18 March 2014News

TRIPRA renewal spells opportunity for reinsurers

Despite indications that TRIPRA will be renewed, a recent report by S&P has raised suggestions that it may yet expire and that US insurers should at the very least expect it to change form at the next renewal.

S&P said that re/insurers should anticipate the scope of TRIPRA changing potentially significantly, with “higher deductibles, greater co-insurance requirements, lower total coverage limits, greater recoupment and more coverage exclusions” under a new TRIPRA arrangement.

Such changes will present considerable opportunities for reinsurers, who will be able to increase capacity as demand for terrorism reinsurance coverage increases and pricing hardens; but will also present significant challenges for US terrorism insurers.

S&P said that TRIPRA had played an important role in stabilising the terrorism insurance market since 2002, but argued that changes to the programme may result in some smaller insurers over-exposing themselves to terrorism risk.

Potential changes to existing deductibles and the raising of the existing $100 million event trigger threatens to wipe out the capital base of some smaller players that currently draw upon the TRIPRA backstop, the report found.

Larger players would not escape potential exposure, but would likely be better able to survive the potential shock of a sizable terrorist attack. S&P suggests that those with stronger ERM programmes and sizable capital bases will be best equipped to write terrorism risk under any new TRIPRA agreement.

The report said that while private insurance and reinsurance capacity was unlikely to take on risks such as nuclear, biological, chemical and radiological attack, it is likely that greater levels of traditional terrorism risk, cyber terrorism and business interruption risk will make its way into the private market.

Such changes will present opportunities for well-capitalised and specialist insurers and reinsurers, with Bermuda likely to be able to benefit from reduced federal involvement in the provision of terrorism coverage in the US.