The US federal government’s Terrorism Risk Insurance Program was created under the Terrorism Risk Insurance Act of 2002 (TRIA 2002), which was passed following the September 11, 2001 terrorist attacks to establish a system of sharing of losses from terrorist attacks between the private insurance industry and the US federal government.
The program was renewed until December 31, 2007 by the Terrorism Risk Insurance Extension Act of 2005 (TRIEA) and was further renewed until December 31, 2014 by the Terrorism Risk Insurance Program Reauthorization Act of 2007. It expired on December 31, 2014 when the prior US Congress failed to authorize the program’s renewal. However, the new Congress has reauthorized the renewal of US TRIP until December 31, 2020 under the Terrorism Risk Insurance Program Reauthorization Act of 2015 (TRIPRA 2015).
Under the program, commercial property insurers are required to offer insurance coverage for losses from terrorist attacks for particular lines of business. The US federal government, however, provides a $100 billion reinsurance backstop for terrorist losses meeting the criteria set forth in TRIA, including certification by the US Secretary of the Treasury that the losses arise out of an act of terrorism. For certified terrorist acts, the US federal government agrees to cover a certain percentage of losses—under TRIPRA 2015, this percentage for the US federal government’s share will decrease from the current 85% level by 1% every year until it reaches 80%. However, the US federal government’s coverage is only available after the aggregate insurance industry losses exceed a certain level—under TRIPRA 2015, the program trigger will increase from the current $100 million level by $20 million each year until it reaches $200 million—and the coverage is subject to a deductible of 20% of an insurer’s annual direct earned premiums on specified commercial property and casualty lines of business. Finally, the US federal government’s coverage is subject to an insurance marketplace aggregate retention amount, which is the lesser of $27.5 billion (which is to increase by $2 billion per calendar year until it is equal to $37.5 billion) and the aggregate amount of insured losses for all insurers during the relevant calendar year.
When TRIA expired at the end of 2014, there were serious concerns that many insurers would not offer terrorism coverage or that, if offered, such coverage would have been very expensive. Both the insurance industry and buyers of commercial insurance coverage strongly favored TRIA’s renewal. Therefore, TRIA’s renewal at this time is considered to be a very favorable development.