Insurance rating agency A.M. Best Co. says 34 rating unitsfailed a stress test to assess capitalization sans the federalterrorism backstop.

If the Terrorism Risk Insurance Program Reauthorization Act isnot reauthorized, the agency has determined about 4 percent of anoverall total of 889 rating units are too reliant on TRIPRA, and"materially exposed to terrorism risk," says Michael Russo, senior analyst and author of abriefing.

Narrowing the rating units down to the 226 that disclosed amaterial terrorism exposure, about 15 percent failed the stresstest.

Those most affected by the test, nearly 60 percent, provideworkers' compensation coverage. Another 32 percent are concentratedin commercial casualty.

Without any indication regarding the act's renewal, A.M. Best istaking some proactive measures to determine exposures, beginningwith assumptions based on an attack similar to a 5- or 6-ton truckbomb.

(Details of the stress test can be found here.)

A.M. Best says it is concerned policies written at the beginningof the year could be exposed to terrorism risk by the end of 2014,when TRIPRA is set to expire.

If that occurs, what will happen is a "big unknown," saysRusso.

"We're not sure what the appetite will be for insurers, or evenreinsurers, to provide terrorism coverage anymore," adds Russo.

A.M. Best says it is having talks with the rating units—a singlecompany or several affiliated companies with common ratingassignments. The agency is requiring action plans, detailing whatthese units will do to reduce terrorism exposure by early Decembershould TRIPRA either sunset or be changed.

If this occurs, those who failed the stress test will be broughtbefore an A.M. Best rating commission and if analysts deem anaction plan insufficient, "The rating unit will face negativerating pressure, most likely in the form of assigning a negativeoutlook," according to the briefing.

Rating actions could occur in early December.