Close eye on TRIPRA

Businesses looking to acquire terrorism insurance may be corralled towards the standalone market as the 2020 expiration date of the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) looms closer, says Marsh. TRIPRA is currently the world’s largest public/private terrorism risk-sharing mechanism, with roughly $100bn in capacity, but if it is not renewed in two years’ time, the private terrorism insurance market in the US would undergo some drastic changes inclduing reduced coverage and a spike in premiums. Even if TRIPRA is re-authorised without any issues, knowledgeable cedants purchasing terrorism coverage may be mindful of the implications of a failure to renew the programme if they are purchasing coverage that extends beyond the December 31, 2020 deadline. “Clients preference for certainty and access to capacity before there is a surge in demand that may result from a TRIPRA lapse could lead them to the standalone terrorism marketplace,” Tarique Nageer, terrorism placement advisory and leader, property practice told Reactions. Since typical property coverages that include terrorism cover usually rely on TRIPRA as a backstop, stand-alone policies may end up being more attractive. According to Marsh’s Terrorism Risk Insurance report, “the take-up rate for TRIPRA coverage embedded in US property policies has generally remained close to 60% for the last several years”. The programme’s existence was one of the driving factors behind a stable terrorism insurance marketplace in the US, despite no event having qualified as an act of terrorism as strictly defined by the programme’s administrators. TRIPRA has lapsed in the past, when it was authorised as the Terrorism Risk Insurance Act, (TRIA) prior to being renewed in its current guise. “The risk of a lapse remains a concern for both providers and purchasers of terrorism insurance. As policies extend beyond 2020, insurers will certainly need to consider the possibility of a lapse / non-renewal of the TRIPRA legislation and what impact such a scenario would have on their balance sheet protections and financial ratings,” Nageer said. The programme lapsed on December 31, 2014, although it was reauthorised a few days later on January 12, 2015, meaning that any noticeable impact on the insurance market or economy as a whole was avoided. According to Marsh, if TRIPRA had not passed, “the market dynamics for terrorism insurance would have been disrupted, with many predicting increased pricing and reductions in available capacity". The Congressional Budget Office warned that if TRIPRA were not renewed, then “insurers would probably make more use of private reinsurance and perhaps capital-market approaches to reducing risk”. “However, the supply of private reinsurance and risk-bearing capital will probably not expand enough to fully offset the loss of federal reinsurance, in part because of the challenges in pricing the risk that was previously borne by the government.” Following the initial lapse of TRIA, the reinsurance markets did see a boost in terrorism insurance related business as a number of insurers spooked by the failure to renew the programme decided to re-examine their exposed probable maximum losses and seek additional reinsurance coverage. This short-term lapse, as well as difficulties in renewing other federal backstop programmes such as the National Flood Insurance Program, are proof that re-authorisation of these federal backstops is not always a sure bet. In the case of a long-term lapse, Nageer expects that insureds would turn to the standalone market as all-risk property insurers that cover terrorist attacks often... CLICK HEADLINE TO READ MORE

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