NU Online News Service, Aug. 9, 1:32 p.m.EDT

Coming up on the 10th anniversary of 9/11, terrorism insuranceremains stable, but availability and affordability could beaffected should there be a catastrophic event that reducescapacity, according to a report from Guy Carpenter.

The reinsurance broker, a subsidiary or Marsh & McLennanCompanies, today released its 18-page report, “Terrorism: Terror Market Continues To ProvideAbundant Cover,” saying available capacity “remainsabundant.”

Capacity in the United States is estimated to stand somewherebetween $6 billion and $8 billion, Guy Carpenter says. However, thereport notes that a portion of the capacity remains availablethrough the Terrorism Risk Insurance Act of 2002 (TRIA), providinga government backstop to acts of terrorism.

On a global basis, there is $9 billion of capacity, with anadditional $2 billion of excess capacity authorized but notassigned.

Despite the capacity, the report continues, reinsurance pricinghas begun to flatten out after years of downward movement.

David Flandro, global head of business intelligence says in astatement, “Since the catastrophic events of Sept. 11, 2001,global terrorism has had a profound impact on the (re)insurancemarket. Although the nature of the threat is very different todayfrom what it was 10 years ago, terrorism remains a constant andserious threat. It is forever evolving as terrorist groups andindividuals adapt their tactics to counter-terrorism measures andglobal events.”

The report notes that while acts of global terrorism peaked in2006, at more than 14,400, acts of terrorism “still remain athistorically high levels at more than 10,000 in 2010 alone.

Due to its unpredictable nature insurers and reinsurers struggleto quantify the risk.

“The human element means the nature of the threat is foreverchanging as groups relocate and adapt their tactics in response tocounter-terrorism measures,” says the report.

The cost of terrorism insurance is “predominantly driven by thesupply/demand equation” rather than sophisticated underwritingunlike natural perils. While that may lead some to assume pricingwould decline, the capacity is affected by other capacity events.The reason is that reinsurers pool the capital in a pool forlow-frequency, high severity catastrophe claims.

The catastrophe events of 2010 and 2011 have depleted some ofthat reinsurance capital. Depending on events on during thisAtlantic hurricane season, reinsures could see capacity reducedeven further.

Capacity has not changed over the past five years, the reportgoes on to say, and is “not expected to change in 2012, barringmajor events or very strong currency movements,” the reportsays.

However, supply of terrorism insurance could be affected in thenear-term by the potential “for further knock-on effects fromadditional major global natural-peril catastrophe losses.”

As for TRIA, talk of cuts to the program has given way to “morepressing financial matters” and it is not expected to become anissue until its expiration in 2014.