A bulletin from A.M. Best indicates that it “does not expect rated insurers to be impacted by the amendments to the UK’s Counter-Terrorism and Security Bill, making it illegal for insurers to reimburse ransom payments made to terrorist organizations.”
The changes to the Terrorism Act 2000 were introduced to Parliament on November 26, making it an explicit offense to reimburse kidnap and ransom payments.
Best’s analysis explained that “as Kidnap & Ransom (K&R) insurance in areas affected by terrorism tends to represent only a small proportion of the overall portfolios of London Market insurers,” it doesn’t “anticipate taking any rating actions on insurers in response to the Home Office’s changes.”
In addition Best pointed out that “K&R insurers are prohibited by the United Nations from paying or reimbursing ransoms to proscribed terrorist organizations and policies typically exclude such payments. Specialist K&R market leader Hiscox has publically stated that it, like the rest of the London Market, has and continues to operate under these parameters. Hiscox said it welcomes the introduction of a new Counter-Terrorism and Security Bill, as it provides clarity.”
K&R coverage is primarily underwritten in Lloyd’s, “with the London Market accounting for approximately half of premiums,” Best explained. “In recent years, this business has proved attractive to specialist underwriters following a spike in rates in the wake of increased kidnapping and demands for ransom by Somalian pirates.
“The new terrorism bill is not expected to be detrimental to the business model of K&R insurers. While insurers generally provide cover for reimbursement of ransom payments under K&R policies, only a small proportion of policies are in regions where terrorist activity occurs. Cover for K&R is predominately in countries where there is a large gap between rich and poor, or where there is political instability.”
As examples Best cited the significant rise in premiums “in response to an increase in piracy in the Gulf of Aden five years ago.” As a result, Best said that in the past few years “the more established K&R participants have increasingly focused on risk management to prevent kidnappings and took measures, for example, by having armed guards on ships.
“While kidnapping is still common in Latin America and is growing in Africa, especially in Nigeria, rates have softened in recent years, given the reduced number of claims.”
Source: A.M. Best
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