Reinsurance News

Heightened reinsurance use amid potential TRIPRA expiration: A.M. Best

18th October 2019 - Author: Luke Gallin

In the event that the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA) is not renewed at the end of next year, insurers continue to take appropriate risk management measures, including the increased purchase of reinsurance protection, according to A.M. Best.

TerrorSigned by President Obama in January 2015, TRIPRA extended the expiration date of the US Treasury’s terrorism risk insurance program to the 31st of December, 2020. The program was introduced by President Bush in 2002 following the attacks on September 11th, and is designed to provide a backstop for specific insured losses caused by acts of terror.

With TRIPRA set to expire and uncertainty surrounding its renewal and under what terms it might be renewed, global financial services ratings agency A.M. Best has conducted a review of the terrorism risk mitigation plans of rated insurance companies with material terror exposure and that rely on TRIPRA.

Through its analysis, A.M. Best has found that no rating actions are required at this time on any of those firms, adding that while the benefits of the program are less today than they were in 2002, an extension of the program is desirable for numerous companies that rely on the financial backstop it provides.

Ultimately, the ratings agency found that appropriate mitigation initiatives were in place in each instance, which, once executed, would serve to either reduce or eliminate the substantial loss exposure identified if TRIPRA is not renewed.

“In addition, all of the companies were found to be acting in line with appropriate risk management practices, removing the need to place any of these companies under review,” says A.M. Best.

The ratings agency continues to explain that of all the companies it reviewed, one of the most common mitigation initiatives in place was the purchase of additional reinsurance protection. Currently, reinsurance for terrorism risk is available and affordable, which, coupled with the potential expiration of TRIPRA in the near future appears to have driven an increase in demand for reinsurance protection.

As well as utilising more reinsurance protection, insurers are also using non-renewal notifications on the largest exposed risks to offset the over-concentration at any one location, and also the use of a terrorism exclusion endorsement contingent on the expiration of TRIPRA, although this only applies to property.

A.M. Best adds that while no rating actions were taken as part of its review, the expiration of TRIPRA “remains a significant concern.”

Recently, the President and Chief Executive Officer (CEO) of Marsh, John Doyle, warned that a failure to renew TRIPRA could cause a “domino effect” of price increases across multiple re/insurance lines.

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