Terrorism Reinsurance Insurance Act: 18 Months Left
The future of TRIA
The US Terrorism Reinsurance Insurance Act, TRIA, contributes hugely to the terrorism book of business in Lloyd’s of London and the London market more generally. With the US setting aside billions of dollars to back the Act it also helps to generate premiums so that the London Market can do its part in helping to protect clients in the US market. Neither market has the capacity to take on any losses alone.
With less than 18 months left until the current Act expires, many concerns and questions arise. Will there be another extension to the Act or will it cease to exist? What decisions will the US Congress make moving forward and will the lack of coverage force business to other areas and thus be lost in the UK market completely?
History of TRIA
The terrorist attack of 11th September 2001 on the ‘Twin Towers’ in New York created a ripple effect of market shortage for terrorism insurance as commercial property insurers moved to exclude terrorism coverage from all risk policies.
Cover, if available, was priced at significant multiples of historic levels. In addressing this, the US Congress passed legislation named the Terrorism Risk Insurance Act of 2002 (TRIA), which created a federal ‘backstop’ for insurance losses associated with terrorist events in the US as defined by TRIA.
The Act became law on 26th November 2002 and has since been extended and reauthorized on three occasions: firstly in December 2005 as the Terrorism Risk Insurance Extension Act of 2005 (TRIEA), secondly in December 2007 as the Terrorism Risk Insurance Program Reauthorization Act of 2007 (TRIPRA) and most recently in January 2015 as the Terrorism Risk Insurance Program Reauthorization Act of 2015.
Renewal of the Act
The last renewal, scheduled for 31st December 2014, was marked by a decision to postpone approval for a further extension or a new Act which left the insurance market in disarray. This delay created a lack of confidence in the cover for both client and insurers. Finally, in January 2015, the decision was taken to reauthorize the Act for a further 5 years.
The changes made to the program post 2015 were a compromise based on the US political system. With both Democratic and Republican parties involved in the reauthorization it was evident that a certain amount of lobbying had occurred. It is clear to say that many US domiciled clients and much of the London market were always in favour of TRIA coverage.
What’s next?
The likelihood of a further reauthorization taking place in 2020 could influence underwriters’ ideas as to what would be an appropriate program in the future. Significantly, at the beginning of 2016, the US Treasury required the collection of insurer data on TRIA coverages consisting of premiums, geographic locations of exposure, take-up rates and the amount of terrorism reinsurance purchased. It has been argued that TRIA will continue to impact the insurance industry for the foreseeable future.
Tom Simpson, Markel Terrorism Underwriter. Visit the site here.
