Since issuing our first policy as Nuclear Mutual Limited in January 1973, NEIL has continued to grow and change to provide exceptional insurance protection for our Members. In 2002, we met the challenges and moved ahead with success.

Insurance Programs
2002 was a stable year for NEIL’s insurance programs. On a written premium basis, our core nuclear premiums were down just over 1.3%. The conventional business continued to provide meaningful capacity to our Members. NEIL’s nuclear reinsurance treaty was continued into the second year of its three-year term and then renegotiated into a three-year renewal beginning in January 2003.

During 2002, Members continued to choose the coverage option that best suited their needs. Over 70% of the units insured under the NEIL I program purchased weekly indemnity limits of $3.5 million or more. Four units chose a NEIL I deductible of eight weeks, and another 10 units increased their deductible to 23 or 26 weeks. The Blanket Program issued 12 policies, which insure nearly 60% of all sites.

NEIL followed credible “leads” on our Member’s conventional programs to a profitable year. NEIL insured the same Members as last year, but the annual premium increased over 20%, with a very successful loss ratio.

NEIL’s nuclear reinsurance treaty continues to provide terrorism coverage for our Member’s nuclear sites. Both the treaty and terrorism coverage provided under the NEIL policies will benefit from the Terrorism Risk Insurance Act. The act should allow Members to recover their full international terrorism losses at US sites. However, losses from domestic terrorism and terrorist acts at non-US sites will be covered under NEIL’s terrorism endorsement adopted November 2001. For our reinsurance treaty participants, the act reduces their exposure significantly and facilitated the three-year renewal of the reinsurance program.

International Business
Our international insurance business continues to expand in a considered and deliberate manner. In 2002, we both insured a number of sites and declined to insure a number of sites in Western Europe and the Far East.

While we have and will continue to explore many international opportunities, our focus on building long-term business based on accepting prudent international risks has been strengthened with the creation of an International Technical Advisory Committee (ITAC). ITAC meets to advise the Board and NEIL management on current issues relating to the operations of non-US nuclear power stations, giving NEIL independent advice, which will lead to better insights and understanding of the international nuclear industry.

Our long-term approach to growth remains consistent as we seek international Members of appropriate standing. One of the first countries reviewed by ITAC was Spain. Their input assisted the Board in approving the application of two new Members who join the NEIL family effective January 1, 2003. We warmly welcome Nuclenor and Union Fenosa as the first international Members joining the NEIL family since 1999. Their joining comes as a result of a great team effort from staff in loss control, underwriting and legal. This success marked Tom Tannion’s first complete year as the Managing Director of ONEIL.

Discussions with a number of other prospective Members will continue throughout the coming year.

Incurred Losses
(in millions)
Loss Control
As the Company’s insurance programs evolved over the years to meet the changing needs of the Membership, the NEIL Loss Control Program developed into a mature and well-regarded program. Early in the Company’s history, the Members’ Engineering Advisory Committee (EAC) was formed and tasked with developing a program to monitor and minimize the risk of loss at insured facilities.

To help protect Members, the EAC drafted Loss Control Standards that contain requirements intended to reduce the likelihood of events occurring that could lead to significant damage to property. These standards are routinely reviewed and updated by the EAC to reflect new technologies and industry experience and are applied uniformly at all Member plants. Activities in 2002 included a comprehensive review of large power transformer loss experience and the consideration of new requirements intended to reduce the possibility of future failures. In addition, the Company’s requirements pertaining to plant fire brigades were strengthened and clarified.

To avoid duplication of activities, the EAC determined early on that, wherever possible, the Company should use meaningful information developed by other organizations. Thus, the Loss Control Program requires plants to make available information developed by other agencies such as the Institute of Nuclear Power Operations, the World Association of Nuclear Operators, the International Atomic Energy Agency and governmental nuclear regulatory agencies. Relationships with these organizations continued to be enhanced in 2002, which enables NEIL to monitor other areas of potential risk without imposing additional requirements on the plants.

The EAC continues to look for new and better ways to assess and minimize the risk of future losses. For many years, probabilistic risk assessments have been used by the nuclear power industry to monitor and estimate the nuclear safety risk. Studies began in 2002 to determine if similar tools and methods can be used to better quantify non-nuclear or balance-of-plant insurance risks and to better focus loss control efforts.

Claims Activity
NEIL’s continuing favorable claims experience evidences the nuclear industry’s commitment to loss control and safety. Our consolidated loss ratio for 2002 was 38%. This ratio is significantly better than the loss ratio for 2001 (55%). The loss ratio for the nuclear programs was 30%, which compares very favorably to the commercial market for conventional insurance but is slightly more than NEIL’s historic overall ratio of 20%.

For the year, NEIL opened 10 and closed 13 nuclear claims, while opening 90 and closing 41 conventional claims. This left 17 nuclear and 123 conventional claims open at year-end. Incurred losses decreased 14% from $91 million in 2001 to $78 million in 2002. In 2001, a single loss event accounted for $53 million of incurred losses under the nuclear program. In addition, the conventional loss ratio dropped significantly from 100% in 2001 to only 51% in 2002. Historically, our overall loss experience remains favorable, as our 5-year and 10-year loss ratios are only 22%.

Payments for claims and loss adjustment expenses totaled $20 million for the year—$14 million for nuclear claims and $6 million for conventional and reinsurance claims. Loss reserves increased from a year-end 2001 total of $43 million to $100 million at year-end 2002. The loss reserves at year-end 2002 were $48 million for nuclear claims, $33 million for conventional claims and $19 million for reinsurance claims.

A Record of Achievement