A “dirty bomb” is a device that uses conventional explosives such as TNT or dynamite to disperse radioactive material over a wide area, thereby contaminating it. This is different from nuclear weapons, which rely on a nuclear fission reaction to create an extremely powerful explosive explosion (although the term was originally coined for a nuclear weapon that has caused excessive contamination). The destructiveness of a dirty bomb will depend primarily on the strength of a conventional explosion. However, the resulting radioactive contamination would potentially render the area useless, or at least cause people to panic. Making a dirty bomb is not much more difficult than making a conventional bomb, and many types of radioactive materials can be used. Weapon-grade materials or spent nuclear fuel will cause the most significant contamination, but even medical materials such as radium can be used. Although this type of weapon has few traditional military uses, it can serve well as a weapon of terror.
Insurance is a contractual relationship that arises when one party (the insurer), for a fee (premium), agrees to compensate the other party (the insured) for losses caused to a certain subject (risk) caused by certain unforeseen circumstances (hazards or dangers). The term ‘guarantee’, commonly used in England, is considered synonymous with ‘insurance’.
The 10/10 Rule is a matter of analyzing and demonstrating the transfer of risk as a precondition for the use of reinsurance accounting, which was codified in the early 1990s with the adoption of Financial Accounting Standard (FAS) 113 (and its statutory counterpart, SSAP 62). FAS 113 itself was a response to alleged abuses and set the standard for testing whether something should be called an insurance contract. FAS 113 required that the transfer of risk be demonstrated by comparing the present value of the cash flows associated with the contract and, in particular, by exceeding certain thresholds of “significance” of risk. The thresholds, often referred to as the 9a and 9b tests, are: 9a. The reinsurer assumes significant insurance risk under the reinsured parts of the underlying insurance contracts. 9b. It is possible that the reinsurer could suffer a significant loss from the transaction. While neither “significant” nor “reasonably possible” was defined in this context, standard rules of thumb quickly emerged in the implementation of FAS 113. The most commonly cited is the “10/10 Rule”. This rule states that a contract reaches a threshold if there is at least a 10 percent chance that it will suffer a loss of 10 percent or more in present value (expressed as a percentage of the contract premium ceded).