Swiss Re, Lloyd's Weigh In On TRIA Expiration, Scale Back

NU Online News Service, Aug. 26, 2:55 p.m. EDT

WASHINGTON–Swiss Re and Lloyd's are warning the Treasury Department that the current federal terrorism risk insurance program is underpinning the market, and ending the program would likely substantially limit private market capacity for terrorism risk coverage.

Lloyd's officials said in a letter to the President's Working Group (PWG) on Financial Markets, "In the long term, it is unlikely that the stand-alone terrorism market will have the capacity, or risk appetite, to step in should TRIA [the Terrorism Risk Insurance Act] be allowed to expire in 2014."

And, Swiss Re officials said in a separate letter that because the current program, enacted in 2007, mandated that insurers make coverage available, combined with a softening market, the cost of terrorism risk insurance has declined in recent years.

Another factor was the provision in the 2007 law with mandates that include coverages for domestic and foreign acts of terrorism, Swiss Re said.

"In the event of the program's expiration a number of underwriters in the property market have indicated that terrorism risk would be excluded completely," the Swiss Re letter said.

Swiss Re officials added, "Terrorism risk continues to be extremely hard to quantify, making the federal government backstop an absolute necessity to a healthy functioning market."

The letter adds that the uncertainty of defined scenarios and the high uncertainty of frequency assumptions are not expected to change significantly in the near future.

The current federal backstop, the letter states, "allows insurers to partially cap and quantify the risk and, therefore, better manage the exposure."

Lloyd's officials said, "We believe that some appetite may evolve to offer a limited 'writeback' in some cases, but such coverage would be more limited than provided now and would continue to exclude chemical, nuclear, biological and radiation coverage."

The letters to Treasury were sent by request for views on its proposal to reduce the potential exposure of the government to a terrorist event.

Treasury also asked for views on what would happen if the program were allowed to expire when the current authorizing legislation ends in 2014.

The comment period ended Aug. 2 with 49 entities responding, mostly insurers and their trade groups.