A leading expert on terrorism risk will be speaking in Bermuda this Friday.

Mr. Tom Player, of Morris, Manning & Martin law firm, will address the local branch of the Institute of Directors on issues posed by the new US Terrorism Risk Insurance Act of 2002.

“I am concerned, if there were another terrorist act, what quality of cover is out there?” says Mr. Player.

In a nutshell, all commercial lines carriers are obliged under TRIA to write terrorism coverage if they do business in the US. The federal government has provided an annual fund of $100 billion per year as a backstop (quasi reinsurance) to insurers.

However, as Mr. Player points out, Congress did not describe what kind of cover had to be provided.

Details such as whether insurers may exclude cover for chemical, biological, and nuclear acts of terror are conspicuously absent.

A further missing detail is whether insurers can include their usual “War Clause Exclusion” in the compulsory terrorism cover.

A War Clause Exclusion would normally get an insurer off the hook if a loss occurred during war or military action.

As a lawyer, Mr. Player pays a lot of attention to definitions, and he has noticed that the definition of “act of terrorism” in TRIA says that any act of terrorism committed in the course of a war declared by Congress will not be certified as an act of terrorism.

According to Mr. Player, this may mean that if war breaks out with Iraq and simultaneously, a terrorist act occurs, losses resulting from the terrorism would not be covered.

While such questions abound, it is no wonder that the industry persists in pricing terrorism cover fairly high.

“One would think that with $100 billion per year available per year, the overall pricing should be reduced,” says Mr. Player, noting that on the contrary, insurers have said that prior to TRIA, cover was not available at any cost and current high pricing is justified.

The uncertainty surrounding contract wording is only one cause of pricing difficulties. A further headache for primary insurers is how much reinsurance they will be able to get, says Russell Fletcher III, chief reinsurance officer at Montpelier Re Holdings Ltd:

“There is currently a very active quoting market for terrorism reinsurance.

“Coverage comes in all forms and sizes, occurrence and aggregate, with NBC (nuclear biological chemical) and without, all lines and property only. The cost of coverage represents large “spends” for buyers, who do not know what their “take up” rates will be for the primary terrorism insurance that TRIA forces them to offer.”

Mr. Player says: “TRIA came on the scene so rapidly that I think it has caught most underwriters scratching their heads.”

Mr. Player's talk on Friday morning takes place at 8.30 a.m.at KPMB and is entitled “Counting the cost of terrorism”