A.M. Best advises insurers to avoid over-dependence on U.S. terrorism insurance program

Rating agency A.M. Best is advising insurers to make sure they aren’t over-reliant on whether the United States’ Terrorism Risk Insurance Program is reauthorized, as its future is still up in the air.

“A.M. Best continues to request that insurers, especially those heavily reliant on TRIPRA, present detailed plans to be implemented in the event the act is not renewed or its protection is materially reduced,” the company said in a briefing this week.

The firm said that this year, 226 property and casualty rating units, out of a total of 889, have terrorism loss estimates  based on a stress test scenario of a terror attack involving conventional weapons. The scenario would be similar to a five or six-ton TNT truck bomb, assuming highest occupancy at the nearby buildings.

Of the rating units (which include either a single operating company each or several member companies that have common rating assignments), 3.8% of the total failed the stress test and A.M. Best determined them to be over-reliant on TRIA.

Most of the modeled losses related to commercial casualty composite members were workers compensation exposures, rather than property exposures, the research briefing said.

“Due to the potential for high severity, as well as the unconventional means in which a terrorist attack may be carried out, modeled results could vary substantially from actual losses,” it also noted.