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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. - PowerPoint PPT Presentation

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  • Nuclear TPL insuranceRNIP presentation 10th March 2010M Tetley, Nuclear Risks Insurers Ltd, London.

  • *Liability & property insurancesOnsite assets & cash flowProperty insuranceOffsite legal obligationsLiability insuranceBruce site, ON, Canada

  • *Why is insuring nuclear different?The riskFailure to control the nuclear chain reaction leading to..Catastrophic radioactive contamination of a widespread area,Extensive plant damage.

    Problems for insurersEvents 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.

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  • *Practical experienceChernobyl 1986> 110,000 evacuations & re-housing cost $3bn+?600,000 involved in recovery operationEurope wide spread of radioactive cloudConsumption & export of foods interrupted over a wide areaNo insurance< 2,000 victims eventually?Three Mile Island 197911,000 evacuationsClaims office established day after event; publicised using the mediaImmediate hardship payments of $1.3m made by insurersClass action for business interruption & loss of earningsSubstantial insurance loss excess of $70m to TPL policies

  • *History of nuclear TPL insurance IExtract 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 andadversely affect all forms of property..and cause injury to both human and animal life.

  • History of nuclear TPL insurance II*

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  • *Third PartyLiability& Basic PropertyDamage

    1950s & 1960s$70mGap Liability Covers & Enhanced PropertyDamage

    Alternative LiabilityCovers,Terrorism& Business Interruption

    1970s & 1980s1990s & 2000s$3bnCombined property & TPL insurance availableTMI1979Vandellos1986History of nuclear TPL insurance IVPaks2003

  • Convention principles & insurance I

    *

  • Convention principles & insurance II

    * A financial limit of liability provides a Maximum cost to the operator for any event.

  • TPL in non-convention countries: United States I1957 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 $375m2006 Senate consented to ratification of CSC.2008 Instrument of ratification deposited at IAEA*

  • TPL in non-convention countries: United States IIUS nuclear pool (ANI) & reinsurersSECONDARY FINANCIAL PROTECTION LAYER

    $11.64 Billion($111.9 Million x 104 Reactors)

    Insurance Policy Limit:$375MTotal: $12.015bnThe Price Anderson Act a law that subsidises nuclear power by creating liability protection for nuclear accidentsThe legislation was intended first of all to bolster investor confidence, whereas victim compensation is secondary*

  • TPL in non-convention countries: Japan1961 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.*

  • *Key conditions for TPL insuranceSite technically acceptable & regulatory control good Convention &/or national nuclear law acceptableDomestic insurance industry strong & capable of reinsuranceNo exchange controls & currency strong TPL insurance contract possible

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

    Japan1,350mSweden590mU.K.210mSwitzerland929mS Africa440mP.R.China45mU.S.A.375mCanada73m

  • *TPL indemnity limits IICurrent 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).Japans limit is about 30 times Chinas.

  • *For which nuclear sites is TPL insurance available?

    All aspects of the nuclear fuel cycle

  • *Operators 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..

  • *Other types of liability insuranceRadioactive contamination exclusion clause causes other insurance gaps:Directors & Officers insurance,Errors & Omissions insurance,Employers liability in some countries,Products liability insurance.

  • *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. February 12th 2004 OECD, Paris

  • OECD (regional)IAEA (global)*Convention revisions II

  • * Convention revisions III

    Current1. loss of life, personal injury2. loss of or damage to property Future4. reinstatement of impaired environment 5. use or enjoyment of environment6. preventative measures 3. economic loss related to 1 and 2 Concept of Nuclear Damage

  • *Existing insuranceMax $1.35bn (more than required for revised Convention limit)Newbio-spherecover30 years

    TIME

    10 years

    SCOPE OF COVER >>> environmental$945m

    AMOUNTOFCOVER

    $0mConvention revisions IVExtended time to make claim - 30 yrs

  • = less certainty?*Insurance concerns

    PC, BC, VCRPC, RVC, CSCNuclear damageProperty damage, personal injury & loss of lifePLUS: environmental & economic loss, reinstatement costs, preventative measures costsLiability amountsLow minimum amountsMuch higher amountsNuclear incidentOccurrence onlyPLUS: grave & imminent threatNuclear sitesReactors, major fuel cycle, transportPLUS: Decommissioning & waste disposalGeographical scopeContracting partiesNon-contracting parties & EEZ

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  • Of c.440 reactors globally, 235 remain outside of the ConventionsWithin 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?

    *Revisions = legal harmonisation?

  • *2 units under refurbishmentPotential new buildDecommissioningBruce site: 6 reactors in operationA -1 & 2B 1 to 4

  • From DECCExisting NPP (decomm after 2012)Possible new build siteWylfa, UKLiability for all 3rd parties following accident: 140m now insured, above that Government; how long will it take to recover investment?*

  • *New build III: new liability obligations

    1400

    1200

    1000

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    200

    0US$mPRChina Switzerland US UKGermanyJapan

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    Nuclear liability140m

    Nuclear liability600m140mNowNew build - 2017NPP asset valueinsuranceAbout 1bnNPP new buildasset valueinsuranceMore than 2.5bn

    1.14bn4bn +New build IV: capacity example UKDecomm. Liabs.Maybe 1bn

  • 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

    *Decommissioning I: planning

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

    *Decommissioning II: TPL arrangements

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

  • *60Transportation in the Nuclear Fuel Cycle (arrows indicate transportation links)

  • *What is transported?

  • *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.Insurance issues specific to transport

  • *TPL insurers role following a severe accidentInsurers capital at risk:Safeguarding of payment authority.Need for comprehensive infrastructure:National & international nuc