AM Best hopes for green light for TRIA reauthorisation

The fact that the Terrorism Risk Insurance Act (TRIA) needs to be renewed in an election year adds a potential complication to Congress’s reauthorising the terrorism insurance backstop, according to analysts at AM Best.

TRIA provides a financial backstop to property/casualty insurers for commercial businesses in need of terrorism insurance. It is due to expire at the end of 2020.

Dan Ryan, vice president at AM Best, told APCIA Today that on one of the previous times that TRIA was renewed there had been a gap between when it lapsed and when it was then renewed but that subsequent renewals had not seen this repeated and that the US government had instead renewed before it expired.

“Having an extension in an election year does add a wrinkle to it,” said John Andre, managing director at AM Best.

“It shouldn’t be a political hot potato, because it goes across party and political position, but things can get blown out of proportion in an election year.”

AM Best has been pondering potential challenges the delay in renewing TRIA could cause for some time. For example, it has identified 30 insurers with substantial terrorism exposures and a heavy reliance on TRIA something the rating agency has described as a significant concern.

Earlier this year, AM Best announced a review of the terrorism risk mitigation plans of rated insurers with material terrorism exposure that were reliant on the Terrorism Risk Insurance Program Reauthorization Act (TRIPRA). It requested detailed mitigation plans from each of these insurers in order to determine what steps were going to be taken in the event TRIPRA is not renewed.

“Back in May we informed everybody that we were going to be talking to management to try to get behind their strategic plans in the event that TRIA was not renewed,” said Ryan.
“We began that process shortly thereafter from June through to September, with the analytical teams reaching out to all the companies contacted, to get detailed mitigation plans around TRIA on those exposures where they were outsized relative to surplus.”

Whether the programme is extended beyond 2020 and, if so, under what terms, remains in question. Given the nature of the programme and its lack of permanency, AM Best said it felt it imperative to re-engage with its rated insurers before the programme expires.

In terms of the more than 30 insurers with substantial terrorism exposures and a heavy reliance on TRIPRA, AM Best asked some to revise and remodel the loss data using more refined exposure information.