TRIPRA changes will mean downgrades
Insurers could face rating downgrades with the renewal of the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA), according to a report by rating agency Standard & Poor’s (S&P).
“Rating actions may be taken on commercial-lines insurers that appear less prepared and insurers with sizable concentrations in urban locations,” said the report. “Insurers with smaller capital bases could be hurt if deductibles and the industry event trigger is raised as the capital base may be wiped out before terrorism relief from the federal programme kicks in.
“Negative rating actions would be most likely where the losses exceed a company's net income for the year and erode a sizable portion of capital, sufficient to revise our forward-looking view of a company's capital adequacy. We could also make negative adjustments if it becomes evident that a particular insurer has outsize terrorism exposure relative to peers,” said the report.
Changes to the Act, which currently has a $100 million event trigger, could lead to insurers facing higher deductibles, greater coinsurance requirements, lower total coverage limits, greater recoupment, and more coverage exclusions.
“If Congress votes not to extend TRIPRA, we believe that terrorism insurance as a product or coverage will not be maintained as broadly as it is now,” said the report.
While S&P is “cautiously optimistic” that TRIPRA will be renewed before it expires at the end of 2014, it says that there is the possibility that reauthorisation will not take place until early 2015.
