Moodys Surveys Insurers On TRIA; Ranks ExposureThe Terrorism Risk Insurance Act of 2002 has resulted in lowerterrorism premiums, but many buyers still consider the price toohigh to buy it, according to a survey of U.S. commercial linesinsurers by Moody's Investors Service.

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Jim Bartie, vice president for Moodys in New York, said surveyparticipants included the major U.S. commercial lines writers,writing over 50 percent of commercial premiums.

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In a special report released late last month, the rating agencyalso ranked insurers to determine their degree of exposure to a $25billion terrorist event as a percentage of their 2001policyholders' surplus. To do this, Moodys assumed that losses fromsuch an event borne by individual insurers would be proportional totheir commercial lines market shares.

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Based on this analysis, Moodys said the insurers having the mostat risk are Zurich Insurance, Lumbermens Mutual Casualty Cos., ACEAmerican Insurance Co., Royal & SunAlliance USA and Fireman'sFund Insurance Group.

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Regarding prices charged for terrorism coverage, the surveyfound post-TRIA premiums, especially for high-risk locations, areconsiderably lower than the “dislocation in prices” that occurredafter 9/11. However, TRIA has not yet encouraged insurers tobroadly offer terrorism coverage at prices most insurance buyersview as reasonable, Moodys said.

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The survey also noted that reinsurance coverage for terrorism isbeing quoted, but often at “very high rates” approaching 33 percentof the coverage limits. TRIA does not protect reinsurers, thesurvey pointed out.

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On a positive note, the survey found that, for small and middlemarket accounts, many of the insurers are offering terrorismcoverage for free or for a relatively modest 1 to 5 percent of thenon-terror premium. Some insurers, the survey discovered, areforgoing premiums not out of largesse, but because their systemscannot cope with the administrative burdens involved in chargingfor the coverage.

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“There are small and regional insurers that did not want theexpense of sending the necessary notices and issuing the paperworkconnected to pricing,” said Mr. Bartie.

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Moody's anticipates that terrorism risk willeventually be underwritten using all of the tools now used tounderwrite natural catastrophe risks, including individual riskselection and pricing, coverage restrictions, aggregate exposuremanagement, and modeling.

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Regarding insurers' failure to so far embrace modeling as a wayof pricing terrorism coverage, Moody's pointed to insurerskepticism of the models' data quality and their ability “toascribe probabilities to future events that only 18 months ago wereunimaginable.”

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Also, the survey states that terrorist events differ from othertypes of catastrophes in that natural catastrophes “do notconsciously seek to maximize financial damage and human harm, incontrast to the objectives of terrorists.”

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As respects workers' compensation, the survey revealed thatinsurers have for the most part adopted pricing guidance issued bythe Boca Raton, Fla.-based National Council on CompensationInsurance and state workers' comp bureaus. The survey noted that,because workers' comp insureds cannot decline terror coverage,insurers can win or lose accounts based on how they price theterrorism component.


Reproduced from National Underwriter Edition, June 9, 2003.Copyright 2003 by The National Underwriter Company in the serialpublication. All rights reserved. Copyright in this article as anindependent work may be held by the author.


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