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Guy Carpenter has released its latest report on the terrorism market, highlighting a number of evolving global terrorism risks and the impact these risks have on the reinsurance market.
The report also emphasizes 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 throughout the country.
“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,” says Aaron Bueler, managing director and leader of Guy Carpenter's Workers Compensation Practice and Terrorism Task Force. He continues, “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 concludes 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 volatile landscape in Middle Eastern countries, Syria and Iraq in particular, as well as North African countries, will have important consequences on the future of the international terrorist threat. The instability in the region has created opportunities for militants to launch attacks and target Western interests. The spillover of violence is believed to be a clear risk in 2014 and beyond.
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 regionalized terrorism and political violence activity has impacted certain facultative programs 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 US market, however, continues to be challenged by the uncertainty over the potential expiration of TRIPRA on December 31st, 2014. Either substantial modification or non-renewal of TRIPRA has the potential to impact terrorism coverage in the US. The House of Representatives and Senate are currently considering various changes to TRIPRA, yet uncertainty remains over the final terms and duration of reauthorization.
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.
“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,” says Bueler. “The planning process for the January 1st, 2015 (re)insurance season will start soon and the certainty of a TRIPRA renewal will be a key factor.”
Guy Carpenter, TRIPRA, terrorism risk, reinsurance, Aaron Bueler