S&P: Without Terrorism Coverage, Big Changes Loom

February 3, 2005

Congress has yet to renew the government program that reinsures losses in the insurance industry from foreign terrorist attacks, and the possibility that this program might expire at the end of 2005 is already prompting changes in some sectors of the industry, according to a new Standard & Poor’s report, “The End Of Terrorism
Insurance Could Bring Big Changes in the U.S.”

Companies writing workers’ compensation policies could prove especially vulnerable if the Terrorism Risk Insurance Act (TRIA) is not renewed because they must cover on-the-job injuries, whether or not reinsurance is available.

“These insurance writers could have a big problem,” said Thomas Upton, a director in the S&P’s insurance group. If reinsurance becomes unavailable, these insurers will likely develop new risk models for this coverage.

Some landlords are also at risk without TRIA. With no government
reinsurance, property/casualty insurers could well drop terrorism coverage, depressing property valuations for some. “Insurers believe that there will be a huge transfer of risk away from government,” said Kim Diamond, S&P’s managing director in real estate finance.

With so much at risk, an alliance real estate, insurance and other
interests are making a two-year extension of TRIA, a high priority.

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