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LMA warns of “continued uncertainty” for US terrorism act renewal

2nd December 2019 - Author: Matt Sheehan

The Lloyd’s Market Association (LMA) has published a letter to its members warning of “continued uncertainty” around the US Terrorism Risk Insurance Act (TRIA), which is currently set to expire in December 2020.

TerrorThe LMA said it was confident that the renewal will be achieved in good time in advance of the expiry date, with a reauthorisation bill now set to go before the Senate.

However, the timetable for the reauthorisation “remains unclear” due to the Senate’s busy calendar, the letter noted, and there is further uncertainty in regard to eventual form of the Act.

“As we are currently unable to remove the uncertainty in advance of 01 January 2020 renewals, we are not yet able to draft new model clauses for inclusion in contracts which will expire after 31 December 2020,” the LMA said.

Instead, the Association has issued interim wordings guidance for insurance contracts that provide cover beyond the TRIA expiry date.

For example, if a contract contains a terrorism exclusion clause and a TRIA notice has been issued at renewal, then from 31 December 2020 the terrorism exclusion would again become active in the event TRIA is not renewed.

Conversely, if the contract does not contain a terrorism exclusion and a TRIA notice has been issued, coverage will be unchanged whether TRIA is renewed or not.

In both cases, the LMA recommends that managing agents should consider if the default positions are appropriate in the event TRIA is not renewed and consider whether to include provisions to either offer terrorism cover, or apply exclusions, which would become active after 31 December 2020.

The Association does not believe that many reinsurance contracts have or will contain clear exclusions or coverage definitions.

However, it still suggested that managing agents should review any exclusions or definitions of reinsurance coverage which rely on determination or definition under TRIA as these may no longer be effective in the event TRIA is not renewed, or their meaning may change if TRIA is renewed with any changes to loss triggers, deductibles or the coinsurance percentage.

Lloyd’s America Inc. has been actively involved in discussions on the future of TRIA with lawmakers and other stakeholders, and the LMA has continued to work with Lloyd’s in support of its lobbying efforts for the continuation of TRIA.

TRIA was signed into law in 2002 as a way to create a federal backstop for insurance claims related to acts of terror.

It was enacted in response to the September 11, 2001 attacks, which changed the landscape for terrorism risk insurance and forced many insurers to pull out of the market.

A lack of insurance is thought to have contributed to a stagnation in the US economy at this time, particularly in the construction, travel and tourism, and real estate finance sectors.

The program was originally set to expire on December 31, 2005, but was extended to 2007, and then again to 2014. The act expired on December 31, 2014, but was later renewed at the start of the next congress.

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