Standard & Poor’s Ratings Services said it continues to view terrorism risk as a critical component in its assessment of an insurer’s financial strength, more than 10 years after the events of Sept. 11, 2001.
In a report titled, “Ten Years Later, Terrorism Exposure Remains An Issue For U.S. Insurance Companies,” the ratings agency said that the industry as a whole has less exposure to isolated terrorist attacks because it believes that most such acts are likely to occur in particular places, such as New York City and Washington D.C.
S&P said that given the high-severity and low-frequency of terrorist acts, it believes a man-made catastrophe would be a capital event rather than an earnings event, meaning it would expect an affected company to lose more than one year’s earnings due to a sizable terrorism event.
“We believe that another terrorist attack on American soil (short of a nuclear attack) would affect only a few insurers very significantly,” said Standard & Poor’s credit analyst Tracy Dolin.
Although an infrequent, high-severity event poses the risk of negative rating actions to a few outliers, given the current levels of capitalization, S&P said it believes the industry will remain largely solvent. S&P said that while another event may increase pricing in high-risk geographic territories and affected lines of business, it does not believe there would be any widespread hardening of rates across business lines.
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