Insurance groups already are mapping their strategies for 2007, the year in which the Terrorism Risk Insurance Act again is set to expire. The act, which provides protection for insurance companies against extreme losses but has been deemed a temporary solution, was first approved in 2002 and received a last-minute extension at the end of 2005 from Congress before it expired.

In the meantime, though, how will the revised TRIA affect the insurance industry in the next two years? Risk Management Solutions determined that the newly passed act would shift the relative share of the risk from the government to the insurance industry.

Based on the new TRIA terms, over 90 percent of the RMS modeled average annual loss would be retained by the industry. If a terrorist attack occurred, there also is less than a 10 percent chance that it would cause the industry deductible to be reached, since only the most extreme, low-probability attacks will cause losses in excess of $30 billion. For example, the 2001 World Trade Center attacks resulted in approximately $32.5 billion of insured losses. If an event of this magnitude occurred today, it would produce only a minimal TRIA recovery for the insurance industry.

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