Standard & Poor's said it is retaining its stable outlook for the insurance industry, saying renewal of the Terrorism Risk Insurance Act (TRIA) ensures underwriters have a true backstop in place for any catastrophic loss that threatens its solvency.
The New York-based rating agency had said Dec. 8 it was prepared to revise the industry's rating down to negative if Congress did not pass an extension. The president signed the two-year extension Dec. 22.
S&P said a terror attack–especially one involving nuclear, biological, chemical or radiological (NBCR) devices–resulting in a significant loss of $200 billion could threaten the solvency of some insurers and "significantly" reduce capital for the commercial lines.
If TRIA was not renewed, S&P continued in a report, insurers would have sought solvency protection through restriction of its aggregate full limits "exposure in metropolitan areas across all affected lines to a level that could safely absorb any losses."
Such cut-backs in capacity would have led to "severe market disruption" because the action would have proven to be a dramatic "scale back" affecting major metropolitan areas, according to S&P.
Congress has increased the industrywide loss levels before TRIA support is triggered as well as raising the industry retention and insurer's deductible over the next two years of the extension.
S&P said that because the exposure is increased for insurers it will be reevaluating their exposures. However, the reevaluation does not necessarily mean a lowering of ratings. The issue will be addressed on a case by case basis, depending on a set of considerations S&P outlined in its report.
S&P said it would be sending out a questionnaire to the companies it rates requesting data on terrorism exposure, geographic location details and premiums related to the exposure.
The rating agency will also examine business lines, including property, workers' compensation, disability, aviation and marine.
No ratings actions will be taken before the second quarter of 2006, S&P said.
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