The first panel this afternoon is the insurance panel. Mr. Marrone, Mr. Richard Schmalz, Mr. O'Connell, Mr. Metzgar. Will you come forward and take your seats at the witness table.

Let me say to all the witnesses, the purpose I had hoped to achieve in this hearing today is to lay the ground work for congressional action next year. 1985 sounds like a long time away, but the fact is unless we get going early in the new Congress, something as controversial and as major as this will probably get lost in the shuffle and 1985 will be on top of us.

So by calling the hearing, we encourage all groups involved in this to get together, put their thoughts on paper, give us an opportunity to see where everybody stands at this point. This will be very helpful in writing a bill we can all focus on for next year.

So, with that, I would hope that the witnesses would not feel compelled to read lengthy statements, but would give us some areas to educate the Members who are here today on some of the basic points, but your full statements and the complete studies you have written are very valuable, and they will be included in our record and be studied by the Members and by the staff.

So, Mr. Marrone, do you want to go first?

[EDITOR'S NOTE.-The studies referred to above by Chairman Udall will be placed in the appendix following Mr. Schmalz, prepared statement. See table of contents for page number.]

Mr. MARRONE. Mr. Schmalz will make a statement on behalf of all.

The CHAIRMAN. Without objection, the full statement of each of these witnesses will be placed in the record as though read in full, and we will hear your summaries of your position.

[Prepared statement of Richard A. Schmalz may be found in the appendix.]

PANEL CONSISTING OF RICHARD A. SCHMALZ, COUNSEL TO AMERICAN NUCLEAR INSURERS AND MUTUAL ATOMIC ENERGY LIABILITY UNDERWRITERS; JOSEPH MARRONE, VICE PRESIDENT AND GENERAL COUNSEL, AMERICAN NUCLEAR INSURERS; MICHAEL J. O'CONNELL, MANAGER, MUTUAL ATOMIC ENERGY LIABILITY UNDERWRITERS; AND WILLIAM R. METZGAR, DIRECTOR, AETNA LIFE AND CASUALTY INSURANCE CO. Mr. SCHMALZ. Thank you very much, Mr. Chairman.

As you indicated, we do have some other materials that are now in the course of preparation that we think will be useful to the committee and we will submit them just as soon as they are ready. The CHAIRMAN. We will be delighted to have them.

Mr. SCHMALZ. We appear today on behalf of the two nuclear pools whose combined membership includes several hundred stock and mutual insurance companies in the United States, with most of the major companies represented. We are grateful for the opportunity to give this committee the views of a broad segment of the insurance market on a most important subject: the insurability of the nuclear power program.

We realize that we play but a minor and secondary role, although we think that there is increased interest on the part of insurers with relation to safety.

We thought that the presentations of the witnesses this morning and the discussions which followed have brought out most of the essential points, and we will try to pick up where these witnesses left the discussion.

First of all, we agree that the Price-Anderson Act should be extended in substantially its present form. We think that an absolute limitation on liability is the cornerstone on which the Price-Anderson system is built. The absolute limitation on liability gives the nuclear industry not complete but some measure of protection against crushing liability.

ECONOMIC EFFICIENCY

It is also essential for the channeling of liability principle which is built into the Price-Anderson system.

Under this principle, all liability of all persons who may be responsible for a nuclear accident is channeled to the operator of the powerplant who maintains the financial protection for the benefit of all. This channeling principle allows for maximum efficiency in two areas. It reduces the claims handling costs enormously, and we see how expensive these costs can be in uncoordinated systems, such as those which are prevalent today for dealing with the asbestos situation. The importance of reducing these costs by efficient concentration of lawsuits in one court under streamline proceedings cannot be overemphasized.

But it is also important in another area. The channeling concept, with the limitation on liability, allows worldwide insurance markets to maximize the insurance capacity that they can bring together for the nuclear hazard. Without the absolute limit on liability and without channeling, we would expect a substantial drop in capacity, if not more likely a total or near total collapse of the private insurance market.

We do not believe, as I know Mr. Seiberling this morning has suggested, that removing the limit on liability will substantially increase the safety of nuclear operations. Witnesses from the nuclear industry this morning stated clearly that they believe that management has such a substantial stake outside of its potential liability to third parties that it really cannot afford to be careless.

What we are concerned about I think, from the insurance industry standpoint, is that we seem to be losing the consensus that once prevailed to the effect that our private nuclear power program depends on the fundamental points that we have mentioned, the limitation on liability, the absolute limitation on liability, plus the channeling of all capacity to the public through the plant operator. We feel that we may be redesigning the system so that it substantially increases the costs of reducing nuclear power, and this will have two, I think, deleterious effects.

First it will operate to discourage the private development of nuclear power, and we assume that it is still the policy of the Government to encourage it.

But, second, it may reduce the financial health of the nuclear industry to the point where it will have an adverse effect on safety and that, in turn, is not good for the public, and it will also have the effect of diminishing our ability to get more capacity.

We trace this development on page 4 of our statement, and we give sort of a historical review, but we do think that we should not lose sight of the fact that the most important consideration is safety, from an insurance point of view, we have found this to be true over the years, is the financial integrity of the risks we insure and the moral of the management.

We do list our concerns in some detail on page 7 of the statement, and I would like to just go down through those for the sake of completeness.

NRC PROPOSAL

We think that in view of the great care that has been taken and the enormous effort that has been expended over the last 25 years to construct a balanced and workable approach to dealing with the special risks of nuclear energy, that we are particularly concerned with recent specific recommendations of the Nuclear Regulatory Commission to Congress. Most crucial is the one which the Commission itself characterizes as an innovation.

The present absolute limit on liability of all persons who may be liable for a nuclear accident should be removed and be replaced by a limitation on how much money could be collected from the nuclear industry in any one year.

Aside from the unfairness in attempting to reverse a consensus retroactively, we do not believe that the Commission has considered, in depth, the impact of such a substantial change on the financial health of the nuclear industry: the lowering of morale, the possible adverse effect on safety and the likely disruption of private insurance markets. For that reason we cannot support this recommendation or the proposals for repeal of the absolute limit on liability.

I might say that this does not mean that we are opposed to methods of increasing the absolute liability over time in a reasonable relationship to the ability of the nuclear industry to provide additional funds through retrospective assessments and the additional ability of private insurers with competence in the nuclear program to induce the world markets to provide more capacity.

We do call attention to the separate recommendation of the Commission that the present annual limit on assessments be increased from $5 to $10 million. This would, alone, bring the total financial protection for off-sight injury and damage to the public to well over $1 billion. We understand that the nuclear industry does not believe that this is necessary, but you heard them testify this morning. I think that they believe it is.

EXTRAORDINARY NUCLEAR OCCURRENCE

Somewhat less crucial proposals, when taken individually, do have some discouraging overtones. One is the extraordinary nuclear occurrence concept that was discussed this morning. We note that the Commissioners by a divided vote are in favor of it. They are considering proposals for making it more manageable in their terms.

We would emphasize that we think the extraordinary nuclear occurrence concept is essential. It serves a useful purpose. Those wit

nesses this morning brought out that it keeps the system on its original track as being essentially a catastrophy piece of litigation and that it does not reduce the protection to the public in any way. So we would say that is one factor that bears considering in the attitude of insurance markets to furnish additional capacity.

STATUTE OF LIMITATIONS

There is another proposal of the Commission that the present waiver provisions be amended to extend the statute of limitations to 30 years, from 20 years. This takes place when an extraordinary nuclear occurrence is determined to have happened.

This proposal could have an adverse effect on insurance, particularly from the foreign insurance markets which provide about onehalf of our capacity. They are not used in their own countries to such long statutes of limitations, and they have been reluctant in the past to extend statute of limitations much beyond the present, if any beyond the present point.

It should be noted that they have suffered very severe losses in recent years from delayed emergency claims of all sorts, most principally asbestos, and I think that a further lengthening of the statute at this time could have a deleterious effect on our ability to encourage the foreign markets to provide extra coverage.

CAUSATION THEORIES

Of great concern to our insurers is recent statutory proposals, none of which I believe are explicitly considered today, and judicial decisions which do substitute novel theories of pinpointing causation in cases involving undocumentable, low-level exposures to substances that may be linked statistically to increased cancers in certain groups. We have commissioned a study by Arthur D. Little Inc., which will be ready shortly, which finds these proposals unsound from a scientific point of view.

COSTS OF PROCESSING CLAIMS

Finally, the pools would look upon the abandoning of the original and present principle of a combined single limit for both liability payments and claims handling costs as most disturbing. It would have but one effect: A reduction in the amount of our third-party liability insurance capacity with a probable increase in cost.

We cannot understand the merit of this proposal from an insurance point of view or why it attracts support. We are not dealing with ordinary insurance, but a unique, specially designed program designed to make the most insurance available that we can for the protection of the public under difficult circumstances, and at the lowest costs.

Concluding, we believe that if Congress wishes to continue to encourage the development of nuclear power while taking reasonable steps to protect the public, the existing Price-Anderson program affords a sound base, and we would continue to support it.

We would not be able to support radical changes in the program, and we would express the hope that the emphasis will be placed on measured increases in the amount of financial protection that can

reasonably be achieved by insurers and a healthy nuclear power industry confident that the Government wants the program to go forward.

We know this is a complex subject. Fortunately, the Price-Anderson renewal process gives us all a chance to touch bases and try to arrive at a consensus beneficial to the public.

We will be most willing to furnish the committee with any additional information on its insurance aspects that the committee may desire.

Mr. SCHMALZ. That concludes our prepared presentation.

The CHAIRMAN. You are speaking for all four?

Mr. SCHMALZ. Yes, I will be glad to field questions throughout the panel, of course.

RETROSPECTIVE PREMIUMS

The CHAIRMAN. Let me start by asking a question I left just before lunch. Should a big reactor pay the same retrospective premium as a little reactor? Do you agree with Commissioner Bernthal on that, or with Mr. Gleason?

Mr. SCHMALZ. We think this is sort of an equity question among the nuclear industry itself to decide. I think we went to the flat rate because we were having difficulty in finding what the reasonable basis for differentiation might be. I think the industry spokesman this morning said that it might not be the power. It might be based on plant costs or it might be based on something else.

So rather than try to develop a refined formula, we simply took the flat $5 million. From an insurance point of view, we would not be able to measure the differences accurately, but it is a matter of equity, and we would be guided by what seems the right thing to do.

AMOUNT OF LIABILITY PREMIUMS

The CHAIRMAN. I am running one of these new large, 1,000-megawatt nuclear plants. What is my $160 million worth of insurance costing me this year, how much of the associated companies' premium for that first level of insurance?

Mr. MARRONE. The average premium for each of the 85 reactors in operation for $160 million is about $450,000 a year subject to a retrospective rating system, where 75 percent of that $450,000 is placed in a lost reserve fund, depending on the experience of the entire industry, refunds are paid 10 years later, and in fact substantial refunds have been paid to all of our insureds, not just reactor operators.

The CHAIRMAN. How many companies in your group, the association that you represent, how many insurance companies?

Mr. MARRONE. About 140, 150 in ANI.

Mr. O'CONNELL. There are 137 in the mutual group.

The CHAIRMAN. And this is considered a good piece of business and profitable, and it is something you would like to continue to participate in, I take it?