The Terrorism Risk Insurance Act (TRIA), the legislation brought in by the US government after the 9/11 attacks, either needs to be extended past the new 2007 deadline or replaced with long-term federal solution, according to a recent report by Fitch.
Today marks the 5th anniversary of the terrorist attacks in America which changed both the face of terrorism risk and the world as a whole. Although not the largest single insured loss event (a dubious honour awarded to Hurricane Katrina), 9/11 prompted an revolution in world politics and has propelled terrorism cover to the forefront of reinsurers debate.
TRIA allows the US government to act as an insurer backstop at the moment, removing the difficulty of getting a primary insurer to write cover on their own balance sheet.
Initially seen as a temporary measure to help prop up a reeling industry, TRIA has been extended from its original deadline of 31 December 2005 to 31 December 2007. However questions are already being asked about the readiness, and indeed willingness, of the industry to ‘go it alone' again.
Fitch noted in its report that if TRIA is not renewed there will be an inevitable rise in demand for terrorism cover in US. However, it noted that even though there will be a greater amount of business to write, it will be extremely volatile.
Fitch said this is because reinsurers do not have the same technical capacity to model terrorism risk as they do for natural catastrophes. The inherent unpredictability of terrorism makes prediction and modelling very difficult, especially when compared to the relative wealth of knowledge and expertise built up around hurricanes.
Chris Waterman, senior director at Fitch's insurance group, said: “Terrorism is a global phenomenon and here to stay. The potential exposure for reinsurers is extremely high.
He addded: "TRIA is not an ideal solution to terrorism risk and I think the market is looking for a viable, long-term alternative. However it appears that the insurance sector has recapitalised adequately since 9/11 and can now be self-sufficient once more.”
