**This bulletin and its attachments have been made available at the AAIS open Web site: AAISonline.com. This bulletin will not be distributed in a paper format.**

COUNTRYWIDE 
CERTIFIED TERRORISM - OPTIONAL SUPPLEMENTAL RATING INFORMATION
Reference Bulletin 02-0550

AAIS has developed supplemental rating information for use with those risks that are considered to have a greater than average exposure to loss caused by certified acts of terrorism. AAIS will not file the supplemental rating plan attached to this Bulletin. Rather, companies should adapt the rating plan to their own needs and take independent filing action. More information is provided in the Company Action section of this Bulletin.

BACKGROUND

AAIS has filed surcharges for each state or jurisdiction that can be used to calculate an additional premium charge for the portion of the certified terrorism risk that is retained by the company. (The surcharges are expressed as rating factors.) The additional premium produced by applying the surcharges is considered adequate for pricing the majority of risks throughout each state. However, companies that provide terrorism coverage for risks that are perceived to be potential targets of international terrorism may wish to adjust the surcharges to reflect the heightened exposure to loss.

Dr. Nicholas Berry lists the following as likely terrorist targets in the Center for Defense Information paper, "Targets of Terrorists" (http://www.cdi.org/terrorism/moretargets.html):

-- Government buildings, military bases, weapons, ships, airplanes, trains, bridges, and tunnels

-- Government officials, soldiers, police, and diplomats

-- Banks and the security and electronic transmission of currency

-- Symbolic public monuments

-- Business headquarters, personnel, and factories

-- Civilian crowds, events, ships, airplanes, trains, cars, and resorts

-- Electric power plants (most dangerously, nuclear power plants), dams, and grids

-- Water supplies and pipelines

-- Communication stations and towers

-- Computers and computer networks

According to "Terrorism: Some Mundane Targets and Methods" (http://www.cdi.org/terrorism/targets-methods.html), Colonel Smith, CDI Chief of Research, considered transportation networks, such as interstate highways, tunnels, overpasses, airports, and rail lines, prime targets. Further, key government and financial centers were named as targets in the study. Colonel Smith also names large gatherings of people, such as conventions or scheduled professional sports events.

RATING INFORMATION - OPTIONAL SUPPLEMENTAL PLAN

Based on the types of reports identified above, AAIS has developed an optional Terrorism Supplemental Rating Plan for use in urban or other target areas. The additives and the limits shown on the attached sample manual page are judgmentally selected to produce a higher surcharge for those buildings thought to be at higher risk of being targeted by international terrorism.

The supplemental rating plan is designed to accumulate surcharges (and some limited credits) based on building location and other attributes. The additional surcharges are capped to limit the highest surcharge and to prevent anti-selection by encouraging a wide base of risks to purchase insurance for loss caused by certified acts of terrorism. Surcharges vary by program year since high risk buildings contribute proportionately more to the company’s aggregate terrorism deductible. The cap also increases by program year to coincide with the increases to each company’s aggregate deductible.

Initially, additional surcharges are accumulated for certain features of the insured property or certain types of buildings. Examples include buildings over 80 stories, buildings with a high rate of evacuations, buildings with attached parking garages, convention centers, transportation centers, and stadiums.

Next, additional surcharges are accumulated for the proximity of the insured property to higher risk features of the surrounding area.

A small credit may be subtracted from the total surcharge for the establishment of some key loss control features.

We are suggesting that the sum of the supplemental surcharges (and credit) be limited to 4% in 2003,
7% in 2004, and 11% in 2005. The result is added to the statewide surcharge for certified terrorism coverage.

AAIS is NOT filing the Terrorism Supplemental Rating Plan. Each company should determine the states, territories, lines of insurance, and risk characteristics that are suitable subjects for supplemental terrorism rating and take the necessary filing action with the appropriate state insurance departments. The suggested charges and limitations can and should be modified to reflect each company's unique circumstances.

A sample Filing Memorandum is attached to this bulletin for the use of companies that elect to take independent filing action. The memorandum should be modified to reflect any changes to the Terrorism Supplemental Rating Plan that are initiated by the company.

AAIS Affiliates -- An AAIS affiliate for any line of insurance may take independent filing action to file and implement a Terrorism Supplemental Rating Plan that is based on the sample manual rule attached to this Bulletin. Affiliates are not required to notify AAIS with respect to filing and implementing the Terrorism Supplemental Rating Plan.

Companies Not Affiliated with AAIS -- Companies not affiliated with AAIS must request permission to use the Terrorism Supplemental Rating Plan or any variation based on that plan. Contact Rick Anderer at Richarda@AAISonline.com or 800/564-AAIS ext. 222 for further information.

ATTACHMENTS

-- Sample Manual Page – Terrorism Supplemental Rating Plan
-- Sample Filing Memorandum

 Copyright, American Association of Insurance Services, Inc., 2003