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TRIA expiry to give terrorism insurance market ‘painful test’

The US Government programme that backstops insurance losses from terrorism acts is set to expire at the end of this year — sending shock waves through the insurance industry which overwhelmingly expected the US Congress to extend it.

The attempt to reauthorise the Terrorism Risk Insurance Act (TRIA) for six years failed after US Senator Tom Coburn, an Oklahoma Republican who is retiring, held up the legislation on Tuesday night.

Bradley Kading, president of the Association of Bermuda Insurers and Reinsurers (ABIR) said last night that the expiration would “create a somewhat painful real world test of market appetite”.

TRIA promises to reimburse insurers after industry-wide terrorism losses topped $100 million — the US House of Representatives had passed a measure for the threshold to be raised to $200 million — and makes it mandatory for insurers to offer terrorism insurance.

The law was enacted in 2002, the year after the 9/11 terrorist attacks on New York and Washington caused about $25 billion in insured losses and insurers had pulled out of terrorism coverage, given the scale of potential liabilities.

The Property Casualty Insurers Association said yesterday it was “unconscionable” that the Senate would adjourn for the holidays without extending TRIA.

“PCI is profoundly disappointed by the dysfunction in Washington and we urge the next Congress to address a long-term reauthorisation” immediately when they convene in January, David Sampson, the group's president said in a statement.

Robert Hartwig, president of the Insurance Information Institute, said yesterday: “Terrorism insurance policies are going to lapse in 2015, and insurers will be under no obligation to renew them, adversely impacting the construction, energy and real estate industries, among others.”

He added that TRIA had been an “unambiguous success”. “The programme has cost US taxpayers virtually nothing yet has provided tangible benefits to the US economy in the form of economic growth and job creation while ensuring terrorism insurance market stability, affordability and availability,” Dr Hartwig said.

ABIR has often stressed the ability of the Bermuda reinsurers to shoulder more of the risks currently shouldered by the public sector.

Last night Mr Kading said ABIR members ABIR members saw value in a modified TRIA framework, around which private insurance and reinsurance coverage could be sold.

“There is interest by a number of ABIR members in writing additional reinsurance for US terrorism, so raising the per event trigger and increasing the pro rata share held by cedants, are consistent with growth in market appetite for the risk,” Mr Kading said.

He added that brokers had testified that without TRIA there was insufficient capacity, especially in “high risk” cities and for nuclear, chemical, biological and radiological losses.

“The expiration of TRIA was unexpected, it creates a somewhat painful real world test of market appetite and it may create some short-term gap filling coverage options for reinsurers,” he added.

“The uncertainty around the programme's existence is a big problem for many insurers and policyholders. The new Congress should wrestle the issues to the ground and come up with a modified programme that reflects both the consumer need for coverage and market appetite for risk that can be enacted early in 2015.”

James Dover, a terrorism expert and senior vice-president with Bermuda-based insurer Ironshore, said the company had been surprised by the non-renewal of TRIA.

“We offer a private-market terrorism solution and we will continue to offer it,” Mr Dover said. “This is not going to impact us.”

Assessing the probability of a terrorist attack was “nigh on impossible”, he said, but Ironshore kept close control on its aggregates — that is the limit on covered losses.

Ironshore offers $300 million in limits on terrorism coverage, he added.

The TRIA expiration presents a challenge for brokers whose clients will find it more difficult to get terrorism coverage — starting with the busy January 1 renewal period.

A spokesman for Marsh & McLenann Companies, which owns insurance broker Marsh and reinsurance broker Guy Carpenter, said last night: “We are working closely with our clients to assess this fluid situation and identify constructive solutions for their businesses.

“At the same time, we continue to directly engage with Washington policymakers and industry trade associations to stress the importance of quickly addressing TRIPRA's [Terrorism Risk Insurance Program Reauthorisation Act] reauthorisation in the new Congressional session.”

Adjourned: Efforts to reauthorise TRIA fell apart in the US Congress

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Published December 18, 2014 at 8:00 am (Updated December 17, 2014 at 10:09 pm)

TRIA expiry to give terrorism insurance market ‘painful test’

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