Identifying the optimum NTPL arrangements for all stakeholders

• Author: Directorate-General for Energy (European Commission), ENCO
• Pages: 63-81

Final Report - MOVE/ENER/SRD/2016-498 Lot 2

Study on the insurance, private and financial markets in the field of nuclear third party liability

Page 63

6 IDENTIFYING THE OPTIMUM NTPL ARRANGEMENTS FOR ALL STAKEHOLDERS

In the Inception Report for this project, the research team outlined the assessment criteria to be used when

considering future options to increase NTPL capacity; the matrix proposed at that stage will be used without

material amendment to review the new solutions described in the previous section.

In this section each of the new concepts/solutions selected will be described and assessed against the following

criteria:

Criterion

Comment

Scope of cover

Will the solution p rovide the full scope of cover to include all HoDs and prescription periods as

required under the revised Conventions?

Capacity

Will the solution provide material additional capacity for NTPL, so distancing governments and

taxpayers further from financial loss caused by a nuclear accident?

Geographical scope

Will the solution provide the same cover/capacity in all EU Member States, whether they have

NPPs or not?

Practicality

Will the solutions present any practical obstacles to its introduction?

Cost

Will the NTPL solution(s) identified be affordable for the nuclear industry?

Legal framework

Will the NTPL solution(s) identified require changes to the current national and/or international

legal framework?

8: Facilitate the 1st tier financial security amount under the revised Paris Convention, or the revised Vienna

Convention minimum amount, to be funded jointly by insurers and operators, similar to the US Industry Credit

Rating Plan (ICRP) system

Rationale

In the USA, despite insurer perceptions of an adversarial legal system, NTPL coverage is offered by insurers for

                

including claims made from incidents that may have occurred decades ago. The local insurers are represented

by American Nuclear Insurers (ANI), the domestic nuclear insurance pool, which considers that the legal

   U“A        F   

there are two features that contribute to make the exposure of the insurers largely catastrophe only:

1. The common occurrence exclusion: this exclusion features on all NTPL site insurance policies and limits

any NTPL common occurrences154 to a single $450 million exposure, no matter how many sites are

154 A common occurrence is defined in the US standard NTPL insurance policy as: A       

bodily injury, property damage or environmental damage arising out of the radioactive, toxic, explosive, or other hazardous properties of

(a) nuclear material discharged or dispersed from the facility over a period of days, weeks, months or longer and

also arising out of the properties of other nuclear material so discharged or dispersed from one or more other

nuclear facilities insured under any Nuclear Energy Liability Policy (Facility Form) issued by Nuclear Energy

Liability Insurance Association, or

(b) source material, special nuclear material, spen t fuel, waste, or tailings or wastes produced by the extraction or

concentration of uranium or thorium from any ore processed primarily for its source material content in the

course of transportation for which this insurance is afforded under this policy and also arising out of such

properties of other source material, special nuclear material, spent fuel, waste, or tailings or wastes produced by

the extraction or concentration of uranium or thorium from any ore processed primarily for its source material

content in the course of transportation for which this insurance is afforded under one or more other Nuclear

Energy Liability Policies (Facility Form) issued by Nuclear Energy Liability Insurance Association,

shall be deemed a common occurrence resulting in bodily injury, property damage or environmental damage caused by the nuclear energy



Final Report - MOVE/ENER/SRD/2016-498 Lot 2

Study on the insurance, private and financial markets in the field of nuclear third party liability

Page 64

involved in a generic (i.e. multi-site) loss scenario T     

ensures that similar claims occurring across multiple sites can only cost insurers up to one full limit155.

2. The Industry Credit Rating Plan (ICRP): this scheme allocates about 75% of each NTPL site policy premium

to an operator owned fund, with the residual 25% premium and the fund investment income passing to

the insurers. The 75% of premium is accumulated and retained to meet any claims for 10 years after the

policy inception date; at the end of that period the loss-free element of the fund is returned

proportionately to the operator(s). With all the policy premiums in the fund, the total amount retained

now exceeds the $450 million policy limit, so ensuring enough funds are available to meet at least one

single site loss and its associated costs156. The fund is intended for non-catastrophic events and is not

required by the US Price Anderson Act legislation; however, it does offer insurers the comfort of knowing

any claim (but in particular any non-catastrophic claim as responding to these is its primary purpose) is

already fully funded for at least one full site limit.

These two features effectively leave insurers with catastrophic loss exposure only, as the first claim will draw on

the ICRP fund and if a claim arises from some generic issue and involves multiple sites, it is likely to be excluded

by the common occurrence clause. With no temporal restriction on the liability exposure and equivalent full

scope cover, other than the common occurrence exclusion, the US insurance arrangements are oversubscribed.

Could some of these arrangements be transplanted to the EU MS, so providing more capacity?

Informal discussions with regulatory bodies suggest that a common occurrence definition would disqualify a

financial security product from acceptance under the Paris/Vienna regime, as the liability for the operator is

                  U“

therefore, its introduction in Europe would be a unilateral act by insurers, leaving the residual exposure with

the operators, and one that would increase insurance capacity at the cost of removing exposure and reducing

full-scope risk-transfer insurance coverage. This is probably an unsatisfactory trade-off. However, the ability to

build up funds in a joint exercise between operators and insurers will increase capacity over time and will offer

a fund to pay for non-catastrophic losses to an agreed definition between insurers and operators. Capacity will

increase because the fund will act as a buffer against insurers paying out immediately for certain types of claims.

The Conventions make it clear that each incident must be covered by financial security157; however, this

language may offer relief from requiring the accumulation of funds to cover financial security for each site

operated by multi-site operators. This would make this solution more palatable to operators such as EdF, which

operates over 70 reactors across its sites in France and the UK. For example regulators may take the view that

if EdF accumulated funds to cover at least two financial security amounts in each territory, this would be viewed

as sufficient. Although restricting the amount of financial security required for multi-site operators in this way

may appear non-compliant with the Convention obligations, there is some precedent already for offering more

favourable financial security requirements for these sites158. This would imply there is an acceptable maximum

number of full amounts of financial security and associated accumulated funds for multi-site operators.

155 This means that any common cause occurrence across several sites will only be to claim for up to a single, full site limit (of $450

million in the US); the residual liability excess of this amount reverts to the operator.

156 In the USA NTPL arrangements, costs and expenses are included within the primary financial security limit of $450 million; this

contrasts with the position under the Vienna/Paris regimes, where costs are not included in the financial security requirement and can

be insured separately.

157 For example, see 2004 Protocol amending the Paris Convention, Art. 7 (a).

158 F    UK Nclear Installations Act 1965 Sect.19.2E (http://www.legislation.gov.uk/ukpga/1965/57/section/19 ).

Under the proposed revisions to the Act (to accommodate the changes to the Paris Convention introduced by the 2004 protocol), this

section allows operators with more than 2 sites to hold only 2 financial security limits, no matter how many sites they have. Therefore,

EdF operating 7 sites in the UK will only be obligated to provide for 2 financial security amounts.