Reinsurance broker Guy Carpenter has described the existence of a government-backed terrorism insurance scheme as vital to ensuring the availability and affordability of terrorism re/insurance capacity in the US.
In its latest report on global terrorism, which highlights evolving global terrorism risks and the impact these risks have on the reinsurance market, the broker emphasises the vital role the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) plays in the US ensuring the availability and affordability of terrorism re/insurance capacity.
“Despite a significant increase in the number of global terrorist attacks and fatalities over the past five years, evolving capacity and the absence of a major terrorism loss for reinsurers have resulted in a softening of the terrorism reinsurance market in some countries and regions,” said Aaron Bueler, managing director and leader of Guy Carpenter's workers compensation practice and terrorism task force.
“In the US, the renewal of TRIPRA will play a significant role in determining how much affordable capacity will be available for businesses who buy terrorism insurance coverages.”
A recent study by Guy Carpenter concluded that the re/insurance sector does not have the capital necessary to withstand certain high-loss scenarios that involve nuclear, biological, chemical or radiological weapons.
The report said that despite the recent spike in terrorist-related activity, evolving capacity and the absence of a major terrorism loss for reinsurers have resulted in a softening terrorism reinsurance market in areas with less perceived risk. While regionalised terrorism and political violence activity has impacted certain facultative programmes and affected pricing and capacity at the local level, adequate terrorism capacity continues to be available in the reinsurance treaty marketplace for certain countries and territories.
This reflects the wider reinsurance market’s environment of having adequate capacity and, for some countries, the presence and support of stable terrorism pools that are designed to mitigate the withdrawal of re/insurance capacity following significant terrorism events. Reinsurance buyers that have purchased terror cover in these countries have consequently benefited from rate decreases and improved terms and conditions in some instances, depending on where and what they write.
The report notes that the US market, however, continues to be challenged by the uncertainty over the potential expiration of TRIPRA on December 31, 2014. It states that either substantial modification or non-renewal of TRIPRA has the potential to impact terrorism coverage in the US.
Market reactions to uncertainty over TRIPRA's future were evident during the first five months of 2014 as several workers compensation renewals with sizeable employee concentrations in large US cities changed carriers and, in some cases, moved into the various residual market mechanisms, the report said.
“We are encouraged by the recent legislative activity addressing the expiration of TRIPRA and hope for continued progress and a final bill in the near future,” said Bueler. “The planning process for the January 1, 2015 re/insurance season will start soon and the certainty of a TRIPRA renewal will be a key factor.”
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Guy Carpenter, North America, TRIPRA, Aaron Bueler