Explosives Plot August 2006

Source: 50 Terror Plots Foiled Since 9/11: The Homegrown Threat and the Long War on Terrorism. James J. Carafano, PH.D, Steven P Bucci, Ph.D and Jessica Zuckerman, Heritage Foundation, April 25, 2012

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50 foiled or failed plots

Khalid Sheikh Mohammed- March 2007 Fort Dix Plot May 2007 JKF Airport Plot June 2007 Christopher Paul June 2008 Syngogue Terror Plot - May 2009 Raja Lahrasib Khan March 2010 Faisal Shahzad May 2010 Paul G. Rockwood,Jr. & Nadia Piroska Maria Rockwood- July 2010 Farooque Ahmed- October 2010 Air Cargo Bomb Plot October 2010Mohamed Osman MohamudNovember 2010

Antonio Martinez December 2010 Kalid Ali- M Aldawsari Ahmed Ferhani and Mohamed Mamdouh- May 2011 Abu Khalid Abdul-Latif and Walli Mujahidh June 2011 Emerson Winfield Begolly August 2011 Rezwan Ferdaus September 2011 Iranian Terror Plot October 2011 Jose Pimentel November 2011 Sami Osmakac January 2012 Amine El Khalafi February 2012

Source: 50 Terror Plots Foiled Since 9/11: The Homegrown Threat and the Long War on Terrorism. James J. Carafano, PH.D, Steven P Bucci, Ph.D and Jessica Zuckerman, Heritage Foundation, April 25, 2012

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Boston Marathon bombings

Source: Stratfor

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Hello, Unit 61398

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China claims cyber attacks from US based hackers

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DOS and DDOS attacks

Are cyber attacks a first rate terror tool?
No Government No Banking

No Power

No Communication
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Just a thought
- the bipolar global framework that prevented rational leaders from immolating the globe does not seem feasible in cyber space or the URW world

MAD

Cyberspace is extra territorial there seems to be

significant problems, even in major attacks, identifying the enemy or distinguishing between terrorism and war

China and Iran are developing significant cyber capabilities China and the US have a commonality of interests that may
create a political limit on cyber attacks - there are no such self interest driven restraints with Iran
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Leaving cyberspace: The Southern Poverty Law Justice Center in 2012 tracked

1,007 Hate Groups 1,360 anti-government Patriot Groups

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American terrorism today

Southern Poverty Law Justice Center watches almost 1,018 US
hate groups

Patriot Groups on the rise Militia Groups on the rise Hate groups in every state Anti-Muslim, anti gay, Black Separatist Groups, Christian Identity Groups, KKK, Nativist Extremist Groups, Neo confederate, Racist Skinhead, White Nationalist

Environmental terrorism Private law as an anti-terror tool

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Source: Southern Poverty Law Justice Center

Hate groups

33 Source: Southern Poverty Law Justice Center

A short list of hate groups

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Source: http://www.splcenter.org/get-informed/intelligence-files/groups

SPL: Patriots & Militia Groups

35 Source: Southern Poverty Law Justice Center

A partial list of militia groups

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Radical environmentalist movement

Two best know groups - $110M damage (1995 to

2005)

Operation Backfire The Family

Five

Animal Liberation Front (ALF) Earth Liberation Front (ELF)

states in Pacific Northwest, 20 criminal acts, 18 members, $40M in damage

Successful counterterrorist operation

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We are facing an array of threats but

It is important to keep such threats in perspective

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Threats and problems are real but weve overcome worse see World War II

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Putting terrorism in the United States in perspective

9/11 cost US$80B to US$90B A small percentage of the US GDP of US$10

trillion

It is anticipated that the US is sufficiently strong to

withstand most terrorist attacks with few economic consequences

It is the danger of persistent overreaction that is the

real danger
SOURCE: Economic Consequence of Terrorism in Developed and Developing Countries, Todd Sandler and Walter Enders, 2008.
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The effect on macro economic policy is critical

Worse case thinking

The precautionary principle Imagining the worst outcome and treating it like a
certainty

Antidote Probabilistic thinking Reasonable approaches There are, however, threats

Focuses on extreme but improbable risks Movie plot thinking

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What is the right balance?

What is the right balance between the precautionary principle and a rigid cost/ benefit analysis?

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Things to consider in the quest for balance

Terrorism has been and

will continue to be around for a long time Globalization, demographics and the financial crisis and demographics will create new pools of prospects

Civil Defense: where do you invest limited resources?

Most U.S. terrorist activities are

non-catastrophic

Catastrophe terrorism events,

however, need the federal government to spread the risk

Un-insurable: Nuclear,
Chemical, Cyber, Radiological, Biological ?

The importance of renewing

TRIA in 2014
Picture: 1918 30,000 men under Brig. Gen Laubock